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7 Organizational Structure Types (With Examples)

By Christine Organ Cassie Bottorff
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Updated: Jul 31, 2023, 6:24am

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Table of Contents

Every company needs an organizational structure—whether they realize it or not. The

organizational structure is how the company delegates roles, responsibilities, job functions,
accountability and decision-making authority. The organizational structure often shows the
“chain of command” and how information moves within the company. Having an
organizational structure that aligns with your company’s goals and objectives is crucial.
This article describes the various types of organizational structures, the benefits of creating
one for your business and specific elements that should be included.
What Is an Organizational Structure?

Employees want to understand their job responsibilities, whom they report to, what
decisions they can and should make and how they interact with other people and teams
within the company. An organizational structure creates this framework. Organizational
structures can be centralized or decentralized, hierarchical or circular, flat or vertical.

Centralized vs. Decentralized

Many companies use the traditional model of a centralized organizational structure. With
centralized leadership, there is a transparent chain of command and each role has well-
defined responsibilities.

Conversely, with a decentralized organizational structure, teams have more autonomy to

make decisions and there may be cross-collaboration between groups. Decentralized
leadership can help companies remain agile and adapt to changing needs.

Hierarchical vs. Circular

A hierarchical organization structure is the pyramid-shaped organization chart many
people are used to seeing. There is one role at the top of the pyramid and the chain of
command moves down, with each level decreasing in responsibilities and authority.

On the other hand, a circular organization chart looks like concentric circles with company
leadership in the center circle. Instead of information flowing down to the next “level,”
information flows out to the next ring of management.

Vertical vs. Flat

A vertical organizational chart has a clear chain of command with a small group of leaders
at the top—or in the center, in the case of a circular structure—and each subsequent tier
has less authority and responsibility. As discussed below, functional, product-based, market-
based and geographical organizational structures are vertical structures.

With a flat organization structure, a person may report to more than one person and there
may be cross-department responsibilities and decision-making authority. The matrix
organizational structure described below is an example of a flat structure.

Benefits of Creating an Organizational Structure

There are many benefits to creating an organizational structure that aligns with the
company’s operations, goals and objectives. Clearly disseminating this information to
employees:

Provides accountability
Clarifies expectations
Documents criteria for promotion
Designates decision-making authority
Creates efficiency
Fosters collaboration
Essential Elements of Clear Organizational Structure
Regardless of the special type of organizational structure you choose, it should have the
following components:

Chain of command
Roles and responsibilities
Scope of control
Decision-making authority
Departments or teams within the organization
4 Common Types of Organizational Structures

Functional/Role-Based Structure
A functional—or role-based—structure is one of the most common organizational
structures. This structure has centralized leadership and the vertical, hierarchical structure
has clearly defined roles, job functions, chains of command and decision-making authority.
A functional structure facilitates specialization, scalability and accountability. It also
establishes clear expectations and has a well-defined chain of command. However, this
structure runs the risk of being too confining and it can impede employee growth. It also
has the potential for a lack of cross-department communication and collaboration.

Product- or Market-Based Structure

Along with the functional structure, the product- or market-based structure is hierarchical,
vertical and centralized. However, instead of being structured around typical roles and job
functions, it is structured around the company’s products or markets. This kind of structure
can benefit companies that have several product lines or markets, but it can be challenging
to scale. It can also foster inefficiency if product or market teams have similar functions,
and without good communication across teams, companies run the risk of incompatibility
among various product/market teams.

Geographical Structure
The geographical structure is a good option for companies with a broad geographic
footprint in an industry where it is essential to be close to their customers and suppliers.
The geographical structure enables the company to create bespoke organizational
structures that align with the location’s culture, language and professional systems. From a
broad perspective, it appears very similar to the product-based structure above.
Process-Based Structure
Similar to the functional structure, the process-based structure is structured in a way that
follows a product’s or service’s life cycle. For instance, the structure can be broken down
into R&D, product creation, order fulfillment, billing and customer services. This structure
can foster efficiency, teamwork and specialization, but it can also create barriers between
the teams if communication isn’t prioritized.
3 Alternative Organizational Structures

Matrix Structure
With a matrix organizational structure, there are multiple reporting obligations. For
instance, a marketing specialist may have reporting obligations within the marketing and
product teams. A matrix structure offers flexibility, enables shared resources and fosters
collaboration within the company. However, the organizational structure can be complex,
so it can cause confusion about accountability and communication, especially among new
employees.
Circular Structure
Similar to the functional and product-based structure, a circular structure is also
centralized and hierarchical, but instead of responsibility and decision-making authority
flowing down vertically, responsibility and decision-making authority flow out from the
center. A circular structure can promote communication and collaboration but can also be
confusing, especially for new employees, because there is no clear chain of command.
Organic Structure
Unlike vertical structures, this structure facilitates communication between and among all
staff. It is the most complex, but it can also be the most productive. Although it can be
challenging to know who has ultimate decision-making authority, it can also foster a
positive company culture because employees don’t feel like they have “superiors.” This
structure can also be more cost-efficient because it reduces the need for middle managers.
How To Choose the Best Organizational Structure

There is no one “right” organizational structure. When deciding which structure will work
best for your company, consider the following:

Current roles and teams within the company. How are job functions currently
organized? Does it foster communication and productivity? Does it impede or
encourage employee growth?
Your strategic plan. What are your company’s goals for the short-term and long-term?
Feedback from employees, leadership and other stakeholders. What do those
within your company say about how the company is structured? What feedback do you
have from other stakeholders, such as customers and suppliers?
Alignment. What structure will best support your strategic plans and address any
feedback received?

Frequently Asked Questions (FAQs)

What is the most common organizational structure?

What is the difference between an organizational structure and an organizational

chart?

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