Common Organizational Structures | management principles (2023)

learning successes

  • Distinguish between the four basic types of departmental organization (Function, Product, Customer, and Geography).
  • Distinguish matrix organizations from traditional departments.
  • Distinguish structures based on teams, networks and modular organizations.

department formation

Based on the application of an organization's common elements (common purpose, coordinated effort, division of labor, hierarchy of authority, and centralization/decentralization and formalization), the resulting structure typically exhibits one of four broad departmental structures: functional, product, customer, and geography.

functional structure

As sales increase, organizations generally adopt a functional structure. This structure groups employees into functional areas based on their experience. These functional areas often correspond to stages in the value chain, such as operations, research and development, and marketing and sales. This also includes support areas such as accounting, finance and human resources. The graphic below shows a functional tree with lines indicating authority and reporting relationships. The department head of each functional area reports to the general manager; The CEO then coordinates and integrates the work of each function.

Common Organizational Structures | management principles (1)

Organizational chart of the functional structure.

A functional structure allows for a higher level of specialization and deeper domain experience than a simple structure. Higher specialization also allows for a greater division of labor, which is associated with higher productivity.[1]Although the work is more specialized in a functional structure, it is coordinated centrally by the CEO, as shown in the graphic above. A functional structure enables an efficient top-down and bottom-up communication chain between the CEO and specialist departments and is therefore based on a relatively high structure. The inherent disadvantage of a functional structure is that the emphasis on specialization can lead to high levels of job dissatisfaction and fewer process improvements for the organization.

product structure

Companies with diversified product lines are often structured around the product or service. GE, for example, has six product-specific departments supported by six centralized service departments. (1) Energy, (2) Capital, (3) Home and Business Solutions, (4) Healthcare, (5) Aviation, and (6) Transportation. Product departments work well when products are technical in nature and require more specialized knowledge. These product areas are supported by centralized services including: Public Relations, Business Development, Legal, Global Research, Human Resources and Finance.

(Video) Organisational Structures Explained

This type of structure is ideal for companies with multiple products and can help shorten product development cycles. A downside is that it can be difficult to scale. Another disadvantage is that the organization can end up with duplicate resources when different departments fight for autonomy.

Common Organizational Structures | management principles (2)

customer structure

Businesses that provide services like healthcare tend to use a customer-centric structure. Similar to the product structure, the various business segments are each broken down into a specific customer group below, e.g. B. Ambulatory Care, Emergency Care and Emergency Care. Since customers are very different, it makes sense to customize the service. Employees can specialize in the type of customer and be more productive with that type of customer. The directors of each customer service center would report directly to the medical director and/or the executive director of the hospital. This also serves to avoid overlaps, mix-ups and redundancies. Customer structure is appropriate when the organization's product or service needs to be tailored to specific customers.

Common Organizational Structures | management principles (3)

Organizational chart of the customer structure.

The customer-based structure is ideal for an organization that has unique products or services for specific market segments, especially if that organization has advanced knowledge of those segments. However, there are also disadvantages with this structure. When there is too much autonomy between departments, incompatible systems can develop. Or departments can inadvertently duplicate activities that other departments are already managing.

geographic structure

When an organization spans multiple geographic regions and the product or service needs to beconvenient, often requires organization by region. Geographical structuring involves grouping activities based on geography, such as B. a Latin American department. Geographical structuring is particularly important when tastes and brand response differ between regions, as it allows for flexibility in product offerings and marketing strategies. In addition, geographical structuring may be necessary due to costs and availability of resources, sales strategies and laws abroad. Coca Cola is structured geographically based on the cost of transporting water. NetJets, a private airline, had to set up a separate company in Portugal to operate NetJets Europe as the company had to be owned by a European Union airline.

McDonald's is known for its geographic structure and strategy of targeting food preferences. The McDonald's in Malaysia is Halal certified (no pork products) and you can order the McD Chicken Porridge - chicken and onion porridge. Other examples are brie nuggets (fried brie) in Russia; the Ebi Filet-O (shrimp patty) in Japan; and in Canada, you can order poutine (French fries and cheese curds with gravy).

(Video) Types of Organizational Structure in management

This type of structure is best suited for organizations that need to be close to sources of supply and/or customers. The main disadvantage of a geographic organizational structure is that decision-making can easily be decentralized. Geographical departments can sometimes be hundreds, if not thousands, of miles from corporate headquarters, giving them a high degree of autonomy.

practice question

parent organizations

When two dimensions are critical, companies use a matrix structure. For example, employees can be organized by product and geography, and have two managers. The idea behind such a matrix structure is to combine the locational advantages of the geographic structure with those of the functional structure (responsiveness and decentralization).

The advantage of the matrix structure is that it can offer both flexibility and more balanced decision-making (because there are two chains of command instead of just one). Its main disadvantage: complexity that can lead to confused employees.

practice question

Structures based on teams, networks and modular organizations

The reality is that an organization that is successful enough to survive and thrive will eventually need some form of integration. Poor communication between siled departments often creates a crisis that inspires efforts to integrate efforts such as teams, networks, and modular structures.

(Video) Types of Organizational Structures

Team based structure

Over the past few decades, team-based structures in different variations have prevailed in almost all industries. The Lockheed Martin Aircraft Corporation began its "Skunk Works" project in 1943 in response to the US Army's need for a fighter aircraft. Based on a handshake, a small team of engineers worked covertly in a tent to design and build the XP-80 Shooting Star jet fighter in 143 days, seven days less than needed. The level of secrecy required for this type of project team is extremely rare in most organizations, yet it has produced today's project team.

Common Organizational Structures | management principles (5)

An image of the Skunk Works® hangar in Palmdale, California

project teamsthey concentrate on a few goals and usually dissolve at the end of a project. Similar to the Skunk Works® model, this team can be located in a specific room or building to improve communication and collaboration and minimize distractions. Although project teams are less hierarchical, they still typically include a manager.


In general, a team consists of people with complementary skills working towards a common goal. Organizations form teams by grouping employees in a way that generates a variety of insights and addresses a specific operational component of the organization. Teams that include members from different functions are referred to as cross-functional teams. Due to the success of the first project teams, it is believed that a team will be a more creative and productive structure to face new challenges. However, it is important to remember that every team is a group, but not every group is a team. A team structure should be less hierarchical, share leadership, and be more fluid than traditional structures (such as functional or divisional). Real teams don't break up after a project. Rather, they continue to change and adapt to achieve group and organizational goals over several years.

The table below lists some of the differences between teams and groups.

Differences between teams and groups
teamsThe group
purposeDifferent, specific to the team statutes.Indistinguishable or parallel to the organization.
workInterdependence with a collective work productIndependent tasks with individual work results.
PerformanceSynergy: Together we achieve more than the sum of the individual servicesAdditive: Sum of the individual services
competenciesComplementarycertain work
guideDividedA leader
responsibilityMutual accountability, responsibility for the product of collective workIndividuals: For their own products
Leader: For group product
Communicationperformance talkshierarchical

Source: Information derived from Katzenbach and Smith (1993)

Team structures can remove layers of management, allowing employees to make decisions without seeking multiple approvals. This streamlines processes and reduces administration costs. However, motivating people in a team-based organization can be more difficult as team performance is rewarded rather than individual performance.

(Video) Principles of Management - Organizational Structure and Design | Dr. Saeed

network structure

The newer and more divergent team structure is commonly referred to as the network structure. A network structure is not very bureaucratic and is characterized by decentralized decision-making. Managers coordinate and control relationships inside and outside the company. A social interaction structure is encouraged to establish and manage formal and informal relationships. The aim of this structure is to achieve rapid organizational evolution and adaptation to constantly changing external and internal environments.

Zappos has adopted this model and dubbed it holocracy. Rather than relying on a traditional top-down hierarchical management structure,Holocracyattempts to achieve control and coordination by dividing power and authority among self-organized groups (called circles) of employees. Employee groups should organize themselves and have a specific task, such as confirming online orders or authorizing a customer's credit card. Order is meant to emerge from the bottom up, rather than relying on top-down command and control as in traditional organizational structures. The rules are explicitly set out in a so-called constitution, which defines the power and authority of each circle. For coordination, employee groups overlap horizontally and without vertical hierarchy. Once the teams are in place, the CEO effectively relinquishes all executive authority.

A network structure should promote communication and the free flow of information between different parts of the organization as required. However, the circular structure can be confusing, especially for new employees.[2]

The following video explores Zappos' work culture and organizational structure.

You canHere is the transcript of "Zappos is a strange company, and it's fortunate that it is" (opens in a new window).

ModularThe organization

A company is considered to have a modular structure if it has areas or departments that can be easily separated from the company without endangering the company. The key lies in the ability to identify which modules or departments within a company are effective and which can be outsourced to create a stronger organization.

Organizations that want to remain agile and lean need to know when it's time to remove a module and allow off-site work. For example, a small t-shirt company may realize that its design, production, and customer service modules are in tip-top shape and working well together, but its website design and maintenance department is holding it back. The workshop can outsource this module and send the work to an external company.[3]

practice question

(Video) Organizational Structure Principles of Management


Have ideas to improve this content? We would appreciate your opinion.

improve this pageLearn more

  1. Andrew J. Epstein, Jonathan D. Ketcham, and Sean Nicholson, "Specialization and Mixture in a Professional Services Firm," RAND Journal of Economics. 41, No. 4 (Winter 2010) 811-834. p. 824
  2. Devaney, Eric. "The Pros and Cons of 7 Popular Organizational Structures [diagrams]". HubSpot Marketing. December 23, 2014 (updated August 3, 2017).
  3. Sparks, Dana. "Modular organizational structure". Houston Chron.


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What is the common organizational structure? ›

Hierarchical org structure

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What are the 4 common elements of an organization's structure? ›

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What are the seven principles of quality management?
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The six elements are:
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  • Formalization of elements. ...
  • Centralization and decentralization. ...
  • Span of control. ...
  • Chain of command.
5 Apr 2021

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  • Principle of Responsibility: ...
  • Principle of Definition: ...
  • Principle of Coextensiveness: ...
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Who proposed 29 principles of organization? ›

Henri Fayol
Henri Fayol (at the age of 70)
BornJules Henri Fayol 29 July 1841 Istanbul, Ottoman Empire
Died19 November 1925 (aged 84) Paris, France
3 more rows

What are the 14 principles of management with examples? ›

Henry Fayol's 14 Principles of Management with Examples
  • Division of labor.
  • Authority and Responsibility.
  • Discipline.
  • Unity of Command.
  • Unity of Direction.
  • Subordination of Individual Interest.
  • Remuneration.
  • Degree of Centralization.
28 Oct 2022

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What are the three common types of Organisational structure used by companies most often? ›

Three forms of organizations describe the organizational structures that are used by most companies today: functional, departmental and matrix. Each of these forms has advantages and disadvantages that owners must consider before deciding which one to implement for their business.

What is the most common structure for a small business? ›

Popular business structures
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What are the 4 types of organizational structures? ›

The four types are:
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  • Divisional structure. In a divisional structure, various teams work alongside each other toward a single, common goal. ...
  • Flatarchy. ...
  • Matrix structure.
4 Feb 2020

What is organizational structure and why is it important? ›

An organizational structure defines how job titles, roles, and responsibilities are assigned within a company. It helps determine who reports to whom, and who makes decisions about what. Startups often have a matrix organizational structure, with different departments working together on projects.

What is Organisational structure in business? ›

Organisational structure determines the assignment and coordination of roles, power and responsibilities within a business. It also defines how information flows between the different levels of management. Every business, from a sole trader to the largest company, is organised in a particular way.

What are the 5 organizational structures? ›

Each of these five types of organizational structures have advantages and disadvantages, so it's important to consider which one may be right for your business.
  • Functional reporting structure. ...
  • Divisional or product reporting structure. ...
  • Process-based structure. ...
  • Matrix structure. ...
  • Flat structure.
6 Jan 2022

What are the characteristics of organizational structure? ›

  • Basic Characteristics of Organizational Structure.
  • Hierarchy of Authority.
  • Span of Control.
  • Line vs Staff Positions.
  • Decentralization.
  • Functional Structure.
  • Advantage: efficiency, communication.
  • Disadvantage: isolation of units.

What is organization structure and its types? ›

1. Hierarchical structure. In a hierarchical organizational structure, employees are grouped and assigned a supervisor. It is the most common type of organizational structure. Employees may be grouped by their role or function, geography or type of products or services they provide.

What is functional organizational structure? ›

A functional organizational structure is a common type of business structure that organizes a company into different departments based on areas of expertise, grouping employees by specialty, skill or related roles.

What are the 8 types of organizational structure? ›

The following are eight types of organizational structure, with explanations of how you can use them:
  • Functional structure. ...
  • Line structure. ...
  • Line-and-staff structure. ...
  • Matrix structure. ...
  • Divisional structure. ...
  • Organic structure. ...
  • Virtual structure. ...
  • Project structure.
8 Feb 2021

What are the 6 types of organizational structures? ›

Types of Organizational Structure – 6 Main Types: Functional Structure, Divisional Structure, Matrix Structure and Team Structure.


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