Small Business Organizational Structures: 5 Types

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Organizational (org) structures help businesses stay organized, communicate more effectively, and collaborate more effectively. Choosing the right organizational structure for your company begins with identifying how you want your company to operate and then weighing the many organizational models that enable that goal. Organizational models typically fall somewhere between “mechanistic” and “organic.” The top-down approach to business reporting, managing, and delegating in mechanistic reporting systems is more hierarchical. Organic structures are more collaborative and adaptable than inorganic structures. Each of these five organizational structures has advantages and downsides, so you should think about which one is best for your company.

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Structure of functional reporting

One of the most popular types of organizational structures is the functional reporting structure. It assigns people to groups depending on their job function or role inside the company. For example, the sales team is assigned to one department, the IT team to another, and the financial team to yet another. This encourages people to concentrate on one subject, but it can also create silos that make cross-functional collaboration difficult for teams.

Structure of divisional or product reporting

Employees are grouped together in this reporting structure by product lines, geographic location, market, or some other natural divide. This organizational structure is best suited for large firms with several products and sales channels. Because each unique division will have its own resources to oversee sales, IT, marketing, and other operations, this is the case. These types of reporting formats might result in resource duplication, making scaling problematic. It may also lead to decentralization of decision-making and bureaucratic red tape.

Structure-based on processes

Process-based organizational structures are built on the flow of procedures that allow a company to launch a product or service. Employees would be organized around these three discrete activities, for example, research and development come before client acquisition, which comes before order fulfillment. This structure takes into account how employees collaborate and interact with one another in order to generate a flow that boosts the company’s efficiency. This structure, like the others on this list, can create silos that prevent useful feedback from being shared widely.

Structure of a matrix

The matrix structure is more on the organic side of things. Instead of following a hierarchical structure, it generates dual reporting ties for each person. This means that for function-based communication, each employee reports to one person, while for product-based communication, each employee reports to a different individual.

“The fundamental appeal of the matrix structure is that it can enable both flexibility and more balanced decision-making (due to the fact that there are two chains of command instead of one),” Hubspot said. “Having a single project overseen by many business lines also allows these business lines to exchange resources and speak more openly with one another, which they wouldn’t be able to do on a regular basis.”

Companies with many divisions, campaigns, and products benefit the most from this structure. If a company is launching new accounting software, for example, the sales rep may report to both the software development manager and their own sales director.

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The structure that is completely flat

The most organic of the reporting models on this list is a flat reporting structure. “For organizations with no identifiable authority positions, the flat reporting structure works.” Because there are no managers or senior-level positions, decision-making is distributed evenly throughout the organization,” Indeed noted.

Transparency and productivity are the goals of a flat structure. Employees should be motivated by sharing decision-making power and not having to report to top management; but, when there is a disagreement about the business’s direction, it can be difficult to create alignment and get everyone on the same page.

CO— strives to provide you with motivation from well-known specialists. However, before making any business decisions, you should get advice from an expert who can give you personalized advice based on your unique circumstances.

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