Organizational structure is a critical element for any business, as it outlines how tasks are divided and how communication flows between different levels and departments within the organization. In a small business, having a well-defined structure can help improve efficiency, increase productivity, and streamline decision-making processes. However, there is no one-size-fits-all approach when it comes to choosing an organizational structure.
Small businesses can choose from several types of structures, each with its own advantages and disadvantages. The five most common types of organizational structures for small businesses include functional, divisional, flat, matrix, and network structures.
A functional structure is a traditional hierarchy, where employees are grouped based on their roles and responsibilities. Divisional structures are organized around a specific product or service, and employees are grouped based on the division they work in. A flat structure is a more decentralized approach, where there are few layers of management and employees have more autonomy. A matrix structure combines elements of functional and divisional structures, where employees are assigned to both a functional department and a specific project team. A network structure is a more fluid approach, where employees work with external partners and contractors to complete projects.
Each of these structures has its own benefits and challenges, and small businesses need to carefully consider their needs and goals before choosing a structure. In this article, we will explore each of these structures in detail, along with their pros and cons, to help small business owners make informed decisions about their organizational structure.
Functional reporting structure
The functional reporting structure is one of the most common types of org structures. It groups employees together based on their function, or role, within the organization. For instance, the sales team works in one department, the IT team in another, and the finance team works in a third group. This encourages employees to specialize in one field, but it can also lead to siloes that make it difficult for teams to collaborate cross-functionally.
Divisional or product reporting structure
In this reporting structure, employees are grouped together by product lines, geographic region, market, or some other natural division. This type of org structure typically works best for large companies that have many products and sales channels. This is because each distinct division will have its own resources that allow it to manage sales, IT, marketing, and other operations. These types of reporting structures can lead to a duplication of resources that makes it difficult to scale. It also may decentralize decision-making and lead to bureaucratic red tape.
Process-based org models are designed around the flow of processes that allow a business to bring a product or service to market. For instance, research and development come before customer acquisition, which comes before order fulfillment; therefore, employees would be organized around these three discrete processes. This structure considers how employees work together and interact with each other to create a flow that improves the productivity of the business. Like other structures on this list, though, this structure can also lead to siloes that prevent valuable feedback from being shared widely.
The matrix structure falls closer to the organic end of the spectrum. It doesn’t follow a hierarchical model and instead creates dual reporting relationships for each employee. This means each employee reports to one person for function-based communication and a different person for product-based communication.
“The main appeal of the matrix structure is that it can provide both flexibility and more balanced decision-making (as there are two chains of command instead of just one),” wrote Hubspot. “Having a single project overseen by more than one business line also creates opportunities for these business lines to share resources and communicate more openly with each other — things they might not otherwise be able to do regularly.”
This structure works best for companies that have multiple divisions, campaigns, and products. For instance, if a business is launching a new piece of accounting software, the sales rep may report to the software development manager as well as their own sales director.
A flat reporting structure is the most organic of the reporting models on this list. “The flat reporting structure works for organizations that have zero distinct authoritative positions. This means that decision-making is equal throughout the company, as no managers or senior-level positions exist,” wrote Indeed.
The vision behind a flat structure is one of transparency and productivity. Ideally, employees feel motivated by sharing the decision-making power and without the pressure of reporting to senior leadership; however, when there’s a disagreement over the direction of the business, it can be hard to find alignment and get everyone on the same page.
CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.