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Types Of Organisational Structure

Updated on: Jul 13th, 2021


6 min read

To function effectively, every business needs an organisational structure in place. What organisational structure does is integrate all the activities of a business and how it functions. It determines the roles various personnel play, their decisions, and the impact those decisions have on the business as a whole. The type of organisational structure adopted is mainly dependent on the size of the business, and the way it operates.

Organisational Structure

Organisational structure encapsulates-

  • A hierarchy that outlines the roles and responsibilities of the organisation.
  • Answers two important questions- a) Who reports to whom? b) Who is responsible for what?
  • Pictorial representation of the flow of decisions and information throughout the business.

Types of Organisational Structure

  • Functional Structure
    This is the most common type of organisation structure. It is divided into different departments based on function. Every department has a functional manager and a specific number of employees. Since the division is based on the function, each department is able to streamline activities based on that function and ensure maximum efficiency.
    Communication flows via the department heads to the top management. For instance, the departments will be divided into the Sales Department, Purchases Department, Human Resources Department etc. Normally, this type of structure is well suited to small and medium-sized businesses.
  • Divisional Structure Here, the employees are divided into various segments of a particular product, service or market. Every divisional unit has a functional structure comprising sales, marketing, human resources, etc. Large enterprises often implement this kind of organisational structure. It is ideal for organisations with multiple products and can help shorten product development cycles.
  • Flat/Horizontal Structure
    In this, the levels of leadership are relatively lesser. The idea behind it is that employees are less stressed when there are lesser hierarchical pressures, thus enabling them to work freely.
    Since most levels of middle management are eliminated, employees are able to take decisions in a faster and more efficient manner. It also makes them feel a lot more involved in the business as their inputs and ideas are encouraged and often considered, which in turn boosts productivity and fosters a healthy work environment. Start-ups and small companies (early stage) tend to adopt this structure.
  • Matrix Structure
    It is a hybrid hierarchical structure wherein the employee has to report to a functional manager as well as a project manager. The lines of communication flow both horizontally as well as vertically. Therefore, it facilitates the pooling of resources.
    The advantage from the employees’ point of view is that they are able to widen their skillset since they are assigned to various projects that enable them to gain invaluable experience as well as knowledge and skill in previously untapped areas. The matrix structure provides a more balanced approach to decision-making since there are two chains of command rather than one.

Benefits of Having an Organisational Structure

  • Co-ordination
    The organisational structure outlines roles, responsibilities and tasks in a manner that facilitates cohesion and enables seamless coordination. The practice of developing teams for each activity further fosters a healthy working environment and a spirit of coexistence.
  • Minimal conflict
    Since there is a proper understanding of what one’s role is in the organisation, confusion seldom arises. Every person is aware of who to report to and what their tasks are, on a given day or in a given project.
  • No duplication of work
    The organisational structure includes teams in every division/department. Specific duties are delegated to each member of the team in order to ensure there is no overlapping or any duplication of work, thus providing a higher level of clarity.
  • Lesser instances of runarounds
    “Running around like a headless chicken” is not what any organisation wants. It leads to the wastage of time, money and resources. When there is an organisational structure in place, the level of clarity that it provides with regard to the right people to go to for a given task saves the company time and money in spades.
  • Promotion of personnel
    When people know their roles, they perform tasks efficiently. When they perform their tasks efficiently, it gives rise to a promotion based on their level of input and influence and how important they are to the organisation. With an organisational structure in place, an employee may also formulate his/her personal goals as to what level he aspires to be at with regard to his/her job title.
  • Aids in wage and salary administration
    Since the roles are well-defined and how indispensable a particular employee is to the organisation, it is easier to arrive at the salary and wage structure when these metrics are considered. However, the metrics involve both influences, tangible and intangible. The cost of living, inflation and other factors are also considered while arriving at the computation of an employee’s salary or wages.
  • Easy communication at all levels
    The flow of communication is made known to each and every person in the organisation, thus ensuring a smooth, uninterrupted flow of information at all levels throughout the organisation. This, in turn, saves the company a fortune in terms of costs since information is not delayed but conveyed in a timely manner.
  • Encourages creativity
    When everything works in a smooth and efficient manner, the focus is undeterred. This frees up the employees’ minds to contribute to the organisation over and above their regular lines of duty, thus fostering creativity and innovative thinking.

Disclaimer: The materials provided herein are solely for information purposes. No attorney-client relationship is created when you access or use the site or the materials. The information presented on this site does not constitute legal or professional advice and should not be relied upon for such purposes or used as a substitute for legal advice from an attorney licensed in your state.

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Quick Summary

Organisational structure integrates business activities through roles, responsibilities, decisions, and impacts; types vary based on business size and operations, like Functional, Divisional, Flat, and Matrix structures. It aids in coordination, minimizes conflict, minimizes duplication, reduces runarounds, supports personnel promotion, wage administration, and encourages creativity through efficient communication flow. The article also contains a disclaimer at the end.

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