What is Organizational Structure?

The organizational structure is the way in which an organization is divided and hierarchical. It defines how the management of its activities and the communication between its sectors are carried out, in order to achieve its strategic objectives.

The organizational structure of a company includes its departmentalization, that is, the division by sectors, but also the hierarchical relationships between them. The concept of organizational structure is therefore not synonymous with either departmentalization or hierarchy in isolation, but rather a combination between them.

This definition corresponds to a formal organizational structure, which is one that is planned by managers according to the needs of the company. The graphic representation of the formal organizational structure is done through the organization chart.

In addition to the formal organizational structure, however, companies also often have informal organizational structures. The informal structure is established through interpersonal relationships. It is not official and does not define the interaction between sectors, reflecting only the spontaneous connections that are formed between employees.

Types of organizational structure

There is no single model of organizational structure. It is the managers, when designing the company, who will define how it will be organized. The size of the company, its industry, its purpose and its objectives are some of the criteria that need to be taken into account to establish the corporate structure.

The importance of defining a good organizational structure is due to the fact that it is essential to guarantee the success of the administration, making clear the functions of its elements and the way they relate. It also avoids communication problems, ensuring efficiency and agility in the execution of tasks.

Check out the main types of organizational structures and diagrams of their organization charts below.

Linear organizational structure

It is the oldest and simplest format of organizational structure and, therefore, the most common in small businesses. It is inspired by the structure of armies and has a clear and well-defined hierarchy.

The linear organizational structure is characterized by the superior and unique authority of the superior in relation to his subordinates. The lines of communication are formal, and decisions are centralized.

Functional organizational structure

In this scheme, instead of authority, what defines the hierarchy is the specialization of functions. Each sector contributes its greatest knowledge to the functioning of the organization as a whole, gaining the floor to decide on the themes over which it dominates.

In a functional organizational structure, no sector boss has absolute control over his subordinates. In addition, each employee may have to respond to multiple managers.

Line-staff organizational structure

The line-staff structure is a combination of the linear and functional models. It follows the scheme of the linear structure, but is distinguished by the existence of consultation bodies.

The consultancy can make technical and specialized recommendations to the lower echelons, but cannot command them. The command function remains restricted to the heads of each department.

In the line-staff organizational structure, therefore, the importance of specialized knowledge is recognized, but its format maintains the command unit.

Matrix organizational structure

This type of organization maintains the division of the organization as a whole, but creates a form of parallel hierarchy, by project.

A project team usually brings together elements from different sectors of the company. For example, an employee in the finance department may be in charge of looking after the finances of that specific project. This employee will continue to report to the head of his department. However, you will also report to the project leader you work for.

Classification by departmentalization

The types of organizational structures listed above correspond to the different ways of establishing hierarchy between the sectors of a company. However, it is possible to classify organizational structures also by the way they are departmentalized.

Although the most common way to divide a company is by sector of specialization, this is not the only model for building an organization chart.

Territorial organizational structure

Companies that are geographically dispersed may choose to divide their hierarchy by region of operation, rather than by function. In the territorial organizational structure, the regional heads are just below the central direction in the hierarchy.

Customer organizational structure

The organizational structure by clients seeks to structure its organization chart around the types of public with which the company works. Thus, a clothing store may have a department specialized in the children’s segment, another in women’s fashion and a third in men’s clothing, for example.

Organizational structure by processes

The organizational structure by processes is used by some industries. In this model, a boss and a team are defined for the stage of the production process. There may be, for example, one responsible for the assembly step and another for the finishing step.

Organizational structure by projects

The organizational structure by projects establishes an organization chart by contract or campaign. It is common, for example, in construction companies, which assemble different teams and with some autonomy for each work.