Types of Organizational Structures

Every company, business, or organization has a certain way of ordering things so that the stated objective of that company gets done.  There are different types of organizational structures, each with its own pros and cons, that can be implemented at a business or organization to try and maximize output and efficiency.  These structures are especially important are larger companies where it's impossible for every employee to have a one-on-one relationship with the manager or CEO.

Ways of Organizing

Pyramid Heirarchy

Companies usually have some sort of operating heirarchy which gives each individual in the company a higher authority to answer to and get direction from.  This can be organized in a number of ways.  It could be a basic pyramidal model where a small group of people report to a manager, who reports to a higher manager, who reports to a director, who reports to a CEO, who reports to the shareholders.  In this model, there is a very clear chain of command that makes it always clear who an employee needs to talk to in any given situation.  Usually, it has to be more complex than this, but it is ideal in that it doesn't have to deal with issues such as jurisdiction spats or where accountability.  Unfortunately, the larger an organization becomes, the more unwieldy and less practical this becomes.  It also problematic in that it can put an excellent manager in charge of an area that is not his or her expertise, and as such, keep the duties in that area from being performed most efficiently or properly.

Departmental

Another option is to split the company up into different departments:  Sales, human resources, quality control, accounting, administrative, etc.  All of these departments are divided up and put directly in charge of their own individual responsibilities.  This can maximize efficiency because, unlike in the pyramid structure, it doesn't risk potentially putting control of a specific aspect of business into the hands of someone who is relatively inexperienced or incapable at that aspect, simply because they're at a certain level of the heirarchy.  The problem with departmentalizing is that it may cordon off the sections of the company from each other and make interdepartmental communicating difficult or nonexistent. 

Line and Staff Structure

This approach combines the above two elements so that, for the majority of activities, there is a clear heirarchy to the top, but on issues such as human resources or sales, there's a specialist who can come in if the higher-up on the heirarchy is not familiar with that area.  This can create a stifling, overly formal and procedural corporate culture however.

Practical Organizations

Aside from heirarchy, there are other ways to consider organizing a company.  Here are some examples:

Geographical Structure

If a company is spread out over a sizeable area, it is possible to divide it up into branches according to region, and have those branches act as a smaller local business, as long as they are in keeping with the higher company policy.  This would make the individual branches easy to organize from within, because they wouldn't be too unwieldy or bulky, and then the branches could be grouped together in terms of region.  This would give a more personal touch to the day-to-day dealings of the business.  It is also a fairly natural way to divide up a large company, and it gives a greater sense of logic to the organization.

Product Structure

This is another natural way of dividing up a company, specifically if a company is selling multiple products.  If there is a cosmetics department of a certain company and a shampoo department, it would be only natural to keep their affairs separate and allow them to operate on their own, since the two necessitate different approaches and sell to different markets.  Likewise, if two products sell to the same markets, you could divide it up so that people within those products are each focused on specific markets.

Matrix Structures

It is possible to try and combine functional and product structures into a grid-like system where a specific employee both belongs to a specific department and to a specific product, customer, or market.  So a salesman may be focused on the New York region, where he works with customer service and human resources in that region, but he also responds to the structure within the sales department.  Essentially, it puts each worker under two separate chains of command which he or she is accountable.  They must work within their department and their market.  This can get rather complicated, especially as the two managers above a person could have conflicting styles and both expect totally different things from the employee.  But regardless of this, it's probably the most comprehensive way to make sure there is communication between departments and markets, and, if done well, can help an organization run smoothly and efficiently.

Informal Structures

Despite what an organization has put in place to keep things running smoothly, there's a separate dynamic working in nearly every situation which could help or undermine the types organizational structures put into place.  This, naturally, is the personal dynamic in each specific section of the company.  A sense of teamwork or camaraderie among the workers may create a very different company dynamic than would a competitive, cut-throat atmosphere.  In truth, both models have been shown to work in terms of financial success, but arguments could be made in boths favor.  Personal relationships within the company are extremely important in how the company ultimately functions.  If there is communication and cooperation between departments and projects, then there is a good chance things will go smoothly.  If there is a hostile, territorial atmosphere set between two departments, it is likely to that companies own detriment. 

When choosing an approach for your company, it is in your best interest to tailor your organizational structure to your companies needs.  If you are selling multiple products, it is probably in your best interest to look in the Market-based structure.  If it's a small business, you may be able to do a pyramidal line approach very effectively.  If it's a large organization, maybe a matrix structure would be the most efficient.  It's best to decide your type of organizational structure on a situational basis.