Organizations rely on the people, processes and resources at their disposal to thrive. The larger the organization, the more in-sync each link in the chain needs to be to ensure success. This need underscores the significance of effective organizational structures. Businesses rely on these and sophisticated systems thinking to run smoothly.

Effectiveness of Organizational Structures

There are a few factors that can determine the effectiveness of a business’s organizational structure. The first and most obvious deals with information flow. Can all employees access the information that they need to do their job and quickly find an internal hierarchy if they need it? If they cannot, then you have a problem with your organizational structure.

You can think of your structure as a simple webpage. On a webpage, if you don’t have a link path set correctly, you will get a 404 error, which keeps users from viewing a page. Bad communication in a business setting is very much the same as the webpage example. Thankfully, fixing a link path and information flow can be possible in some circumstances.

A strong organizational structure should be able to be presented visually as well. For example, a pyramid would have the CEO at the top and then work its way down to the base. It also provides a quick visual reminder to everyone that they are part of a whole, and while the lowest members may not be as irreplaceable, they are the base of your operations.

Advantages of Organization

Well-conceived organizational structures provide security and transparency to employees. This fosters trust and understanding in your staff. In addition, it enables them to do work that they otherwise would need to bring to their manager. Cohesiveness and lack of confusion are the main advantages of a well-conceived organizational structure.

Security can go a long way in making an employee — even one at the bottom of the organizational hierarchy — feel valued. In a way, it is also an invitation for someone to contact a higher-up employee if he feels like he needs to because he has the information and the go-ahead to use it.

Smooth operations are the natural outcome when a functional organizational structure is in place. If your employees do not need to spend their time hunting for email addresses and phone numbers, they have more time to devote to doing their primary job functions. Freeing up employee time in this way also provides a less-stressful working environment and makes higher-ups less intimidating.

Types of Organizational Structure

The most effective kind of organizational structure is the one that works for your needs. There is no set rule for what is the most effective. That said, the characteristics of your company may impact which structure would work best for you.

  • Company Size: Is your company large or small? Large companies where there are a lot of people doing the same task work well with clearly organized systems. This means that your company may do best with a centralized structure. Remember that the entire point of having an organizational structure is to make everyone’s lives more comfortable. Small companies may do best with a decentralized structure if they have employees who would function well that way. 
  • Company Culture: How do your current employees see themselves? To find out, you should observe them and request one-on-one meetings to hear their opinions. After all, sidewalks often aren’t laid down until paths are well worn from foot and bike traffic. Apply this strategy to your company culture and make changes accordingly.
  • Company Mission: What does your company do? If you are in a creative field, it may be best to work on a decentralized system to foster collaboration. In many ad agencies, for instance, employees tend to handle many different areas of the business. As such, it stands to reason that they would see their colleagues as equals. 

This doesn’t mean that you can’t make use of both systems. In an ad agency, for instance, the owners of the company and HR could use a centralized system into which each department feeds. Those individual departments, however, could be decentralized if that method works best for their staff and job type.

Four Types of Organizational Structure

At its core, organizational structure can be broken into centralized and decentralized forms. However, there are additional types of structures that can be at play within an organization. Depending on your individual needs, any of these could work for you. Think of these types of organizational structure as nested within your centralized or decentralized system.

The four types are called functional, divisional, flatarchy and matrix.

1. Functional Structure (Bureaucratic)

The functional structure is commonly seen in companies like legal firms. Functional structure is easily nested within the centralized system. It breaks up a company or organization into departments, such as sales or marketing. At its core, this structure is based on the function of employees and breaks them up accordingly.

Hospitals are another excellent example of the functional structure of an organization in which every specialty is separated into a different department. For example, a hospital typically has an oncology department that doesn’t need to interact with the dialysis unit, and it is therefore a separate entity. It will have a staff member trained to speak with the imaging department, however.

2. Divisional Structure (Multidivisional)

The divisional structure is similar to the functional one in that it breaks up the workforce based on a job or duty. Where the functional structure separates employees by their work, the divisional structure splits people on their projects, products or clients. A good example would be found in a large law firm. There, everyone works in a discrete unit that handles a specific aspect of law.

Another typical example is an advertising agency, where people are grouped by project instead of their job function. In these sorts of situations, you are placed with your unit based on what you are working on, not the work you do.

Divisional vs. Functional Organizations

While divisional and functional organizational structures may seem very similar at first glance, the way they treat and organize units is different.

  • Functional: Individual employee function dictates where the employee is grouped within the organization. Example: a sales floor from which all of your salespeople work. 
  • Divisional: Project/products dictate where the employee is grouped within the organization. Example: a team that is dedicated to a specific client all working together despite different job functions. 

3. Flatarchy Structure Basics

The so-called flatarchy structure is a newer classification that has become popular with the rise of startups. It is also known as a flat hierarchy. This doesn’t mean that the CEO is on the same level as the mail clerk, but it does mean that the culture is highly collaborative.

In these forms of structure, communication is vital. Because startups thrive on new ideas and a fast pace, the flat structure may work best thanks to its speed and efficiency.

4. Matrix Structure Basics

The least-used of the structure types, this style uses a matrix to assign employee responsibility. It is the least used because in practice, one employee could have multiple managers to whom he reports. For example, your mail clerk might also be in a customer service role.

Information Flow in Organizational Structures

In an organizational structure, information flow could be top-down, where the boss makes all major choices and distributes responsibilities to her team. A different kind of organizational structure is centralized. Centralized organizational structures distribute information flow and decision making through various levels of the company.

All types of industries and businesses of all sizes rely on strong organizational structures. Without a defined framework, employees have no way to understand the hierarchy of their organization. Successful structures make it clear who in your company has what responsibilities. This allows everyone to be able to make contact with the right people for a task or question.

More About Information Flow

Functional organizational structures allow new employees to get all the information that they need to perform their job function without confusion. There are many times that someone could start a job in a large office and not know to whom they report. Employees in this boat could flounder and quickly become disengaged due to a lack of structure.

Instead, even if their manager isn’t in the office when they start, these new employees should have an easy way to access the company organizational chart to see where they are and if anyone else shares their job title and responsibilities. The employees can then introduce themselves over email or in person. Once people know where they stand and their core job functions, they will feel secure in their job.

Employee Interactions and Organizational Structure

Depending on your organizational structure — centralized or decentralized — you will likely observe different types of employee interactions. In more traditional offices, the centralized organizational structure has long been the norm.

This is the pyramid example of a structure where the manager is at the top and oversees everything that goes on below her. The military is an excellent example of a centralized organizational structure. When service members join, they know their unit and their commanding officer, and they can easily follow that chain upward.

What Is Systems Thinking?

“Systems thinking” is a phrase that is becoming more and more popular as the business world evolves. Initially, the term was used strictly for technical professionals such as engineers or IT professionals. Because of this, it bled into the business world in the form of web structures and SEO numbers. Now, it is being used in almost every aspect of business, including organizational structure.

At its core, systems thinking means that management is considering how all parts of a job interact. People who are good with systems thinking make excellent technicians because they can troubleshoot. Troubleshooting means that someone can identify a problem within a system and fix it.

The Changing Nature of Business

The nature of business has changed with the increased use of contractors and remote workers. As these practices continue to become the norm, many startups are allowing a decentralized organizational structure.

This style of organization works well in small companies that have a clear goal and direction. It also removes the hierarchy, allowing anyone easy access to the information needed. This can speed up work processes and enable all players to feel equally invested in the business.