Read this blog post on how to choose the right organizational structure for your team.
Every company and entrepreneur wants their teams to reach their full potential. A variety of factors influence your team; how they are structured is one of them.
This blog post explains in detail what options you have for structuring your team, their general advantages and disadvantages and which organizational structure is suitable for which situations.
Along with the general factors that influence and define its structure, we will see:
FunctionalStructures (marketing department, finance team, etc.)
DivisionalStructure (by product, region or customer segment)
headquartersStructure (a combination of the above)
to team upStructure in
Let's start 🚀
What is a high performance team?
What high performance means to a team is very individual to each team, but there are some common denominators in defining high team performance.
Task Performance: The ability to complete a specific task within scope, budget, and time.
Innovation: The ability to critically assess the status quo and improve and innovate.
Cross-Functional Collaboration: The ability to work together on common goals, rather than on siled interests.
Complexity Management: The ability to simplify processes and tools to enable effective work.
Speed and Adaptability: The ability to quickly and efficiently adapt to changing environments.
But isn't organizational design the work of human resources, you might ask? Perhaps.
But how you structure your team directly impacts all of the above performance types.
Your organizational structure determines what your organization focuses on, where resources are distributed, and most importantly, how your team members communicate.
So better make sure it supports your strategic goals.
What are the elements of organizational structures?
Before we delve into the different ways to structure your organization, let's look at the dimensions that define an organizational structure.
Each team must coordinate its work among its members. There are three different types ofThe coordination mechanism:
informal communication: This includes hallway talks and temporary teams you might create for specific projects. This is all communication that takes place outside of your formal hierarchy.
formal hierarchy: The classic model of a chain of command where you define your organizational structure and reporting relationships. All communication flows along the lines of the organizational chart.
standardization: Routine work can be coordinated through standardization. The best example is standard operating procedures, which in a way replace direct management of work on a case-by-case basis with a written description of how the work should be done.(Video) How to Structure a Successful Sales Team
The first two points can be defined by the structure of your team. Consult ourBlog post on Standard Operating Proceduresto the last point.
scope of control
The range from describes how many people are managed directly by a specific manager. Assuming you are the only person in your company reporting to your team and you have five employees, your span of control would be five.
When we talk about control margin, we usually think of high structures and low structures.
tall structuresThey have a narrow span of control (few direct reports) and many levels of management. Due to many managers and the slow flow of information, they usually come with high overhead costs.
flat organizational structuresthey have a large span of control but few hierarchical levels (e.g. only one level of middle management). If you are the only manager in your company, you have a super flat structure.
The manageable span of control is greater when the tasks performed areRoutine, the roles are not very highinterdependentand when the other coordination mechanisms play a more important role.
Let's take an automobile assembly line, where the tasks are highly standardized. The span of control can be ten or even 50 people.
On the other side of the scale, take an engineering team. The tasks are very little standardized and the dependency between designer and engineer is very high. Such a setup requires a much smaller control area, say five people.
Centralization and decentralization
In a centralized organization, power and decision making are highly centralized in one position or person. Almost all startups start in a very centralized environment where the founder makes all the decisions and has all the power.
like companymaduroDecision-making powers are becoming more decentralized and spread across different departments or regions.
For different types of decisions, centralized and decentralized decisionscan exist in parallelin the same company. Think of strategic decisions being made centrally by the CEO, while pricing or marketing decisions are made decentralized by and for each market or product line.
Formalization describes how decision making, job performance and other parameters are standardized in your organization through rules, SOPs and other tools.
Formalization is often used in stable environments because it reduces flexibility.
Mechanistic vs. organic structures
By combining these three elements of organizational structure, we arrive at the concept of mechanistic versus organic structure.
mechanistic structuresThey are characterized by a narrow span of control, resulting in a highly hierarchical organization. Power is centralized at the top of the hierarchical pyramid and formalization is high.
Therefore, employee autonomy is low. These organizations lend themselves to very stable and unique environments.
organic structuresThey are characterized by a large span of control. Since formalization is also low, team members have to work very autonomously. To accommodate this, power is being decentralized.
Because of their greater speed and adaptability, these organizations work better in dynamic and ambiguous environments.
The different types of organizational structures.
Startups naturally initially develop a simple structure. Everyone reports to the founder, so power is very centralized. Job descriptions are not yet highly divided or specialized because there are not enough staff for them. The range of tasks for each individual is therefore quite broad.
After this simple phase, usually with fewer than ten employees, companies develop the first organizational structures. The way you divide your work into departments determines the structure of your team.
As mentioned above, how you group people defines what your organization focuses on, how resources are allocated, and how informal communication takes place.
So, let's dive into the different types of org charts.
The first structure that you will naturally develop, unless you consciously design it differently, is a functional structure, in which you structure your talent according to the functional areas that you have.
That means building a marketing team, a sales team, an engineering team, a human resources team, and a finance team (or whatever other role you have).
Probably one of the most used organizational charts. The advantages of functional structures are that you build and use expertise in different teams. Teams can easily develop a great sense of cohesion and identification with their role (“We are the marketing team”, “We are customer service”).
Also, the functional structures are fairly easy to manage as the roles and responsibilities and the reporting structure are fairly simple: functional managers manage their teams and report to senior executives or the executive team.
On the other hand, functional structures tend to think in silos and lose sight of corporate goals. A strong focus on function is often accompanied by a weaker focus on customers or products.
As companies diversify their offerings or the geographic regions they serve, they often shift to a divisional structure. Building a divisional structure is great when you want to focus your company's attention on different products or services, different markets, or different customer groups.
In a divisional structure, you group your teams around these topics, e.g. There is a small business department, a medium sized business department and a corporate customer department. In a product-based divisional structure, you might have a division for each product line.
The business unit structure draws attention to the dimension around which you are building your business unit, making it a great tool if you want to build a product or customer-centric organization.
It's easy to add departments, e.g. When entering a new market, start working with new customer segments or add products.
The disadvantages include that you will often develop duplicate functions, e.g. two or three sales teams and consequently the experience is distributed. This makes it difficult to implement a divisional structure for small teams and is more common in larger companies.
Additionally, finding the best solution isn't easy when it comes to deciding what to build your departments on. There are large companies that restructure every few years, going from a product-centric to a customer-centric organization and back again a few years later because there isn't one right way to do it.
Finally, a divisional structure could also encourage silos, in which one division pursues its own goals while sacrificing the success of other divisions.
To eliminate the problem of selection in the domain structure, matrix structures combine different domain approaches. Teams or individuals report simultaneously to different area managers, e.g. to head of a regional division and at the same time to head of a product line.
Another type of matrix structure combines functional structures with project structures.
In both cases, matrix structures have the advantage that you can focus on area or project goals while supporting functional know-how. In this way, a matrix structure uses resources and expertise fairly and can encourage innovation.
This applies in particular tosmaller teams, where department or functional team leaders do not report, but each functional expert also takes charge of the project and adds other functional experts/project managers to their own project as needed.
Of course, this approach requires a highly qualified team in which any subject matter expert can take on the role of project manager.
The combination of divisional focus and functional experience makes matrix structures a good choice in very complex environments.
The main disadvantage is the ambiguous responsibility of competing team leaders or priorities and many stakeholders in each role. To avoid confusion and solve this problem, most matrix organizations have solid lines for one boss and dotted lines for the other boss only. Again, this problem isn't so bad for smaller teams.
This very organic structure has cross-functional teams offering a complete service or product. Agile teams often operate in team-based structures.
These teams are largely self-directed, operate with very little formalization, and have decision-making powers.
Team-based structures are highly adaptable, flexible and responsive to new external challenges. Because of decentralized power and good communication, decision-making is usually quick and good.
Approval workflows through hierarchical structures are replaced by guidelines for decision making, feedback and peer review. There is a free flow of information.
Once established, self-directed teams can reduce costs as less hierarchical overhead is required. When you have employees navigating such an open environment, employee engagement tends to be very high and teamwork is often effective.
On the other hand, self-directed teams require a lot of effort to implement, from cross-functional training to interpersonal training. Not all professionals like and can handle the role ambiguity that such a structure entails.
Finally, there is a risk that self-governing teams will compete with each other. While this can be healthy, competition can also harm the interests of your organization as a whole.
Network structures have become very popular over the last few decades due to platform business models and the rise of the gig economy. At the core of a network fabric is a customer-facing business that organizes third-party satellites (or sometimes their own legal entities) to do the work.
The greatest benefit of such a structure is its flexibility, where you can quickly add or remove services or products. For this reason, the trend towards networking has developed in the last year, especially among fast-growing online companies. Outsourcing parts of your business to freelancers can also be viewed as a network structure.
Network structures are difficult to manage and expose core business to market forces. A classic organization develops knowledge and learns from it, a networked organization does not benefit from it, but is constantly dependent on external partners.
In reality, companies are often structured according to a combination of the above. One part, e.g. Accounting, might work in a more mechanistic functional structure, while another part, e.g. Development team works in a team-based structure.
Choose your structure
Now that we've addressed the major structure types, one question remains: which organizational model is right for you? Let's look at three different drivers: environment and strategy, and size.
environment and strategy
Below are some simplified recommendations. Remember that there may be contingencies in your situation that change the recommendation.
When your environment is quietstable, simpleand its strategy indicates economies of scale andinexpensive, then opt for a mechanistic structure. This could be a functional structure with many SOPs where you as the founder still have the most power.
If your environment isdynamic, complexand your strategy is more likeInnovation, then opt for an organic structure. The most organic structure is the team-based structure. If implementing a team-based structure seems too intimidating, consider using a matrix structure with decentralized power.
If your markets areintegrated, a functional and centralized structure might work well to optimize for your customer/product/region. If your markets are sufficientanders, a divisional structure could be well suited to this environment.
size of the company
The bigger a company gets, the
becomes more standardized and formalized
develops a more decentralized power structure
it becomes more difficult to move from one organizational structure to another or to redesign parts of it.
Too small for an organizational structure?
If you are just starting out or your team is relatively small, you may not see any structure that works for you other than the functional one, where one person is the marketing department, another person is the sales department, etc.
You can still use the approach that the array structure offers. It's the only one that doesn't require you to add resources and still allows you to keep your organization's focus on what you consider essential.
You can do this by assigning each individual responsibility for a market, customer segment, or product. Keep in mind that each person has limited capacity and may need training for what you expect them to do.
While it's not big enough for the other structures yet, it's worth going through the train of thought to choose one. The result is the structure of your target organization, a goal to work towards.
They guide your efforts in terms of recruitment (who you need depends on the structure you want to build) and standardization (you really need SOPs if your goal is a team-based structure).
Have fun building your structure and implementing it.
Have fun climbing!
What organizational structure would work best for a high performing team? ›
The hierarchical structure is the most common (and perhaps the most stereotypical) team structure, and it happens to be effective for almost any team structure. The hierarchy is organized in a pyramid, where the leaders are placed at the top of the pyramid followed by directors, managers, then employees.What's the best organizational structure support your answer? ›
A hierarchical structure, also known as a line organization, is the most common type of organizational structure. Its chain of command is the one that likely comes to mind when you think of any company: Power flows from the board of directors down to the CEO through the rest of the company from top to bottom.What are the 4 types of organizational structure? ›
The four types of organizational structures are functional, multi-divisional, flat, and matrix structures. Others include circular, team-based, and network structures.Why is it important to choose the right organizational structure? ›
Organizational structures are important because they help businesses implement efficient decision-making processes. By assigning specialized roles to lower-level employees, businesses can make better decisions faster.How do you build a high performance work organization? ›
- Clarify and Communicate Values. ...
- Reinforce Positive Behavior. ...
- Encourage Open Communication. ...
- Empower Employees. ...
- Collect Feedback.
The project-based structure features the best of both the traditional line and functional organizational structures: it's simple, with the first tiers answering only to a direct supervisor. The final tier is the team responsible for completing whatever project is set before them.What makes a good organizational structure? ›
A good organizational structure facilitates achievement of the objective of every individual through proper coordination of all activities. Reduces the overall conflicts between the individuals and team members. It removes duplication and overlapping of work. It decreases the likelihood of runarounds.How do I choose the best organizational structure? ›
- Review the different organizational structures. ...
- Determine the company's strategy. ...
- Consider the business' environment, size and age. ...
- Review the information. ...
- Create a visual chart and make a decision.
A Perfect Organization is one that operates in alignment to the natural development, thinking and working ways of people, structures, processes and systems. It is one that materializes from, and is proven out, by all the books and research.What is an example of organizational structure? ›
The pyramid-shaped organizational chart we referred to earlier is known as a hierarchical org chart. It's the most common type of organizational structure—the chain of command goes from the top (e.g., the CEO or manager) down (e.g., entry-level and low-level employees), and each employee has a supervisor.
What are the 3 ways organizations can be structured? ›
- Functional Structure. Under this structure, employees are grouped into the same departments based on similarity in their skill sets, tasks, and accountabilities. ...
- Divisional Structure. ...
- Matrix Structure. ...
- Hybrid Structure.
Edgar Schein, a prominent organizational psychologist, identified four key elements of an organization's structure: common purpose, coordinated effort, division of labor, and hierarchy of authority. Each of the four elements represents an essential component of an effective structure.What is the most important part of an organization? ›
People are the most important part of an organization. Giving them the right tools to succeed is paramount. But it's also a business. Having a solution that can meet the needs of employees and the business at the same time will synchronize their goals and lead to happier, more effective work.Why organization is one of the most important function of management? ›
It ensures optimum use of resources -Organising leads to the optimum use of all material, financial and human resources. It matches the jobs with the individuals and vice versa and ensures that job position is clearly defined. It minimizes confusion and wastage of resources.What are 5 important elements for building high performing teams? ›
- Clarity of Shared Vision. High-performing teams are built on the foundation of clarity. ...
- Defined Roles and Responsibilities. ...
- Clear and Respectful Communication. ...
- Trust and respect. ...
- Continuous learning and improvement.
“A High Performance Organization is an organization that achieves financial and non-financial results that are exceedingly better than those of its peer group over a period of time of five years or more, by focusing in a disciplined way on that which really matters to the organization.”What are the characteristics of a high performance organization? ›
High-performance organizations have clearly defined roles that are carefully assembled to form a highly efficient organization. People understand what is expected of them and which decisions are theirs to make. When accountability is shared, employees understand clearly when and with whom they need to collaborate.Why is team structure important? ›
They define the relationships between leadership, team activities, and group members. Creating a team structure helps you determine what your employees will do, whom they'll report to, and how decisions will be made across the company.How can leaders create and maintain a healthy organizational structure? ›
For example, to create an effective organization, arrange your personnel into functional groups, such as Finance, Purchasing, Marketing, Sales and Human Resources. Align each group's performance goals with your company's strategic objectives. Create or revise your organization's mission, vision and goals.What does it mean to have good organizational skills? ›
Organizational skills mean you have the ability to use your time and resources efficiently and effectively. You're able to manage your time, energy, and physical workspace so you can accomplish tasks successfully.
What is an example of organizational leadership? ›
Some examples include volunteering to work on certain committees or teams within the organization, taking the lead for new initiatives, and seeking out a mentor currently working in an organizational leadership position.Which is the best example of organization? ›
- Establish a desktop filing system. ...
- Pin applications and notes to your taskbar. ...
- Bookmark important pages. ...
- Follow a file naming structure. ...
- Purchase additional storage. ...
- Implement organizational procedures and policies. ...
- Schedule appointments and meetings electronically.
- Functional reporting structure. ...
- Divisional or product reporting structure. ...
- Process-based structure. ...
- Matrix structure. ...
- Flat structure.
Those three strategies together — functional, business, and corporate — make up the very broad, very general organizational strategy that every company needs to be successful.What are the five functions of organizational structure? ›
The key elements of an organizational structure are work design, departmentalization, delegation, hierarchy, and management ratio. The different types of organizational structure are hierarchical, flat, flatarchy, functional, divisional, and matrix.What are the principles of organizing in management? ›
Principles of Organizing
- Principle of Specialization. ...
- Principle of Functional Definition. ...
- Principles of Span of Control/Supervision. ...
- Principle of Scalar Chain. ...
- Principle of Unity of Command.
An organization comes into being when (1) there are persons able to communicate with each other (2) who are willing to contribute action (3) to accomplish a common purpose. The elements of an organization are therefore (1) communication; (2) willingness to serve; and (3) common purpose.What does every organization need to be successful? ›
The three components of organizational success—structure, talent, and behavior—cannot stand alone and must be in balance with each other. Take a holistic view when focusing on any one of these elements to ensure one area does not become disproportionately stronger than the others.What makes a strong work culture? ›
Simply put, a positive work culture is one that prioritizes the well-being of employees, offers support at all levels within the organization, and has policies in place that encourage respect, trust, empathy, and support. A 2011 study by Cameron et al.How does organization lead to success? ›
Organizing and planning help you get your work done accurately, avoiding costly mistakes. Organizing your work and planning ahead helps you be more efficient and productive. Being well-organized and developing effective plans also allows you to achieve important goals and objectives.
What are the benefits of organizing in management? ›
- Efficiency. The greatest advantage of organizing information within a company is the efficiency of the resources. ...
- Tracking progress. Of the company. ...
- Better management skills. ...
- Instilling trust. ...
- Reduced stress.
One objective of organizational management is to establish a structure that offers employees a clear definition of authority, roles and job responsibilities. This structure ensures that business functions operate smoothly and that employees perform unique tasks so efforts complement one another rather than overlap.What is the most important in management? ›
Building good working relationships with people at all levels. Recommended by 79.9% of managers surveyed. The most important management skill, the survey found, is the ability to build good relationships with people at all levels.What makes an organization high performing? ›
“A High Performance Organization is an organization that achieves financial and non-financial results that are exceedingly better than those of its peer group over a period of time of five years or more, by focusing in a disciplined way on that which really matters to the organization.”What is high performance working organization? ›
The “high performance work organization” (HPWO) concept proposes that greater employee involvement in decision making and greater ability for workers to control their reward structure lead to more efficient workplace procedures, as well as happier workers.Which leadership style is most effective on employee and organizational performance? ›
The democratic leadership style is one of the most effective because it encourages everyone to participate in all processes, share their opinions, and know that you will hear them. It also encourages employees to be engaged because they know you will hear their feedback.What is high performance work system in an organization? ›
A high-performance work system is a bundle of HRM practices designed to promote employees' skills, motivation and involvement to enable a firm to gain a sustainable competitive advantage (Datta et al., 2005; Guthrie, 2001; Huselid, 1995), which includes employment security, extensive training, teams and decentralised ...What is the key to organizational performance and success? ›
The authors fill a gap in the resource-based literature by identifying four critical KIPs that influence the success of organisations, and they are leadership, innovation, reputation, and employee satisfaction.What are the key characteristics of high performance organizations? ›
- WELL-UNDERSTOOD VISION AND VALUE. ...
- FLEXIBILITY AND PROPER USE OF DISCIPLINE. ...
- SET CLEAR AND SPECIFIC GOALS. ...
- STRONG COMMUNICATION. ...
- TRUST AND CONFIDENCE. ...
- FUN. ...
- DECISION MAKING AT THE LOWEST LEVEL. ...
- EFFECTIVE TRAINING.
A better employee attitude.
Employees feel and take more responsibility for improving the organization's products, services and processes. They take more initiative and the degree of innovation increases. More new products and services are brought to the market place, in shorter time spans.
What is the most important aspect of high performance work systems? ›
HPWS focuses on the company's intellectual capital (the value of its employees' skills, training, knowledge and proprietary information) as its primary advantage.What is the best management/leadership style? ›
- Democratic Management Style. ...
- Coaching Management Style. ...
- Affiliative Management Style. ...
- Pacesetting Management Style. ...
- Authoritative Management Style. ...
- Coercive Management Style. ...
- Laissez-Faire Management Style. ...
- Persuasive Management Style.
Democratic leadership is one of the most popular leadership styles because it involves input from the entire team and fosters employees' sense of ownership in their work.What is the most effective leadership style to motivate staff? ›
Transformational leadership—work to motivate and inspire their team, aiming to help team members fulfil their potential. Great for empowering staff and creating high job satisfaction.