There are three main types of organizational chart structures: hierarchical, flat, and matrix. For each of these primary structures, there are different variations that reflect the specific operational needs of a company.
Visually, an organization’s structure can be represented through an org chart, a diagram that breaks down the reporting structure and shows relationships between departments and the employees within each department.
Org charts identify what jobs people do, and can sometimes tell you their responsibilities, and how decisions are made within an organization.
Knowing your organization’s structure, and creating an org chart, helps to define how information moves between the different functions of the business, improving efficiency and providing clarity about who does what job.
In this guide, we break down the three most common types of organizational structures and delve into the advantages and disadvantages of each.
Hierarchical Org Structure
The hierarchical org structure is what most people imagine when they think of an organization. It is represented by a traditional org chart structure, as it is the oldest and most commonly used. Shaped like a pyramid the chart starts at the top (usually with the CEO), with authority and accountability flowing directly down to each different department-level manager and their employees.
Hierarchical organizations have multiple levels with middle managers linking one level to the next. Employees usually only report to one manager to reduce confusion and to allow for closer monitoring and better employee performance management.
Advantages
Easy to understand roles, responsibilities, and quickly identify the decision-makers
Communication flows faster with defined roles and responsibilities
Greater accountability with decision-makers identified
Employees know where to go with specific questions
Disadvantages
Communication flows from the top to the bottom, which can impede innovation
Decision-making can be slow
Multiple management layers increase operating costs
There are two different types of hierarchical structures, functional and divisional:
Functional Org Structure
A functional organization is the most common type of hierarchical structure. Employees are grouped according to their specific skills and job functions into departments that operate independently from the company’s other departments. For example, a marketing team might have a VP, senior manager, assistant manager, and different staff-level roles with each layer reporting to the manager above them.
Divisional Org Structure
A divisional structure enables enterprise-sized companies to separate large sections of their business into independent divisions typically around product, market, or geographical groups. These divisions then operate as self-autonomous companies within the larger corporation with all the resources—sales, marketing, accounting, etc.—needed to support it. For example, McDonald’s corporate structure is represented by a divisional org chart based on geographical areas.
Companies with a wide variation in products and services or geographic regions most commonly use the divisional structure because it gives each division greater flexibility to operate autonomously.
Flat/Horizontal Organizational Structure
Like a single-floor open office, a flat organization puts employees closer to company leadership. It also eliminates the layers of middle management providing very little hierarchy. Though there is usually a leader, most other positions are seen as equal and arranged horizontally within an org chart. In these types of horizontal organizational structures, it is more likely that all employees are empowered to make their own decisions. For example, in some companies, employees might choose the projects they want to work on.
A flat organizational structure is often used by small businesses and early-stage startups where employees wear multiple hats, work closely together, and can be managed by one person. Tech-startup companies Treehouse and Buffer have flat organizational structures.
Advantages
Empowers employees with greater autonomy
Increases the speed of adopting new ideas
Encourages open employee communication and feedback
Decision-making is easier and faster
Disadvantages
Not easily scalable; difficult for large companies to adopt
Harder to maintain accountability, especially as a team grows
Employees lack specific bosses to report to
Encourages generalists rather than specialists increasing employee workload
Matrix Organizational Structure
A matrix organizational structure sets up reporting relationships as a grid in an org chart and uses a dual chain of command for employees. One manager handles an employee’s functional activities with a vertical flow of authority. The other—typically a project or group manager—also manages that employee but the flow of authority is horizontal. This second relationship may be temporary as projects are completed and new ones are started under different managers. Starbucks is a company that is well known for its use of the matrix organizational structure.
Advantages
More open communication and knowledge sharing
Increases employee skills and experiences
Managers use the right people for each project
Disadvantages
More managers increase overall costs
Can create power struggles between functional managers and project managers
Reduced speed in decision making with multiple managers
Not surprisingly, the most common uses of matrix org structures are team and project-based
Team & Project-Based Org Structure
This structure groups employees with specific and usually complementary skills into small teams working towards a common goal. Above the team or project level, the organizational structure is hierarchical. Typically teams share responsibilities, are time-limited and are empowered to make their own decisions. This structure changes often as teams complete projects. NIIT, an Indian multinational education management company, represents its company structure using a Team & Project-Based Org Chart.