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Types of Organizational Structures and Why They Matter

Have you thought about the organizational structure of your business? And no, that doesn't refer to whether your company will be a corporation or an LLC. The organizational structure determines how the departments will be organized as your company grows. Choosing an organizational structure for your business might not seem important at first, but it will become increasingly important as your company grows.

It's a good idea to consider structural options early on, so you're not forced to restructure down the line. Here are three main organizational structures to consider:

Functional Structure

Functional structure means that your company is organized along the lines of individual or collective tasks. Departments are organized based on what they do, with similar tasks and job descriptions being grouped together in a single department. Examples of this are marketing departments, sales departments, research departments and so forth. Everything that seeks to accomplish the same task is grouped together under a similar department.

A functional structure has the advantage of providing employees with clear objectives. For example, no one in the advertising department is likely to think it’s their job to sell your product. It also allows departments to be subdivided, allowing different areas of (for example) the marketing department to work on different types of marketing or marketing different products.

Divisional Structure

Division structures are less centralized than functional structures. A divisional structure might include elements of a functional structure, but the divisional structure is generally more to do with geography than anything else. As an example, your company might have five regional divisions. Each of these divisions would then have their own structures, which would be functional. However, nothing would dictate that a structure that works in Houston will necessarily work in Detroit. The divisional structure offers more autonomy than the functional structure. Divisional structures might also be good for companies with several disparate products who want people working with each product to organize along those lines.

Matrix Structures

Some people wanted to combine elements of the functional structure with elements of the divisional structure. Thus arose the matrix structure, an organizational structure that, in theory, combines the best of both worlds. Matrix structures creates teams for the purpose of completing specific tasks. The teams are comprised of the most qualified members of the organization for completing that specific task. There are often not clear-cut “managers” or “supervisors” in such a structure, which generally has temporary project managers or team leaders who do not have the same level of power associated with the traditional manager or supervisor. Thus, the decentralized nature of the matrix structure cuts both ways. Some organizations, however, have found the matrix structure to be a godsend, in particular tech firms and startups.

Why It Matters

Simply put, what type of organizational structure you choose matters because it’s the skeleton of your organization. You need the right structure in place for the greatest level of efficiency. Geographically larger companies will obviously feel an affinity for the divisional structure, while smaller companies will like the functional structure. There are, of course, small companies who use a divisional structure and large companies who use the functional structure. Much of this has to do with what works in any given place. Give careful thought to which type of structure will work best in your business. It can make all the difference in the world between success and failure.

Photo courtesy of Gregory Bastien

 
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