As your small business grows, you will need to hire employees to help you achieve your company goals. While in the beginning you may have played the role of every department yourself, in time, you may find that you need to add roles and responsibilities for other people. The team structure you choose for your business should help you meet your company’s objectives while making it easier to share information and communicate with one another.
What Is a Team Structure?
While a legal business structure defines how your company operates in relation to federal and state governments and how you pay your taxes, a team structure affects the way the people within your organization work with each other. The organizational structure of a business includes the chain of command in addition to the individual roles and responsibilities of each employee.
The type of structure you choose for your business will help to define a hierarchy of employees. It will help those on your team to understand to whom they report and who reports to them. When roles are defined within a team structure, employees have a solid understanding of their job description and what they are responsible for doing while at work.
There are two main types of team structures: centralized and decentralized. A centralized organizational structure has a distinct chain of command. Often, centralized structures are pyramid models, where one person is at the top of the hierarchy followed by several layers of management who oversee a large group of people at the bottom of the hierarchy. The decisions for the entire organization are made by those at the top of the hierarchy.
In contrast, a decentralized organization is where the major decisions of the business are made by mid-level employees, not those at the top of the hierarchy. This format is common in startup businesses. Having a decentralized team structure enables the business to remain fast and agile.
How The Right Team Structure Can Help
There are many benefits to picking the right team structure for your small business. Primarily, an effective organizational structure helps the business to achieve its objectives. Having the right people in the right roles and departments ensures that the company can effectively sell products and services to its customers.
Planning and communication are easier to facilitate when the team is organized in a way that aligns with the company’s goals. When the flow or authority is clearly identified, so too is the flow of information. As a result, there is less ambiguity and more clarity around what needs to be done and by whom.
In addition, having a strong organizational structure helps to eliminate conflicts among employees. When the responsibilities and roles are clearly outlined, employees have more ownership of their tasks and spheres of expertise.
1. Functional Organizational Structure
The functional team model is one of the most common types of organizational structures. This model follows the traditional pyramid top-down approach, where the few people at the top manage the many people near the bottom of the pyramid. It’s common for the CEO or business owner to be at the top of the pyramid, followed by vice presidents, directors, managers and then frontline employees. The number of layers of management depends on the size of the organization.
The departments within a functional team structure are organized based on their primary job function. For example, all marketing employees are grouped together in the marketing department, which is managed by the marketing manager, and all sales employees are grouped together in the sales department, which is managed by the sales manager.
The main advantage of this approach is that it enables employees to have a high degree of specialization in their area, which they can use to help grow the business. This model is also easy to scale as the business expands. One of the primary disadvantages is that it can create barriers and rivalries between different departments and limit the knowledge employees have of other departments. The functional team structure is common in many small- and medium-sized businesses as well as in larger corporations.
2. Product or Divisional Organizational Structure
A product or divisional team structure is an organizational model that is best for companies that have different product lines or product divisions. In this pyramid structure, employees are grouped by function within their own product line. For example, if a company has clothing, shoes and jewelry product lines, then each division will have its own product development, marketing, sales and shipping departments.
This organizational structure helps businesses that have multiple divisions to cut their time to market. When each area of the business has its own functional departments, the company is able to shorten product-development cycles and reach consumers sooner. It also helps employees to have a high degree of specialization in their respective areas.
On the flip side, it can be difficult for businesses to scale using this structure. The business is not as efficient when it begins to grow because there can be a duplication of resources in each division. This can affect the company’s profitability and stunt its growth.
3. Matrix Organizational Structure
A matrix team structure is unique because the reporting structure is set up as a grid. As a result, employees usually have two or more reporting structures. Typically, in a matrix structure, there is a functional reporting line where employees are grouped by departments, such as sales or customer service. On top of that, employees are also part of product or project groups, so they have an additional manager who oversees that line of work.
When there are dual reporting structures, one area is primary, and there is a direct line of reporting. The secondary area does not have as much authority as the other line of reporting. This complexity is one of the major disadvantages of a matrix team structure. Employees can be confused about to whom they report, especially if their two managers have differing priorities and goals.
The key advantage of the matrix organizational structure is that it offers balanced decision making since there is not just one layer of authority. Business groups can share resources and communicate more effectively in a matrix structure as well. This kind of organizational structure is best for larger organizations that have long-term projects on the go at all times.
4. Geographic Organizational Structure
Similar to a divisional structure, in this case, the team is organized based on location. Each location, which can be a large geographic region, country or small district, has its own functional departments. This is typically best for companies that need to be physically close to groups of customers or sources of supply.
One of the biggest advantages of this structure is that it enables the regions to make decisions based on what is best for them. They may have specific market requirements or customer needs, for example. On the downside, this type of decentralization can cause duplication of resources and lack of cohesiveness with the corporate brand.
5. Circular Organizational Structure
The circular team structure is ideologically different from the functional, divisional, matrix and geographic structures. While there is still a hierarchy in this model, the goal of the executive team is not to share their directives down the chain of command. Instead, the goal of the executives is to sit at the center of the company and share their ideas and vision outward to the rest of the employees.
The major advantage of this team structure is that it enables communication to flow more easily among work groups. While employees still have distinct roles and responsibilities, they are not grouped by function or division — everyone is on the same team. A disadvantage of the circular team structure is that it is confusing, as employees don’t have a clear chain of command and do not have a deep understanding of how their job fits into the organization.
Circular structures work well for small companies where the roles of employees and managers require them to communicate well with one another and share responsibilities. It is a difficult structure to scale.
6. Flat Organizational Structure
On the other end of the organizational spectrum is the flat team structure, which is organic in nature and does not have multiple layers of management like a pyramid structure. In the flat organizational model, there may still be a hierarchy with team leaders, but in general, all employees have more authority and agency than in a traditional model.
The key advantage of a flat structure is that employees are more agile and able to act more quickly on their decisions since there is less of a hierarchy. The management team is seen as equals to frontline employees and shares authority and decision-making power with them.
The major disadvantage of the flat team structure is that it can be difficult to resolve conflicts when there is no chain of command. It can be confusing for employees to determine with whom they need to speak to get approval for specific tasks. This kind of team structure is best for companies that need to take action quickly, such as tech startups.
Knowing When You May Need to Restructure Your Business
Deciding which team structure to use for your business depends on a number of factors, such as the goals you want to achieve, the resources you have available and the number of people on your team. However, there may come a time when your current organizational structure stops working. If that happens, you may need to pivot your team structure so you can more effectively meet your business goals.
You may need to restructure your team if your employees are no longer able to help your business succeed in their current structure:
- Reacting to a change in the market: If a competitor develops a new product line with which your business wants to keep up or if there is a marked change in consumer behavior toward a specific manufacturing process, for example, you may need to restructure your organization in order to more effectively meet market demands.
- Improving employee communication: Communication is the lifeblood of a team. If team members are no longer communicating effectively, it may be as a result of the organizational structure. For example, managers may not have the time to share important information with frontline employees, or employees may be forced to make every decision by committee.
- Changing organizational size: If your company is rapidly growing or needs to resize, then you may need to restructure your team to meet your changing needs. Not all organizational structures can easily scale, so you may need to shift direction in the way your employees report to each other.
- Changing span of control: Sometimes, the duties of a manager may grow so large that he is no longer able to oversee all of his staff. In this case, you may need to restructure the company to accommodate the expanding roles. This may mean adding more layers of management or shifting responsibilities to other roles within the organization.
- Investopedia: Organizational Structure
- Thriving Small Business: 5 Common Business Organizational Structures
- HubSpot: 9 Types of Organizational Structure Every Company Should Consider
- Your Article Library: 10 Benefits of a Good Organizational Structure – Explained!
- The Manager's Resource Handbook: 5 Signs You Know It’s Time to Restructure
Anam Ahmed is a Toronto-based writer and editor with over a decade of experience helping small businesses and entrepreneurs reach new heights. She has experience ghostwriting and editing business books, especially those in the "For Dummies" series, in addition to writing and editing web content for the brand. Anam works as a marketing strategist and copywriter, collaborating with everyone from Fortune 500 companies to start-ups, lifestyle bloggers to professional athletes. As a small business owner herself, she is well-versed in what it takes to run and market a small business. Anam earned an M.A. from the University of Toronto and a B.A.H. from Queen's University. Learn more at www.anamahmed.ca.