organizational structure : Examining the types of organizational charts

organizational structure
Team-up & Launch

If you have visited organizational offices or companies, you must have seen their organizational chart. An organizational chart is a graphical representation of a company’s structure that describes people’s names, their position in the company, their duties, and how members of the company relate to each other. Most organizations have a pyramidal structure headed by the organization’s management, followed by middle managers. At the bottom of the chart are the company’s employees, who are the company’s executive. Of course, this type of organizational structure may not be appropriate for all companies and organizations. Depending on the type of activity, market, customers, etc., different structures have been created for organizations and companies, some of which are introduced below, and we discuss the disadvantages and advantages of each.

Read more : Organizational chart : What is the use of it in companies?

Hierarchical structure

This type of structure is the most common organizational structure mentioned earlier. The overall shape of this structure is pyramid-shaped, which defines the company’s hierarchy from the highest position to the lowest position. In this way, each manager or boss works under the supervision of another manager or boss, and each employee works under the supervision of a boss or manager. One of the advantages of this structure is the better description of the levels of responsibilities and authorities. Also, in this structure, it is well known to whom each person should submit their performance report or giving their opinions and suggestions. In this structure, employees are well aware of the path towards their progress to better positions and therefore try to improve their ranks. At the same time, this structure brings employees of one department closer together, because they all see themselves on the same level and position.

What is the biggest weakness of this organizational structure?

Perhaps the biggest weakness of this structure is the slowdown in creativity, innovation and reform. Because every idea, opinion or change must go through the whole hierarchy. In addition, this structure may cause employees to be too close to one department and feel they belong there. That is, instead of trying to improve performance and improve the overall outcome of the company, employees improve the position of their department and compete with other departments. Finally, in this structure, since most employees are at the bottom of the chart, they may have less sense of loyalty or less ability to participate in the work processes.

Functional structure

This structure is somewhat similar to the hierarchical structure. At the head of this structure is the CEO of the company and by moving downwards, there are lower positions, with less authority. The main difference between this structure and hierarchical structure is that in the functional structure, the position of each employee is defined according to their specific skills and their relationship with the company’s output. Therefore, people with similar expertise and skills are placed in one unit, and each unit is managed individually and independently.

The positive feature of this structure is that it allows employees to focus more on their tasks. It also helps to increase the company’s skills and expertise, and most importantly, it can be easily implemented in any dimension that makes the company flexible.

The most important weakness of this structure is the complexity of processes and strategies suitable for the company in different situations (e.g. the production of different products). Also in this structure, the independent communication of the units with each other may be difficult.

Horizontal or flat structure

In a horizontal or flat structure, an effort is made to ensure that the company has the fewest possible levels. Most startups, which are not yet sufficiently developed to form different, independent units, use this structure. Of course, some companies have maintained this structure even after finishing their startup period, in order to reduce the intensity of supervision and increase the level of employee participation on the other side.

The main advantage of this structure is increasing the responsibility of employees, increasing the speed and expansion of employee communication with each other, and, most importantly, facilitating the implementation of changes, providing ideas, and innovations. However, this structure may create ambiguity in the duties and responsibilities of some employees because they may not have a complete and comprehensive perspective of what they should do. Also, this structure is usually not suitable for training and increasing the skills of specialized staff and just leads employees to be more multi-skilled. In addition, maintaining this structure when developing a company is more difficult than a hierarchical or functional structure.

Divisional structure

In structured organizations, each of the different departments of the company manages the resources and operates almost independently. In fact, in this structure, each part acts like a small organization, the output of which is given to the larger organization. For example, in this structure, each section may have its own team of marketing, sales, information technology, etc.

  1. This structure is most useful for large and developed companies that have a wide variety of units. In such companies, usually, each unit must be able to decide and act on its own issues and problems alone. The divisional structure consists of three types, one of which is used depending on the type of company and business.

Different types of divisional structures

  1. Market-based divisional structure
  2. Product-based divisional structures
  3. Geographical divisional structure

Market-based divisional structure

In this structure, each segment is separated from other sectors by market type, industry, or customer type. For example, a large retail company may have a separate unit for durable products such as electronic products, wearables, etc., and another unit to sell food products.

Product-based divisional structures

In this structure, different sections are separated based on product production lines. For example, a technology company may devote a sector to cloud computing services and another sector to software products.

Geographical divisional structure

In the third type of divisional structure, segments are distinguished based on differences in geographical location. For example, a satellite or telecommunications service provider may prefer to leave the work of each country or city in a separate section.

The advantage of divisional structures is maintaining the flexibility of the company. It also allows for faster response to market and industry changes and customer needs. Of course, these advantages are beside the possibility of creating similar and repetitive structures, complex communication between units and reducing the efficiency and even competition of different parts of the company with each other.

Matrix structure in organizational structure

The matrix structure is a vast network of multi-rows and columns that identifies multifunctional teams created for specialized projects. For example, an engineer may normally be working in the engineering department, but in an immediate project that has been given high priority by the project manager, he or she may be selected to work with other members of the unit. The matrix structure determines the position of each person, their relationship to different sections, and of course the person to whom they should report.

The advantages and disadvantages of this structure

This structure simplifies the selection of individuals for each project and generally improves the flexibility and dynamism of the organization. Such a structure also rewards employees who strengthen their skills and abilities and encourages them to go beyond their duties. On the other hand, this structure may lead to interference between the performance, tasks, and goals of managers of various departments or projects. Also, this structure changes more than other structures due to its project-oriented nature.

Team / Group-based organizational structure

The group/team-based organizational structure classifies the units based on the groups created in the organization. A team-based organization disrupts the traditional hierarchy of the past and defines its main goal as problem-solving, collaboration, and increased employee control and participation.

The first positive result of such a structure is increased efficiency, performance and task clarification. In the next step, this structure helps to grow and develop the mentality and purpose of employees, change working models and provide the possibility of moving employees at the same level. This structure also values people’s experience and skills instead of their position and level in the organization. Finally, a team-based structure usually reduces the need for managing and monitoring and increases the company’s agility. The biggest drawback of this structure is the ambiguity and complexity of employee promotion and their motivation.

Network organizational structure

The structure of many new companies is such that they try to avoid controlling and managing all costs, resources, manpower, and so on. An organization with a network structure is an organization whose priority is to control and manage various resources outside the organization. In fact, in this type of organization, internal relationships and structures are formed on the basis of extensive and open communication with other companies, not hierarchy.

The most important advantage of this structure is better understanding and therefore better management of relationships inside and outside the organization. This structure also gives the company a lot of flexibility and agility. In addition, the ability to influence, innovate, and engage employees is far greater than the average, because the person can make decisions and implement them.

It also makes it much easier for shareholders and employees to understand the works and processes. However, if this structure is not properly managed, it can become extremely complex or the processes outside the company can be more than routine. Employees’ higher than normal authority can also sometimes cause disagreement and make it difficult to make a final decision on an issue.

What stage is your startup at? Value your startup online with Retiba’s software free of charge.

  1. Your startup has crossed Death Valley, and it has had at least 2 funding rounds? Discounted Cash Flows​ (DCF)
  2. Your startup has had at least one funding round, you are advised to use Multiples method for valuation.
  3. Your startup is at pre-seed and seed funding rounds, you are advised to use the Score Cards Method, Risk Factors Summation method to value your startup.

Related Blog Posts

Leave a Reply

Your email address will not be published.

Fill out this field
Fill out this field
Please enter a valid email address.

Free Valuation Tools