Business

Business Organizational Structures

While you don’t necessarily have to use an organizational structure that currently exists, it helps to be aware of what other companies are using. Here are a few of the most common structures in modern businesses:

1. Functional

Also commonly called a bureaucratic organizational structure, the functional structure divides the company based on specialty. This is your traditional business with a sales department, marketing department, customer service department, etc.

The advantage of a functional structure is that individuals are dedicated to a single function. These clearly defined roles and expectations limit confusion. The downside is that it’s challenging to facilitate strong communication between different departments.

2. Divisional

The divisional structure refers to companies that structure leadership according to different products or projects. Gap Inc. is a perfect example of this. While Gap is the company, there are three different retailers underneath the heading: Gap, Old Navy, and Banana Republic. Each operates as an individual company, but they are all ultimately underneath the Gap Inc. brand.

Another good example is GE, which owns dozens of different companies, brands, and assets across many industries. GE is the larger brand, but each division functions as its own company. While somewhat dated and abbreviated, this diagram gives you an idea of what GE’s basic organizational structure looks like.

3. Matrix

The matrix structure is a bit more confusing, but pulls advantages from a couple of different formats. Under this structure, employees have multiple bosses and reporting lines. Not only do they report to a divisional manager, but they also typically have project managers for specific projects.

4. Flatarchy

While large businesses have traditionally followed a tall structure, it’s becoming increasingly common to see flatarchies in smaller businesses and new startups.

“Unlike the traditional hierarchy which typically sees one-way communication and everyone at the top with all the information and power, a ‘flatter’ structure seeks to open up the lines of communication and collaboration while removing layers within the organization,” writes Forbes’Jacob Morgan.

This flatarchy structure essentially removes unnecessary levels and spreads power across multiple positions. This leads to better decision-making, but can also be confusing and cumbersome when everyone doesn’t agree. In other words, it comes with pros and cons just like the other structures.

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