Company Organizational Structure: Functional vs. Divisional vs. Matrix vs. Flat

Organizational structures define the hierarchy or an organization, and determine the way information flows within it. When establishing a structure, business leaders should decide how a structure best aligns with the company’s principles and goals and how it outlines and sets up tasks for each employee. In the anatomy of business, the overall structure should be a stable backbone where everything else rests.

However, the initial establishment of the structure does not end the discussion surrounding them. Each organizational structure brings with it various benefits and challenges that management needs to be aware of. Some organizational problems may not be brought on by changing times or new employees; it might be the result of an old structure that needs tweaking.

Part 1

Popular Types of Organizational Structures

While some argue that there are more in existence, organizational structures can typically fall into four types: functional, divisional, matrix, flat. Selecting a structure can either happen organically (without pre-planning or intention) or with rigid forethought that is not always open to a sometimes-needed update.

Structures have an impact on responsibilities and superior-subordinate relationships, communication flow, and overall management and growth. Therefore, it is essential for business leaders to know what category they fall into and when to make some needed tweaks.

  1. Functional Organizational Structure

    This is a traditional structure and includes divisions based upon specialty. This forms the well-known hierarchy of senior management, marketing, finance, human resources, and operations.


    This is one of the more common forms, and it is not necessarily designed to respond to change quickly. A functional structure also facilitates the development of specialists. Since professionals who do work in the same field are pulled together, this arrangement pulls individuals away from a generalist role.

    Each specialist group answers to top management. Since each team works in silos, management is expected to guide all departments into one unit.

    The Benefits and Challenges of Functional Structures




    A. A clear definition of top management and other specialized departments sets the expectation of who reports to who, and how they can communicate with one another.


    B. This set-up also puts professionals who specialize in one thing together. This allows for teams to easily share information between one another and further optimizes the department they are a part of.


    C. Also, there is a clear path of promotion for employees, which makes it likely that managers participate in the tasks workers are involved in making them more aware of decisions that need to be made.



    However, there are apparent disadvantages to this conventional structure.


    A. Because of the specialized departments, management can forget to implement mechanisms for units to communicate across one another or collaborate when appropriate.


    B. It is also easy for departments to slip into a mindset where they only worry about their own results and forget how their numbers impact other departments in the company.


    C. This type of structure makes it difficult to have a holistic view. As a result, innovation and forward-thinking ideas can quickly become stifled.

  2. Divisional Organizational Structure

    Instead of focusing on specialties, this structure groups individuals based on the products or projects they are undertaking. General Electric is an excellent example of how this style can work. At the top is the CEO, and after them is a hybrid of functional grouping: public relations, legal, finance, global research, business development, and human resources.


    After that, the cluster becomes project-based with lower-level employees in groups that address the company’s work in healthcare, energy, aviation, transportation, and a few other projects.

    This style blends the expertise of many different skill sets.

    What Works and What Doesn’t?




    A. What works about this particular structure is the level of autonomy each project receives. Normally, each group has a vice president or director which makes it easier for them to obtain the resources they need.


    B. Also, since these individuals know the project the best they can ensure it is treated with the attention it requires. Things can get difficult if an organization-defining project is funneling through a functional structure as a specialized unit might not give the project the same attention it needs since it is not a primary priority.




    A. The main disadvantage of this structure is that it is easy for office politics to take hold and for one divisional team to undermine and compete with another for resources.


    B. It is easy for a group to feel their product or project is more important than another because of the amount of time and dedication they spend working on it. This can create tunnel vision that prevents workers from understanding the needs of co-workers tending to another project. This situation breeds a company personality of competition that can do more harm than good in the long-run.


    C. Also, each division has a unique purpose which makes it difficult to be managed.

  3. Matrix Organizational Structure

    The matrix structure can get a bit confusing. It is a combination of the functional and divisional structures. Companies are divided into departments of specialization, and then within those units, they are separated further into projects and products. It has a tendency to be highly sophisticated, and as a result of that, it will take a lot of planning to implement it correctly.


    The Good and The Bad




    A. Since the functional and divisional groups are blended, communication can travel faster to where it needs to go. This should increase productivity and quickly hip managers to any issues that may arise since information moves fast.


    B. It also allows for employees to be exposed to various other departments and work processes since they have to work so closely to accomplish set projects.


    C. This organizational style is also flatter since team members are directly involved in decision-making.


    D. Managers get the opportunity to be included in the day-to-day tasks of projects which makes it easier for them to address problems and regulate communications.




    While there is some good with the matrix structure, there are still some issue areas business leaders need to be aware of before implementing this style:


    A. Because there are functional and divisional managers, it can be difficult for employees to know who they report to. A manager could ask a worker to do something that contradicts what they were just told, or it could add more pressure on top of what they have to accomplish for other managers.


    B. Another issue is expenses. This structure requires two sets of leadership at the same level which is double the salaries and benefits.

  4. Flat Organizational Structure

    This organizational style combines a little of the top-down hierarchy with a decentralized management style where communication travels faster. A flat structure establishes a top-down management style for temporary projects or important events.


    However, more often than not, this method seeks to disrupt the traditional superior and subordinate role. A lot of newer tech companies and startups use this style to allow employees to feel empowered to create ideas that can help move the company forward in the long term.

    This creates temporary teams that have autonomy without bureaucracy. While this style can work in certain situations, there are significant points to be aware of.

    The Pros and Cons of Flat Companies





    A. This structure is all about decentralized leadership and eradicating unnecessary levels of management. Companies that use this structure seek to eliminate red tape and spread decision-making across multiple positions.


    B. A lack of high-level management reduces the number of salaries needed, and it allows decisions to happen at a faster rate since there are fewer people that need to sign off on important choices and inquiries.


    C. Also, communication from employees to managers is less likely to be distorted since there are not as many layers that messaging has to travel through.


    D. A huge plus for employees is that a flatter structure gives them more autonomy and less of a chance for managers to micromanage. If done correctly, flatarchies can increase employee morale.




    Like all other structures, flatarchies have disadvantages leaders need to keep in mind:


    A. As companies grow, it becomes difficult to stay with this arrangement. If the employee to manager ratio gets out of control, it becomes challenging for managers to take everyone’s input into account and ensure that everyone is heard.


    B. A lack of a permanent hierarchy also decreases the chance for promotion and a salary increase since most employees, and even managers are on the same level.


    C. A flatter organizational structure does not always produce defined employee roles; as a result, workers may have to pick up more tasks than they bargained for since the leadership structure is decentralized.

Part 2

Business Leaders Have to Take Many Factors into Account When Structuring Their Companies

The type of organizational structure a business leader selects for their business can vary due to size, need, and the role of the business in their respective industry:

  • For companies who are heavily involved in developing products, a matrix or divisional structure works well because management directly groups people by the project or product they have the most expertise in.
  • For large companies who have a lot of employees to manage, functional and matrix set-ups may work to organize employees into specialized areas easily and streamline communication between upper management and employees.
  • If a business leader is just starting out and expects their number of employees to stay at a lower number for the foreseeable future, then a flat organizational structure may be appropriate. However, leaders have to be open to moving to a more suitable arrangement if the business starts to grow or if the overall function of the business changes.

Creating an organizational chart can make the view clearer of the type of structure under which an organization is operating.


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