Business organisational structures and how they help you

By Indeed Editorial Team

Updated 31 May 2022 | Published 27 September 2021

Updated 31 May 2022

Published 27 September 2021

In an effort to run more efficiently, some companies may implement organisational structures in their workplace. This helps with the smooth running of operations and processes within the business. Depending on the size of the company and the way it operates, some structures might suit the business better than others. In this article, we define organisational structures, list the various types of structures and outline the purpose and benefits of using them.

What is an organisational structure?

An organisational structure outlines how company activities and processes are structured in line with the objectives of a company. It helps employees to understand their function and role within the company and details how this contributes to company goals. The more authority employees hold, the higher up they are on the organisational structure. In addition, the more organised a structure is, the more efficiently a company operates. Every department within the company has a clear idea of what the company expects.

There are four types of organisational structures:

  • Functional structure

  • Flatarchy structure

  • Matrix structure

  • Divisional structure

Related: What Are Leadership Styles?

Using an organisational structure

An organisational structure outlines how certain processes are carried out to achieve an organisation's goals. These activities can include company policies, employee roles and delegated responsibilities. The structure also determines how information flows between different levels and departments within the company. This helps communication take place far more efficiently.

For example, in a centralised structure, decisions flow from the top down. This is recognised by employees, who expect instruction to come from their superiors. In a decentralised organisational structure, decision-making power is distributed among various levels of the organisation, so employees may be more independent and make their own decisions. Having a structure in place allows companies to remain efficient, focused and helps employees become familiar with the expectations of their role.

Benefits of implementing an organisational structure

Not all businesses use organisational set-ups, but those that do can reap multiple benefits. Here are some of the benefits of implementing an organisational structure in a company:

  • Accelerated decision making as you are clear on the objectives of the business

  • Enhanced running of multiple business locations

  • Improved operating efficiency across departments

  • Enhanced employee performance as everyone understands their role and function clearly

  • Minimised duplication of work and wasted resources

  • Reduced employee conflict related to miscommunication

  • Increased communication

What are the main components of organisational structures?

There are several key aspects to any given structure within an organisation. If you're a team leader or manager, it can be highly beneficial to understand these key components for a number of reasons. First, by understanding how your current team structure works, you can better make adjustments to improve its efficiency. Second, you can better understand the overall structure of your organisation and use it to inform your managerial decision making. Here are the key aspects of an organisational set-up:

1. Chain of command

It's important to have a clear chain of command within a business or team. The chain of command refers to how tasks are delegated within the organisation and who work is approved by. A structure allows you to define the number and types of 'links' in the chain within your particular department or team. In other words, the chain of command determines who employees report to and how information is communicated throughout different levels.

2. Span of control

Span of control can represent two things:

  1. The number and type of employees under a particular manager's direction

  2. The tasks and projects which fall under a specific department's responsibility

By gaining clarity on the span of control within a team, managers can properly distribute a team and their workload to ensure that deadlines are met and business operations run smoothly without interruption.

3. Centralisation

Centralisation describes where decisions are ultimately made within a business. Once you've established what the chain of command is, consider which people have a say in each decision. A business or team can lean towards a centralised structure, where final decisions are made by just one or two entities high up within the hierarchy, or a decentralised one, where final decisions are made by members within the team or department in charge of carrying out that decision.

Although a well-defined structure isn't always necessary for a team or business, it becomes increasingly essential as a business grows. Without a structure, there's an increased risk of reduced productivity and efficiency. This, in turn, can have a negative impact on a business and its profitability. If you're a manager or team leader, consider implementing structure within your teams to minimise these risks.

Related: Communication Skills You Need To Succeed

What are the different types of organisational structure?

There are four types of organisational structure. Understanding how they work and what their benefits and drawbacks are can help you make a more informed decision as to which might best suit your team

1. Functional structure

In a functional structure, organisations are divided into specialised groups that are assigned specific roles and duties. A functional structure is also known as a bureaucratic organisational structure and is commonly found in small- to medium-sized businesses.

Most people in the workforce have experience working in this type of organisational set-up. For example, many companies divide their organisation into various departments, such as finance, marketing and human resources. Each of these departments then has a manager who oversees it and delegates tasks to employees. An administrator or executive higher up who oversees multiple departments then supervises this manager.

Here are some advantages of a functional structure:

  • Employees are grouped by skill and may be more productive

  • Greater sense of teamwork and cohesion within the team

Here are some disadvantages of this structure:

  • Lack of communication with other departments; employees may have a narrower view of the business

  • Unhealthy competition among colleagues

  • Employees may experience conflict with management

2. Divisional structure

In a divisional structure, various teams with different strengths and tasks work alongside each other towards a single, common goal. Each of these divisions has its own executive who manages how that specific branch operates, controls its budgets and allocates its resources. Large companies may employ this type of organisational set-up. While each branch has its own function, they all work towards the same goal based on the company's objectives. This is also known as a multi-divisional structure.

Here are some advantages of this structure:

  • Departments can focus on a single good or service

  • More centralised leadership

Here are some disadvantages of this structure:

  • Poor integration with other divisions

  • Competition between divisions

  • Lack of communication between divisions, resulting in conflict

3. Flatarchy

In a flatarchy, there are little to no levels of management. A company using this structure may have only one manager in between its executive and all other employees. It's called a flatarchy because it's a hybrid of a hierarchy and a flat organisation. Smaller companies often use this type of organisational structure since they have fewer employees, meaning there is less confusion, though it can be used in companies of all sizes.

While some companies grow out of this organisational structure as their business evolves, others continue to use it.

Here are some advantages of this structure:

  • Cost-efficient as you cut out the need for multiple levels of higher management

  • Fosters good communication between employees

  • Higher employee morale and better teamwork

  • Faster decision making, as you have fewer bureaucratic levels to go through

Here are some disadvantages of this structure:

  • Potential employee conflict

  • May result in leadership confusion

4. Matrix structure

In the matrix style of organisational structure, employees are divided into teams that report to two managers – a project or product manager, along with a functional manager. In essence, a matrix structure is a combination of various structures. Because these teams have two managers, a matrix structure promotes better communication and resource sharing. Employees working for companies using the matrix structure have the potential to widen their skill set as they might be assigned to various projects requiring different levels of expertise or skills. This can be great for employees who thrive on change.

Here are some advantages of this structure:

  • Fosters open dialogue among employees

  • Flexible workplace environment prevents boredom

Here are some disadvantages of this structure:

  • Leadership confusion may result in decreases in productivity

  • Conflicting leadership loyalties may result from having more than one manager

  • Potentially more costly to have two managers when one might be sufficient

  • Roles may not be clearly defined and may result in employee confusion

  • Potentially heavy employee workload

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