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What is an Organizational Structure? [+Tips and Examples]

By Joan Ang, May 26, 2022

what is organizational structure

An organizational structure is a system of rules and relationships that govern how an organization is run. There are many different structures, but the common ones are functional, divisional, matrix, and flat. 

Each one has its own set of pros and cons, so it’s important to choose the right one for your business. 

In this post, we’ll learn about this management system and look into the different types of organizational structures, as well as provide some helpful suggestions and templates to help you figure out which one is right for you.

Don’t know how to visualize your organizational structure? With the Venngage Organizational Chart Maker, you can create diagrams for different departments in minutes.

 

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What is organizational structure?

An organizational structure defines how a company operates. The different divisions of the organization each represent a specific role. It determines how authority and decision-making power are distributed, how work gets done, and how information flows. 

what is organizational structure
 

Moreover, studying organizational behavior is critical. At its most basic level, this examines the impact of social and environmental factors on how individuals or groups work. 

A well-designed and successful organizational structure outlines how people interact, communicate, and collaborate. They help companies run smoothly and efficiently, as you can see from this internal structure chart.

what is organizational structure
 

There are many different types of organizational structures, which are guided by certain behavior, and each has its own advantages and disadvantages. 

But they all have the same goal: to help the company run like clockwork. What the best organizational structure is for your own company will depend on its unique needs and circumstances.

The importance of an organizational structure of a company

An organizational structure is critical in today’s business world because everything else in the company is dependent on it. 

Because it defines how job responsibilities are formally divided, organized, and coordinated, if the chart is not adequately drawn out, the entire organizational system will fail.

A bureaucratic organizational structure in government agencies, business units, or private companies possesses a well-defined chain of command and well-defined operating procedures. In both the public and private sectors, it’s an administrative structure based on policies, rules, and hierarchy.

When it comes to small and large business growth and success, the organizational structure is also critical. Employees are far more likely to comprehend what is expected of them when a system is in place. The structure can outline who is responsible for which team and who the employees can turn to. 

Charts exist so that everyone understands their role in the business unit at all times, as you can see from the example below.

what is organizational structure
 

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What are the types of organizational structures?

A functional structure, a divisional structure, a matrix structure, and a flat structure are the four types of organizational structures.

Departments or units are organized around fundamental competencies required to accomplish an organization’s strategic goals in a functional structure.

The corporation is organized into divisions based on product lines or client segments under a divisional structure, like the one below.

what is organizational structure
 

Department managers in a matrix structure have more than one reporting line, which includes both individuals to manage and lines of responsibility. Depending on project demands and priorities, it might be possible to ‘switch’ from one boss to another.

Employees in a flat structure have few if any subordinates to manage and do not report directly to a manager.

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6 key elements of organizational structure

According to Organizational Behaviour, these elements are: departmentalization, the chain of command, the span of control, centralization or decentralization, work specialization, and the degree of formalization (Bobbins, Judge, & Campbell, 2012).

  1. Work specialization or division of labor

It refers to the degree to which operations in an organization are broken into separate roles. Work specialization increases efficiency and production, but it also increases boredom, weariness, and stress, as well as low output, poor quality, increased absenteeism, and high turnover. The tendency toward specialization has shifted as more people realize that broadening the scope of job tasks can increase productivity.

  1. Departmentalization

It refers to the process by which jobs are grouped together. This can be done by function, product, geography, process, or customer. Functional departmentalization divides tasks into categories based on the functions they perform, such as engineering, accounting, or human resources.

  1. Chain of command

Is a continuous line of authority that runs from the top of the organization to the bottom, defining who reports to whom. Authority and unity of command are related to the concept of chain of command. The right of a boss to issue orders and expect them to be followed is referred to as authority.

what is organizational structure
 
  1. Span of control

Is the amount of employees that can be directed by a single manager. A narrow span of control fosters a more intimate and hands-on work environment and manages only a small number of employees. A wide span of control puts numerous employees under each manager, assuming that daily tasks and processes are clearly defined. The optimal control span will vary depending on the situation.

  1. Centralization

Refers to decision-making concentrated at a single place in the organization. Top management makes crucial decisions in a centralized structure with little or no involvement from lower-level employees. A decentralized structure, on the other hand, allows lower-level employees to provide input or even make choices.

  1. Formalization

It aids the creation of processes, relationships, and operational procedures; which outlines procedures, rules, and duties for individual employees, units, groups, teams, and the company as a whole.

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Which organizational structure is best for what type of business?

For different types of enterprises, different structures could work.

A functional organizational structure, for example, may not be right for a company with a lot of products or services because it doesn’t illustrate how they’re related and arranged. 

In this scenario, a divisional structure could be more appropriate for displaying these connections. 

what is organizational structure
 

However, if the company only sells one product or service line and employs a small number of people (say, less than 100), a flat structure, like the example below, is likely to be the better option since it allows employees to communicate easily with one another and with supervisors.

When an organization demands change or when difficulties occur, the organizational structure must be updated.

For instance, if a leader wishes to make changes to their structure to be more responsive to changing consumer needs, they can go from a functional to a matrix structure. 

When leaders find that the staff is spending too much time in meetings or dealing with internal issues rather than executing their tasks, they may want to consider switching from a divisional to a flat structure.

Depending on the demands of the business, an organizational structure can also be a mix of two or more types. 

It’s also critical for project managers or management teams to examine their culture to implement necessary changes. These design changes begin with actions that best match with culture rather than what makes sense from a purely economic perspective.

Organizations should select change management techniques that will enable them to attain their desired cultures while also allowing them to successfully implement new designs.

what is organizational structure
 

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Tips for implementing a corporate organizational structure

  1. Define the organizational structure and levels

The first stage in creating organizational structures is to designate management and employee levels. This includes creating management layers and reporting links, cross-functional processes, and workflows, and clear lines of authority and accountability that enable staff to spot and fix issues before they become a problem.

  1. Develop a philosophy statement

When designing organizational structures, the company’s philosophy should be clearly articulated. The philosophy defines the driving ideas for how your company will operate, it should be expressed in plain language that everyone can comprehend. Employees must understand the type of company they work for to know what actions are required of them at all times.

  1. Choose options based on tradeoffs between flexibility and efficiency

The organizational structure you select should be based on what will work best for your business, given its unique demands and objectives. Everything must be taken into account when developing a structure to guarantee that all employees understand their positions in the company. The needs, the competitive business climate, culture, communication patterns and processes, worker capabilities, and firm size are all elements to consider.

  1. Prepare managers for their new roles

Because managers are in charge of allocating resources within units, they must be heavily involved in the development of organizational structures. They should always be aware of how employees will interact with one another when performing activities, as well as the impact that changes in the org structure, will have on their function.

  1. Communicate changes clearly and often

Changes in the structure influence everyone in the organization, thus it’s critical to convey them clearly and frequently. Employees will be more successful in accomplishing duties if they have a better understanding of organizational structures. This will not only enhance employee morale but will also create stronger teamwork by helping workers properly manage their time and perform tasks per their needs.

what is organizational structure
 

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How to create your organizational structure with Venngage

When creating an organizational structure, numerous critical components such as design, a chart, job descriptions, and workflows must be taken into account. Venngage provides a choice of templates to pick from, like the example below. 

what is organizational structure
 
  1. Sign up for a free account.
  2. Click on Templates from your dashboard or Home, then Diagrams from the left pane to see a list of the numerous types of diagrams and charts you may make, including an Organizational Chart.
what is organizational structure
  1. Choose a template that suits your needs. This will bring you to the canvas, where you can adjust and edit the chart as needed with the many tools available. 
what is organizational structure
  1. You can save your work to your device if you have a Premium or Business account. Simply click Download from the upper right menu pane and select PNG, PNG HD, or PDF if you have a Premium account, or an Interactive PDF, PPT, or HTML if you have a Business account. You can also add your branding using the My Brand Kit tool. Plus, with the real-time collaboration feature, you can invite team members to create a more effective diagram.
what is organizational structure

Venngage also has a business feature called My Brand Kit that enables you to add your company’s logo, color palette, and fonts to all your designs with a single click.

For example, you can make your organization structure template reflect your brand design by uploading your brand logo, fonts, and color palette using Venngage’s branding feature.

Not only are Venngage templates free to use and professionally designed, but they are also tailored for various use cases and industries to fit your exact needs and requirements.

what is organizational structure

A business account also includes the real-time collaboration feature, so you can invite members of your team to work simultaneously on a project.

Venngage allows you to share your organizational structure design online as well as download it as a PNG or PDF file. That way, your design will always be presentation-ready.

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What are the pros and cons of the various organizational structures?

There are advantages and disadvantages to the org structure that an organization chooses.

Because there are no reporting lines between groups, a functional structure is ideal for departments that collaborate closely, but they are ineffective for managing product or client segments. It may cause people to devote more time to internal matters than to their actual work.

Large organizations can benefit from divisional structures since they can be organized by product line or market segment, resulting in a clear reporting chain. However, if not handled appropriately, it can lead to silos, which is a problem when separate divisions compete against one another rather than collaborate.

Employees can be assigned to multiple projects at the same time, and reporting responsibilities are distributed between different supervisors, thanks to matrix structures. Employees, on the other hand, may feel tugged in too many directions and unable to focus on a single task.

Smaller companies or teams benefit from a flat org structure since everyone may contribute while being close to the boss. Employees, on the other hand, may believe they lack the resources of larger organizations and that they lack the necessary experience or authority to effectively provide value.

what is organizational structure
 

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Improve your organizational structure with Venngage

Venngage simplifies the process of designing charts, diagrams, flowcharts, and processes by offering a variety of templates and features. 

The templates provided can be used by leaders to create structures that are best suited to their organization’s goals and available resources.

 
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