Organizational Structures

1. Hierarchical Organizational Structure

Organizations that use a traditional hierarchical structure rely on a vertical chain of command as
the prime method of organizing employees and their responsibilities. Military, government, and
other very large organizations use a hierarchy to determine the level of control employees have
over their work as well as their rank relative to others.

Hierarchical structures typically feature multiple layers of management and are therefore prone
to bureaucracy and the creation of silos that prevent cross-team collaboration.

Pros:
 Easy layout to understand
 Communicate reporting relationships
 Built-in understanding of future promotion opportunities
Cons:
 Prone to bureaucracy

2. Flat or Horizontal Organizational Structure

Companies with flat or horizontal structures often have fewer levels of management or
executives over employees. Most people that have worked for a small company such as a startup
will have experienced this type of structure. At most, there is one layer of middle managers
between an executive(s) and employees, but oftentimes there are no middle managers present at
the company.

The advantage of a horizontal structure is that it gives employees more responsibilities which in
turn requires them to have more transparency within the greater organization. It also removes the
bureaucratic nature of large hierarchical structures, allowing for quick decisions to be made and
executed on.

The disadvantage of a flat structure is that it requires multidisciplinary professionals who don’t
desire to specialize. Middle managers also have a tendency to be stretched thin within this
structure as they’ll be overseeing many types of professionals and projects.

Pros:
 Employees often receive more responsibilities
 Requires employees given more transparency
 Allows for quick communication and decision making
Cons:
 Challenging for employees to specialize
 Managers can easily be stretched thin in this structure

3. Matrix Organizational Structure

A matrix structure provides for reporting levels both horizontally as well as vertically.
Employees may be part of a functional group (i.e. engineer) but may serve on a team that
supports new product development (i.e. new album). This kind of structure may have members
of different groups working together to develop a new product line.

For example, a recording engineer who works for a music publisher, may have engineers who
report to him but may also use his expertise and work with teams to develop new music albums.

Pros:
 Easily allow cross-functional work between teams
 Gives employees opportunity via their department projects and for organizational projects
Cons:
 Employees might have multiple managers at one time
 Requires employees to make more difficult prioritization decisions

4. Functional Organizational Structure

Functional organizational structures are the most common. A structure of this type groups
individuals by specific functions performed. Common departments such as human
resources, accounting and purchasing are organized by separating each of these areas and
managing them independently of the others.

For example, managers of different functional areas all report up to one director or vice president
who has responsibility for all of the operational areas.

The advantage of this type of structure is that functions are separated by expertise but the
challenges comes in when different functional areas turn into silos that focus only on their area
of responsibility and don’t support the function of other departments.
Pros:
 Most common and therefore understood by employees
 Departments have plenty of specialized expertise
Cons:
 Prone to Silos
 Employees may feel it’s not their responsibility to oversee that their work or project is
successfully handed off to the other team

5. Product Organizational Structure

Another common structure is to be organized by a specific product type. Each product group
falls within the reporting structure of an executive and that person oversees everything related to
that particular product line.

For example, an executive over Kraft products would be responsible for every product under that
label – dressings, meats, sauces, etc.

The advantage of this type of structure is that it organizes products by category but can create
completely separate processes from other product lines within the organization.

Pros:
 Organizes products by categories
 Focus on specific market segments
 Allows for specialization
 Can encourage healthy competition between departments
Cons:
 Other product teams might be cut off from innovations and learning opportunities by
other teams at the same company
 Can create inefficient/duplicative functions and resources
 Can nurture negative rivalries across departments

6. Customer Organizational Structure

Certain industries will organize by customer type. This is done in an effort to ensure specific
customer expectations are met by a customized service approach.

An example of this would be in healthcare. A patient seen as an outpatient has very different
needs than those of patients who spend time in the hospital as inpatients. A customer centered
structure creates customized care for those patients.

The advantage of this type of structure is that it specializes in the needs of each customer group
but can ignore the needs of different customer types.
Pros:
 Allows for specialization
 Creates a focus on customer satisfaction
Cons:
 Customer groups are not always easily defined and segmented
 It can be challenging to operationalize competing customer demands

7. Geographic Organizational Structure

For organizations that cover a span of geographic regions, it sometimes makes sense to organize
by region. This is done to better support logistical demands and differences in geographic
customer needs.

Typically a structure that is organized by geographical regions reports up to a central oversight

Pros:
 Better supports logistical demands
 Caters to different cultural and geographic customer expectations
Cons:
 Can cause conflicts between local and central management
 Duplication of jobs, resources, and functions