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10 Types of Organizational Structures of Companies
  •     •   10 min read
PM PM secrets Project Management

10 Types of Organizational Structures of Companies

Orga­ni­za­tion­al struc­ture of the com­pa­ny helps to see the busi­ness set­up ​“from with­in”: how roles and respon­si­bil­i­ties are dis­trib­uted, and even how the main busi­ness process­es occur. The orga­ni­za­tion­al scheme of the busi­ness helps to iden­ti­fy ​“weak spots,” effec­tive­ly plan and reduce costs, and devel­op a pro­duc­tive man­age­ment strategy.

In this arti­cle, we will dis­cuss the most pop­u­lar types of orga­ni­za­tion­al struc­tures of enter­pris­es and under­stand how to build an opti­mal scheme of cor­po­rate struc­ture using detailed examples.

What is an orga­ni­za­tion­al structure?

An orga­ni­za­tion­al struc­ture of an enter­prise is a mod­el that explains the rela­tion­ships between employ­ees or entire divisions.

It estab­lish­es a hier­ar­chy with­in the com­pa­ny and defines the prin­ci­ple of action when mak­ing and imple­ment­ing decisions.

The rights and oblig­a­tions of man­agers and employ­ees are estab­lished based on the orga­ni­za­tion­al struc­ture. More­over, types of orga­ni­za­tion­al struc­tures influ­ence key roles in achiev­ing over­all busi­ness goals.


We will dis­cuss the 10 main types of orga­ni­za­tion­al struc­tures com­mon in busi­ness man­age­ment. And we will note right away: this is not dog­ma. There are no lim­i­ta­tions in choos­ing and apply­ing spe­cif­ic orga­ni­za­tion­al schemes. You can adapt the orga­ni­za­tion­al struc­ture to suit your needs, alter­ing or com­bin­ing dif­fer­ent types of orga­ni­za­tion­al sys­tems for var­i­ous areas of activ­i­ty. How­ev­er, to do this, one must under­stand the specifics of each type of orga­ni­za­tion­al structure.

1️⃣Hier­ar­chi­cal orga­ni­za­tion­al structure

The hier­ar­chi­cal orga­ni­za­tion­al struc­ture of a com­pa­ny is one of the clas­sic types of orga­ni­za­tion­al sys­tems. It estab­lish­es clear­ly defined func­tions, rights, and oblig­a­tions for employ­ees. The cen­tral ​“node” is respon­si­ble for management.


Essen­tial­ly, the hier­ar­chi­cal struc­ture belongs to pyra­mids: the high­est lev­el of pow­er is at the top, while sub­se­quent lev­els of pow­er decrease downward.

In this method of orga­niz­ing, deci­sion-mak­ing is also car­ried out top-down. Man­agers or upper man­age­ment make impor­tant deci­sions and then pass them on to mid­dle man­agers, who in turn pass them on to low­er-lev­el employ­ees for implementation.

Hier­ar­chi­cal orga­ni­za­tions exist with var­i­ous lev­els of man­age­ment, pow­er, or author­i­ty. This is the most com­mon choice for large tra­di­tion­al orga­ni­za­tions, such as gov­ern­ments and orga­nized religions.

Advan­tages

  • Sim­ple and under­stand­able orga­ni­za­tion­al structure;
  • Trans­par­ent hier­ar­chy and reporting;
  • Easy man­age­ment;
  • Effec­tive for small companies.

Dis­ad­van­tages

  • Rigid and slow in decision-making;
  • Com­mu­ni­ca­tion between depart­ments is limited;
  • Unsuit­able for rapid­ly grow­ing companies.

2️⃣Func­tion­al orga­ni­za­tion­al structure

This type of orga­ni­za­tion­al struc­ture involves the dis­tri­b­u­tion of respon­si­bil­i­ties accord­ing to pro­fes­sion­al skills. Employ­ees are grouped accord­ing to the func­tions they per­form. In addi­tion to the CEO, there are direc­tors respon­si­ble for spe­cif­ic areas: sales, pro­duc­tion, mar­ket­ing direc­tor, etc.


The func­tion­al struc­ture is one of the most com­mon among types of orga­ni­za­tion­al struc­tures. This struc­ture estab­lish­es clear expec­ta­tions and has a clear­ly defined chain of com­mand. How­ev­er, this struc­ture risks becom­ing too lim­it­ing, poten­tial­ly hin­der­ing employ­ee growth as well as com­mu­ni­ca­tion and col­lab­o­ra­tion between departments.

At the same time, the func­tion­al struc­ture pro­motes spe­cial­iza­tion, scal­a­bil­i­ty, and account­abil­i­ty. This mod­el is tra­di­tion­al­ly used by hold­ings—enter­pris­es with many areas of activ­i­ty and a wide range of products.

Advan­tages

  • High lev­el of employ­ee qualification;
  • Effec­tive use of resources;
  • Work of spe­cial­ists can be eas­i­ly coordinated.

Dis­ad­van­tages

  • Bureau­cra­cy and slowness;
  • Lim­it­ed com­mu­ni­ca­tion between dif­fer­ent divisions;
  • Unsuit­able for dynam­ic markets.

3️⃣Hor­i­zon­tal, or flat orga­ni­za­tion­al structure

A man­age­ment sys­tem with a min­i­mal num­ber of mid­dle man­agers. In such types of orga­ni­za­tion­al sys­tems, deci­sions are pri­mar­i­ly made by line employ­ees with appro­pri­ate expe­ri­ence and competencies.


A com­pa­ny with a Hor­i­zon­tal struc­ture has a short chain of com­mand. This allows employ­ees to focus and spend time on big goals, as they have more auton­o­my, free­dom, and inde­pen­dence in per­form­ing their roles and responsibilities.

This type of cor­po­rate struc­ture is main­ly adopt­ed by small com­pa­nies and star­tups in their ear­ly stages, as their work and efforts in a small com­pa­ny are rel­a­tive­ly trans­par­ent. Thus, deci­sion-mak­ing pow­ers are dis­trib­uted, and employ­ees are account­able for their decisions.

A hor­i­zon­tal or flat orga­ni­za­tion­al struc­ture is almost impos­si­ble or sim­ply futile for large com­pa­nies with many projects and employ­ees. Most like­ly, as your busi­ness grows, you will have to choose anoth­er orga­ni­za­tion­al system.

Advan­tages

  • Quick deci­sion-mak­ing;
  • Com­mu­ni­ca­tion and coor­di­na­tion with­out barriers;
  • Employ­ees are well motivated.

Dis­ad­van­tages

  • Requires high­ly qual­i­fied and dis­ci­plined employees;
  • Not suit­able for large companies;
  • Dif­fi­cult to man­age com­plex tasks.

4️⃣Divi­sion­al orga­ni­za­tion­al structure

In this orga­ni­za­tion­al struc­ture, the gen­er­al man­ag­er is respon­si­ble for the strat­e­gy and devel­op­ment of the com­pa­ny, while the divi­sion heads are respon­si­ble for oper­a­tional man­age­ment. The respon­si­bil­i­ties, account­abil­i­ty, and duties of each man­ag­er will depend on the specifics of the business.


The divi­sion­al orga­ni­za­tion­al struc­ture is used by cor­po­ra­tions and large orga­ni­za­tions more often than oth­er types of orga­ni­za­tion­al sys­tems, due to their wider range of prod­ucts and ser­vices. Each branch has its own divi­sion, respon­si­ble for either a prod­uct or geog­ra­phy, and con­tains the nec­es­sary resources and func­tions need­ed to sup­port the prod­uct line and geography.

The divi­sion­al struc­ture allows such cor­po­ra­tions to focus bet­ter on var­i­ous divi­sions. The main advan­tage of this struc­ture is the inde­pen­dence of oper­a­tional activ­i­ties, mean­ing that the prob­lems of one com­pa­ny do not endan­ger the exis­tence of others.

Advan­tages

  • Quick adap­ta­tion to mar­ket changes;
  • Auton­o­my of branches;
  • Increased respon­si­bil­i­ty of managers.

Dis­ad­van­tages

  • Dupli­ca­tion of functions;
  • High costs and increased taxes;
  • Dif­fi­cult coor­di­na­tion between divisions.

5️⃣Matrix orga­ni­za­tion­al structure

A com­plex orga­ni­za­tion­al struc­ture where the execu­tor reports simul­ta­ne­ous­ly to both the func­tion­al man­ag­er and the project man­ag­er. A nar­row spe­cial­ist may be tem­porar­i­ly sub­or­di­nate to a spe­cif­ic project man­ag­er. How­ev­er, they are not relieved from their main duties dur­ing this time.


For exam­ple, a pub­lic rela­tions spe­cial­ist may have oblig­a­tions to report to both mar­ket­ing and prod­uct teams. Or a more com­plex exam­ple for a large com­pa­ny: all engi­neers may be in one engi­neer­ing depart­ment and sub­or­di­nate to its man­ag­er. But those same engi­neers can be attached to dif­fer­ent projects and report also to the man­agers of those projects.

Matrix Orga­ni­za­tion­al Struc­ture is some­what more com­plex than oth­er types of orga­ni­za­tion­al sys­tems, and thus can cre­ate some con­fu­sion regard­ing account­abil­i­ty and com­mu­ni­ca­tion, espe­cial­ly among new employ­ees. In such an orga­ni­za­tion­al struc­ture, there are sev­er­al types of reporting.

Advan­tages

  • Flex­i­ble and adap­tive orga­ni­za­tion­al structure;
  • Effec­tive use of resources;
  • Allows for the imple­men­ta­tion of com­plex projects.

Dis­ad­van­tages

  • Com­plex and con­fus­ing due to the com­bi­na­tion of sev­er­al structures;
  • Requires very care­ful coor­di­na­tion of actions;
  • Can pro­voke misunderstandings.

6️⃣Team orga­ni­za­tion­al structure

Team orga­ni­za­tion­al struc­ture is based on teams that work towards a com­mon goal while simul­ta­ne­ous­ly per­form­ing their indi­vid­ual tasks. Each team is self-suf­fi­cient, inde­pen­dent, and ful­ly respon­si­ble for the results of its work. Such teams include var­i­ous spe­cial­ists (man­agers, sup­pli­ers, pro­duc­tion mas­ters, tech­nol­o­gists, financiers), who work both on a com­mon goal and their own spe­cial­ized tasks simultaneously.


Since they are all in one team and reg­u­lar­ly inter­act with each oth­er, they share ideas faster com­pared to oth­er types of orga­ni­za­tion­al sys­tems. Addi­tion­al­ly, pro­fes­sion­als can reach out for infor­ma­tion from oth­er depart­ments of the organization.

Team Orga­ni­za­tion­al Struc­tures have changed the way many indus­tries of goods and ser­vices oper­ate world­wide. They are less hier­ar­chi­cal and more flex­i­ble, thus pro­mot­ing prob­lem-solv­ing, deci­sion-mak­ing, and teamwork.

Advan­tages

  • Employ­ees are well moti­vat­ed and engaged in work;
  • Quick deci­sion-mak­ing;
  • Flex­i­bil­i­ty and adaptability.

Dis­ad­van­tages

  • Requires com­pat­i­ble teams;
  • Not suit­able for all tasks;
  • Coor­di­nat­ing the work of dif­fer­ent teams can be difficult.

7️⃣Net­work orga­ni­za­tion­al structure

A hybrid solu­tion that com­bines divi­sion­al and matrix types of orga­ni­za­tion­al sys­tems, their adapt­abil­i­ty, and ver­sa­til­i­ty of core man­age­ment func­tions. The net­work struc­ture pri­or­i­tizes col­lab­o­ra­tion and pos­i­tive rela­tion­ships over hierarchy.


Com­pared to oth­er types of orga­ni­za­tion­al sys­tems, net­work orga­ni­za­tions do not have a hier­ar­chi­cal orga­ni­za­tion­al scheme. Instead, they cre­ate clus­ters made up of dif­fer­ent depart­ments, busi­ness units, or local offices, which work togeth­er as need­ed and use all the orga­ni­za­tion’s resources to achieve client goals.

The net­work orga­ni­za­tion­al struc­ture is most ben­e­fi­cial when a com­pa­ny has many sub­di­vi­sions in dif­fer­ent geo­graph­i­cal loca­tions. This sys­tem involves inter­ac­tions with inter­nal and exter­nal par­ties to pro­vide prod­ucts or ser­vices. Focus­ing on core com­pe­ten­cies, each orga­ni­za­tion can offer its best prod­ucts or services.

Advan­tages

  • Flex­i­bil­i­ty and adaptability;
  • Mod­er­ate costs;
  • Allows for rapid mar­ket intro­duc­tion of new products.

Dis­ad­van­tages

  • Com­plex management;
  • Lim­it­ed consistency;
  • May not be used in all niches.

8️⃣Process-ori­ent­ed orga­ni­za­tion­al structure

The main fea­ture of a process-based orga­ni­za­tion­al struc­ture is the pri­or­i­ti­za­tion of process­es over func­tions. For such a com­pa­ny, busi­ness is a set of process­es, strate­gic plans, and a sus­tain­able sys­tem of improve­ments. Unlike the func­tion­al struc­ture and some oth­er types of orga­ni­za­tion­al sys­tems, which often cat­e­go­rize work, the process approach pri­or­i­tizes the inter­con­nect­ed­ness of tasks in the over­all picture.


Thus, a struc­ture, based on process­es, is orga­nized to fol­low the life cycle of a prod­uct or ser­vice. For exam­ple, this orga­ni­za­tion­al struc­ture can be rep­re­sent­ed as sequen­tial research and devel­op­ment, prod­uct cre­ation, order ful­fill­ment, invoic­ing, and cus­tomer service.

An orga­ni­za­tion based on process­es relies on the idea that the end prod­ucts or ser­vices are the result of a sequence of inter­nal process­es. All these inter­nal process­es must be orga­nized as effec­tive­ly as pos­si­ble. The process of cus­tomer engage­ment can­not begin until you have a ful­ly devel­oped prod­uct for sale. Sim­i­lar­ly, the order ful­fill­ment process can­not start until cus­tomers are engaged and there are prod­uct orders to fulfill.

Cus­tomer engage­ment and order ful­fill­ment are two sides of the same coin, one feed­ing the oth­er in a con­tin­u­ous cycle. These process­es dance in tan­dem, where cus­tomer engage­ment cre­ates the foun­da­tion and order ful­fill­ment ensures effi­cien­cy. Smooth exe­cu­tion requires plan­ning and coor­di­na­tion of both processes.

Advan­tages

  • Oppor­tu­ni­ty to reduce costs;
  • Increased effi­cien­cy and speed;
  • Each project par­tic­i­pant under­stands their impor­tance in the over­all process.

Dis­ad­van­tages

  • Pos­si­ble con­flicts between dif­fer­ent processes;
  • May cause loss of communication.

9️⃣Cir­cu­lar orga­ni­za­tion­al structure

The cir­cu­lar orga­ni­za­tion­al struc­ture is based on a demo­c­ra­t­ic hier­ar­chy. Man­agers here are not com­man­ders; they are lead­ers. They are locat­ed at the cen­ter of the orga­ni­za­tion, spread­ing their vision out­ward. Deci­sions are made col­lec­tive­ly by all orga­ni­za­tion members.


Unlike the iso­lat­ed nature of tra­di­tion­al types of orga­ni­za­tion­al sys­tems, where depart­ments oper­ate some­what inde­pen­dent­ly, the cir­cu­lar mod­el posi­tions every­one as inter­con­nect­ed parts of a sin­gle whole.

The cir­cu­lar orga­ni­za­tion pro­motes long-term col­lab­o­ra­tion and cre­ativ­i­ty, aim­ing to empow­er peo­ple. Soft skills such as com­mu­ni­ca­bil­i­ty, team­work abil­i­ty, respon­si­bil­i­ty, and deci­sion-mak­ing abil­i­ty are crit­i­cal­ly impor­tant for the cir­cu­lar orga­ni­za­tion­al structure.

Advan­tages

  • Infor­ma­tion flows freely with­in the company;
  • Indi­vid­u­als unite for a com­mon greater goal;
  • Employ­ees are moti­vat­ed to inter­act between divisions.

Dis­ad­van­tages

  • Can be com­plex, espe­cial­ly for new employees;
  • Sub­or­di­na­tion is not always clear to new participants.

🔟Lin­ear orga­ni­za­tion­al structure

This is one of the sim­plest and most com­mon types of orga­ni­za­tion­al sys­tems, con­sist­ing of chains where each lev­el of man­age­ment has clear author­i­ty over the next lev­el. Deci­sions flow down the chain from the man­ag­er to deputies, then to depart­ment heads and spe­cial­ists. The chain of com­mand allows each depart­ment man­ag­er to con­trol their departments.


In sim­ple terms, lin­ear orga­ni­za­tions have clear lines of author­i­ty (chain of com­mand) that run from the top of the orga­ni­za­tion to the low­est lev­els. Lin­ear man­agers can make inde­pen­dent deci­sions due to their uni­fied structure.

Unlike oth­er struc­tures, sup­port ser­vices are not pro­vid­ed in these orga­ni­za­tions. The main advan­tage of a lin­ear struc­ture can be termed sta­bil­i­ty of the company.

Advan­tages

  • Sim­ple interaction;
  • Rights and respon­si­bil­i­ties are clear­ly defined;
  • High lev­el of dis­ci­pline and control;
  • Exec­u­tives have career growth opportunities.

Dis­ad­van­tages

  • Man­agers have to deal with a large num­ber of tasks, which dis­tracts their attention;
  • Indi­vid­ual deci­sions of par­tic­i­pants, includ­ing erro­neous ones, affect the work of the entire company;
  • There is no direct com­mu­ni­ca­tion between execu­tors and top management;
  • Allows for oppres­sion by senior management.

Con­clu­sions

Some types of orga­ni­za­tion­al struc­tures are more com­mon than oth­ers, but there is no sin­gle ​“right” struc­ture. So, which struc­ture is best for your com­pa­ny? To find the answer, you must know your com­pa­ny well, from cur­rent roles and teams to the strate­gic plan.

How are work func­tions cur­rent­ly orga­nized, and does this facil­i­tate com­mu­ni­ca­tion and pro­duc­tiv­i­ty? And what about employ­ee growth oppor­tu­ni­ties? Feed­back from employ­ees, man­age­ment, and oth­er stake­hold­ers can be very help­ful in find­ing the right approach to many types of orga­ni­za­tion­al for­mats.How­ev­er, the main cri­te­ri­on for the best (for you) orga­ni­za­tion­al struc­ture should be to sup­port your strate­gic plans.

Keep this in mind and do not hes­i­tate to use var­i­ous flex­i­ble and hybrid types of orga­ni­za­tion­al struc­ture. They can change through­out the life cycle and devel­op­ment of the com­pa­ny. Find your opti­mal path that will sup­port your pro­duc­tive man­age­ment strategy.
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