5 Types of Organizational Structures for Small Business (2024)

Organizational (org) structures help companies stay organized, improve communication and collaborate productively. Choosing the best org structure for your business starts by defining how you want your business to operate and considering the different org models that enable that vision.

Typically, org models fall on the spectrum between "mechanistic" and “organic." Mechanistic reporting structures are more hierarchical with a top-down approach to reporting, managing and delegating. Organic structures are more collaborative and flexible. 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

The functional reporting structure is one of the most common types of org structures. It groups employees together based on their function, or role, within the organization. For instance, the sales team works in one department, the IT team in another and the finance team works in a third group. This encourages employees to specialize in one field, but it can also lead to siloes that make it difficult for teams to collaborate cross-functionally.

Divisional or product reporting structure

In this reporting structure, employees are grouped together by product lines, geographic region, market, or some other natural division. This type of org structure typically works best for large companies that have many products and sales channels. This is because each distinct division will have its own resources that allow it to manage sales, IT, marketing and other operations. These types of reporting structures can lead to a duplication of resources that makes it difficult to scale. It also may decentralize decision-making and lead to bureaucratic red tape.

[Read more: How to Structure Your Management Team]

Process-based structure

Process-based org models are designed around the flow of processes that allow a business to bring a product or service to market. For instance, research and development comes before customer acquisition, which comes before order fulfillment; therefore, employees would be organized around these three discrete processes. This structure considers how employees work together and interact with each other to create a flow that improves the productivity of the business. Like other structures on this list, though, this structure can also lead to siloes that prevent valuable feedback from being shared widely.

Matrix structure

The matrix structure falls closer to the organic end of the spectrum. It doesn't follow a hierarchical model, and instead creates dual reporting relationships for each employee. This means each employee reports to one person for function-based communication and a different person for product-based communication.

“The main appeal of the matrix structure is that it can provide both flexibility and more balanced decision-making (as there are two chains of command instead of just one),” wrote Hubspot. “Having a single project overseen by more than one business line also creates opportunities for these business lines to share resources and communicate more openly with each other — things they might not otherwise be able to do regularly.”

This structure works best at companies that have multiple divisions, campaigns and products. For instance, if a business is launching a new piece of accounting software, the sales rep may report to the software development manager as well as their own sales director.

Flat structure

A flat reporting structure is the most organic of the reporting models on this list. “The flat reporting structure works for organizations that have zero distinct authoritative positions. This means that decision-making is equal throughout the company, as no managers or senior-level positions exist,” wrote Indeed.

The vision behind a flat structure is one of transparency and productivity. Ideally, employees feel motivated by sharing the decision-making power and without the pressure of reporting to senior leadership; however, when there’s a disagreement over the direction of the business, it can be hard to find alignment and get everyone on the same page.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

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Published January 06, 2022