To successfully run a firm, you must be able to distribute responsibilities to your staff. It’s also important to have the last word on all projects or choose people you trust enough to grant final approval if your company is larger. There are many different organizational structures to choose from, and each one will help you clarify the duties and responsibilities of the various people and departments within the company.

What Does Organizational Structure Mean?

A company’s organizational structure consists of its policies, procedures, roles, relationships, and duties, all of which work together to decide how the business will operate to achieve its objectives. It also oversees the reporting relationship between middle management, upper management, executives, and the organization’s owners.

Types of Organizational Structure

There are eight organizational structures, each of which is either centralized or decentralized.

1. Hierarchical Structure

This is a centralized organizational structure. The company’s chain of command begins with the board of directors and extends to the chief executive officer through the rest of the organization from top to bottom. A staff director oversees all divisions under this organizational structure and reports to the CEO.

Pro: Higher-quality, more specialized work

Con: Lack of independence  

2. Functional Structure

This is a centralized organizational structure where each department head is the staff director.

Pro: Specialized, self-sufficient teams

Con: Does not encourage cooperation among departments  

3. Divisional Structure

In this centralized organizational structure, each product or service team has full autonomy.

Pro: Departments are more autonomous

Con: More internal competition as opposed to external  

4. Flat Structure

This is a decentralized organizational structure where almost employees have equal power, with executives having slightly more authority.

Pro: Employees are more independent and engaged

Con: Lack of supervision and mentorship  

5. Matrix Organizational Structure

This centralized organizational structure allows workers to move between departments as needed.

Pro: Dynamic employees with diverse skill sets  

Con: Potential for constant changes  

6. Team Structure

This decentralized organizational structure allows supervisors to collaborate with employees from other departments as needed.

Pro: Transparency, growth, and productivity

Con: Confusion and disorganization  

7. Network Structure

This decentralized organizational structure not only streamlines communication between departments inside a single office but also between offices and their respective teams of freelancers, third-party firms to which certain tasks are outsourced, and so on.

Pro: Helps define the organizational structure for multinational corporations

Con: Potentially vague when it comes to decision-making processes  

8. Projectized Structure

This is a decentralized organizational structure where teams are assembled for projects and disassembled upon project completion.

Pro: More flexibility and versatility.

Con: For workers, this could mean increased stress and less prospects for advancement.   

Bottom Line

The most effective organizational structure differs from company to company. Consider the size of your company, the value you place on employee engagement, your tolerance for risk-taking and innovation, and your desire for a flat organizational structure when making your decision.