How To Choose Your Organizational Structure

March 8, 2023
# min read
Doug Brown

In my experience, many executives have yet to examine how to best structure (or restructure) their organizations to execute their strategic plans. Often, their employees work longer and harder than if the formal organizational design was adapted to fit the new direction.

There are various structures that management teams can take depending on the size, complexity, and goals of an organization. Here are some examples to consider, along with the advantages and disadvantages of each.

1. Functional Structure: The management teamis organized by functions, such as finance, marketing, operations, and human resources. Each area has its head, and they report to the CEO. This structure is typical in smaller organizations.


·       Efficient use of resources: By grouping similar functions together, this structure can help maximize the efficiency of the organization's resources and expertise.

·       Clear lines of authority: Each function has its head, creating clear lines of authority and reducing confusion about who is responsible for what.


·        Limited communication and coordination between functions: Because each function naturally focuses on its area of expertise, there may be limited communication and coordination between different processes, leading to silos and reduced cross-functional collaboration.

·        Slower decision-making: Since decisions must go through several layers of hierarchy, decision-making can be slow and bureaucratic.


2. Divisional Structure: Management is organized by divisions, such as geographical regions or product lines. Each division has its leader, and they report to the CEO. This structure is often the norm in larger organizations with multiple products or locations.


·        Faster decision-making: Each division has its head, encouraging faster decision-making than in a functional structure.

·        Focus on specific products or regions: By grouping employees by division, this structure can help organizations focus on specific products or regions and adapt to local needs.


·        Duplication of resources: Each division needs its own resources, which can lead to duplication of effort and increased costs.

·        Limited communication and coordination across divisions: Similar to the functional structure, limited communication and coordination across different divisions can lead to silos and reduced cross-functional collaboration.


3. Matrix Structure: In this case, the management team is organized by functions and divisions attempting to mine the benefits of both structures. In this scenario, employees have two bosses - one from their function and one from their division.


·        Greater flexibility: By combining functional and divisional structures, the matrix structure can offer greater flexibility and adaptability to changing circumstances.

·        Improved collaboration: By creating cross-functional teams, the matrix structure can improve cooperation and communication between different functions and divisions to serve internal and external customers better.


·        Complex and difficult to manage: The matrix structure can be complex and challenging, especially for employees who must report to multiple bosses.

·        Potential for internal conflict: Since employees report to multiple bosses, there is a potential for conflicting priorities and power struggles, leading to excessive workload demands on the staff. It can create stress within the staff as they decide whom they will and will not satisfy.


4. Flat Structure: The management team has very few hierarchical levels in this structure. There is no middle management,and employees have significant autonomy. This structure is commonplace within smaller organizations or startups.


·        Faster decision-making: With fewer hierarchical levels, decision-making can be faster and more efficient.

·        Greater autonomy: Employees in a flat structure can be more independent and empowered to make decisions and take action.


·        Limited opportunities for advancement: With fewer hierarchical levels, employees may have limited opportunities to advance their careers.

·        Lack of specialization: Since employees have to take on a wide range of responsibilities, there may be a lack of needed expertise in certain areas.


5. Hierarchical Structure: This structure contains many hierarchical levels. Employees report to their immediate supervisor, who reports to their supervisor, and so on. Often, this is the structure of choice within larger organizations.


·        Clear lines of authority: With many hierarchical levels, there are clear lines of control, and employees know to whom they report.

·        Opportunities for advancement: With many hierarchical levels, employees often have opportunities to advance their careers.


·        Slower decision-making: With many layers of hierarchy, decision-making can be slow and bureaucratic.

·        Potential for communication breakdowns: With so many layers of hierarchy, communication can break down or become distorted as it moves up and down the chain of command.


6. Network Structure: This management team is built around a network of independent contractors, suppliers, and partners. The management team coordinates and manages the network. This structure is typical within industries where companies collaborate to produce a product or service.


·        Flexibility and scalability: The network structure can be highly flexible and scalable, allowing organizations to adapt to changing circumstances or expand their reach.

·        Access to specialized expertise: By working with a network of independent contractors and partners, organizations can access needed expertise that they may not have in-house.


·        Difficult to manage: Managing a network of independent contractors and partners can be challenging and time-consuming.

·        Lack of control: Since the independent contractors and partners in the network are not employees, the organization may have limited control over their actions and outcomes.

These are just a few examples of the many management team structures that organizations can adopt. The most suitable design for your organization depends on its strategy, size, complexity, and goals.

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