What is organizational structure?

The organizational structure is the design of the organization and hierarchy of a company. There are different types that meet different work dynamics, and it is necessary to consider the particularities and business objectives to define the best for the organization.

Organizational structure is a less abstract concept and more important than it may seem . Determining how a company organizes is to indicate how it should operate so that everything works out.

Is it possible that this structure is designed gradually and spontaneously? 

Yes, and that tends to happen with businesses that start without much planning and grow little by little.

However, even for this type of business, thinking as soon as possible about structure and organization can only be beneficial.

So, regardless of the size of your company, this post can be very useful.

The organizational structure is a representation of how human capital is allocated in the company based on the goals set for the business.

This concerns the design of positions , functions and departments , in addition to the relationship between leaders and their subordinates .

Something that also considers the company’s style , its field of activity and the business objectives.

The organizational structure has a graphical representation, in the form of an organizational chart , which indicates the hierarchical system adopted .

In other words, it indicates how departments relate to each other and who responds to whom within the company.

Formal and informal organizational structure

About understanding what is the organizational structure of companies, we still need to talk about the difference between formal and informal structure .

The form is that structure that follows the organizational chart designed based on analyzes and plans that consider hierarchy, needs and standards of conduct.

It is documented and is usually presented when a new employee is hired or in similar circumstances.

In turn, the informal organizational structure is the one that arises spontaneously from the interaction between the workers who make up the company’s staff.

Although it is possible to seek to align them in the best way, both coexist, being part of the reality of any organization.

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What are the five types of organizational structure?

There are different types of organizational structure; from the most traditional or classic to others considered more innovative and modern. Each has its goals, as well as advantages and disadvantages .

This assessment must be unique, that is, designed for each company to understand what can favor internal dynamics and the achievement of goals.

Next, we will present five that represent the main forms of structure and organization used today. Follow:

1. Linear structure

Also known as hierarchical, vertical or pyramidal , the linear structure is the most classic of all, precisely because it is the oldest.

It is based on the organization of ancient armies in which each person responds to the other who is in a hierarchical level above , without any overlapping.

The design is of a well-structured hierarchy in which power tends to be more centralized . And it is true that this has positive and negative points.

Benefits

This is a simple, easy-to-understand and cost-effective structure . Everyone can understand who they should respond to.

It is also quite common and accepted in most companies, also because it clearly indicates the possible path of growth that an employee can follow.

Importantly, this type of structure tends to work better in smaller companies.

Disadvantages

On the other hand, this is a more rigid structure that tends to increase the level of bureaucracy in the processes .

This can slow down innovation advances and lead to greater distance between departments.

A scenario like this can lead employees to think more about the sectors in which they participate than about the company as a whole. Something that HR needs to follow closely .

Furthermore, this type of organizational structure can lead to further breakdowns in communication and disadvantages cooperation as well as team spirit.

2. Functional Structure

The functional structure is the one that divides the company into departments, being the most common in organizations . Professionals are allocated according to their area of ​​expertise, with each department having a leader.

If your company speaks of a marketing department, finance department and the like, it is likely that there is already a functioning organizational structure there, even if it has not been consciously designed.

Benefits

This type of organizational structure ends up being an incentive to specialization because they only work in one department and, more importantly, only those who go deeper in their area of ​​knowledge grow in that department.

What’s more, it contributes to a greater level of cooperation between team members and works well for larger companies.

Disadvantages

On the other hand, this type of structure can make communication between one department and another difficult , including due to the possibility of some conflict or overlapping of leaderships .

In fact, this “departmentalization” tends to make synergy between departments difficult , harming the systemic view.

Because it is based on a more complex form of division, this organizational structure does not work well in smaller companies .

3. Matrix Structure

The matrix structure is part of the classic types, such as those presented above, but it is the most modern of the three.

This is because it organizes based on the department (function) and the project to be executed.

In this type of structure, each employee has two leaderships : one in line, who is the department “head” , and the other in the project, and the objective is to seek the maximum possible performance .

In other words, companies that follow the matrix structure have multidisciplinary teams led by project managers.

These teams, however, also report to senior management.

Benefits

Among the strengths of this type of structure and organization is the fact that multidisciplinary teams tend to be more adept at collaboration and can execute their processes and projects more quickly.

As there are people from different areas of knowledge involved, it is natural that the departments are closer. What’s more, it’s easier to track the results.

Disadvantages

As not everything is flowery, the dual leadership can lead to problems in the decision-making process , in addition to leaving employees confused as to who to report each thing.

Thus, it is very important that the structure is well designed and explained to everyone in order to work well.

4. Divisional Structure

In turn, the divisional organizational structure is used when there are different production fronts in the company separated according to their purpose .

This form of organization applies to companies that work with different products , serving different audiences or regions.

It is understood that, in such a scenario, the company is divided into independent and autonomous fronts . Each responsible for the production of a product or a service.

An example is the beverage industry, which may have an entire division responsible for the production of natural juices and another for the production of soft drinks.

Benefits

The independence between the divisions allows each one to focus on its market and its performance, which enables faster decision-making.

Another positive point is that it is possible to avoid strategic-level overloads , allowing each division to adopt measures that are consistent with its audience and market without conflicts.

Disadvantages

On the other hand, there may be unnecessary competition between divisions . The company, as a whole, may find it difficult to maintain the quality standard and to distribute the budget in an adequate manner.

5. Network Structure

The network structure appears among the most modern, having gained strength and new forms thanks to situations such as the home office .

It is a form of organization in which the company hires professionals from anywhere in the world to work remotely .

Thus, communication, interaction and delivery of results is done through the internet .

It is worth mentioning that the networked organizational structure already existed before telecommuting became commonplace.

Companies that sell by catalog with the support of consultants have been operating in this way for many years, since before the internet was so present in our lives.

Benefits

Companies that follow this organizational structure have lower administrative costs and a broader scope of action , as they may have employees all over the world.

Thus, they can become more competitive and expand their market more easily. Something that tends to rely on the motivation of workers who respond well to the flexibility of remote work.

Disadvantages

Physical distance can become a challenge for people management , in addition to making the company highly dependent on systems and the internet in general.

Another negative point is that this type of structure can make it difficult for workers to get closer to the employer brand , creating an emotional distance that can impact the relationship and the results.

What are the benefits of organizational structure?

Defining the corporate structure is more than a simple bureaucracy. There are clear purposes and important benefits too.

The design of this structure helps to understand the flow of processes and communication, favoring productivity, the relationship with stakeholders and the achievement of objectives .

Here are some points that can help you understand all this more clearly:

The organizational structure allows you to optimize time

The designed structure is a form of organization that indicates what the flow of processes in the company should be. 

This makes valuable resources such as time better spent : there is less waste.

Time optimization is directly related to productivity . When they know the internal dynamics better, who to interact with and who to respond to, individuals and teams tend to produce better too.

Furthermore, good time management combined with productivity gains can open up space for innovation and for more strategic actions by different sectors of the organization.

Better organization of responsibilities

Since we are talking about productivity, we need to highlight some points of why this factor is so important .

The lack of organization and clarity about who is responsible for what tends to lead to miscommunication, waste of time with activities that do not favor the achievement of goals , mistakes and rework .

In short, this disorganization has everything to be costly for the company because it makes the employees’ routine stressful and unprofitable – which can also increase absenteeism and turnover rates .

Assigning responsibilities gives employees the structure they need to recognize their role within a well-established routine in the organization .

Something that favors motivation, interpersonal relationships and productivity.

More efficient communication

Did you notice how the organizational structure helps each employee and each department to understand how their performance relates to the whole?

One of the factors that we have already mentioned and is linked to this is that the design of the structure helps to better define the flow of communication in the company .

This makes the information to be transmitted effectively, minimizing noise .

In addition to contributing to work dynamics , optimizing time and resources , efficient communication also positively impacts relationships, the sense of cooperation and the organizational climate .

Every company wants to avoid miscommunication. For that, it tends to evaluate this skill in its hirings.

However, more than expecting employees to know how to communicate well, the organization itself needs to think about how its structure favors this flow or not.

Good performance control

From the beginning, we indicated that the organizational structure in companies is related to the achievement of objectives . Therefore, it is important that the metrics are appropriate for the department and the business.

A good organization allows HR, leaders and senior management to have more clarity about how each department operates and how it has been performing .

This same organization can help in promoting adjustments that favor the productivity of employees and that better align their performance with the goals set for the team itself and for the company as a whole.

The improvement in performance control stems from the greater ease in making decisions that impact the performance of an entire department , for example.

Better identification and use of resources

Another benefit of the organizational structure, which is closely related to the previous point, is the identification of the company’s resources.

The design of the structure combined with performance control indicates whether there is a shortage or excess of resources in any department, allowing for a reallocation .

It is good to be clear that, by resources, we are talking about the organization’s money and also human capital .

Understanding how the company organizes itself can be the starting point for internal recruitment, aiming to make better use of the skills of each employee.

Who is responsible for organizing the company’s structure?

Do you remember that we pointed out the difference between formal and informal organizational structure ?

The two will design themselves, even if no one from the company takes the initiative.

The point is that the formal structure is the official one and serves as a guide for the daily dynamics of the business and, for this reason, it needs to be well thought out and clearly defined.

It is the managers of an organization who need to make this design . For that, it is worth considering the types of structure that we have already presented, as well as their advantages and disadvantages.

Still, it is worth analyzing the informal structure that has already been established because this can be an indication of what has or has not worked in the company.

Something that can help define which form of organization tends to be the most suitable.

How to choose the company’s organizational structure?

We’ve already hinted at a possible way to choose the organizational structure for your company, but there’s more to be said.

Defining this form of organization is something that must be done with strategic attention .

Once chosen and implemented, there is a period when this organization needs to function so that top management can be sure they made the right choice.

Thus, avoiding mistakes in this definition is essential, since we are talking about something that will guide the entire organization, its employees and other stakeholders, and even its brand building.

With that, let’s have some relevant points that need to be observed:

Know your company

As you go through the five types of organizational structure we’ve presented, you may have noticed that some are better suited to smaller companies, while others are just the opposite.

This leads us to say that considering the size, the type of product or service offered and the region where the organization operates is essential to understand which type of structure tends to be the most appropriate.

Also, considering the alignment with business objectives, strategic concepts such as mission, vision and values must be clear and considered in the selection process as well.

Consider the company’s needs and goals

Getting to know the company also involves understanding its needs and setting out its objectives clearly.

It is necessary to know where you want to go and what it demands on a daily basis and over time.

Consider that the organizational structure must be able to organize processes and communication flows to facilitate the employees’ routine, as well as their interaction.

Thus, the chosen structure has to be consistent with the existing work dynamics, in order to benefit it.

It makes no sense to design a different form of hierarchy than what the company needs just to modernize, for example.

Keep the company’s human capital in mind

The people who make up an organization are one of its most valuable resources. Knowing this, the choice of organizational structure needs to consider employees and their expectations .

This is not to say that the contractors will define what hierarchical structure the company should have, but it is good to know what they expect.

And a good way to do this is to understand your expectations regarding the organizational culture, as well as analyze the group profile .

In this sense, a tip we give you is to analyze the generational diversity within your company.

Professionals from different generations relate to work in different ways , but they can still coexist.

Considering this to find a design that makes sense for the company’s reality – without ever losing sight of our own values ​​and objectives – is a good idea to have all the expected benefits.

Is it possible to create a custom organizational structure?

All these tips we’ve given you on what to consider when choosing an organizational structure reveal how unique that definition is.

In the end, after doing the necessary analysis, managers can conclude that none of the five types of structure we presented before is “the most ideal”.

With that in mind, know that you can mix structure types or create an entirely new one to suit your company’s needs and goals .

Something that, of course, needs to be done in a very well thought out way.

The objective is always to ensure that the form of organization favors the achievement of business objectives without compromising the dynamics, hindering processes or creating obstacles to employee productivity.

Knowing this possibility, it is worth understanding some points that an organizational structure must encompass. Check out:

• Departmentalization : the structure must consider or create departments to organize the work into groups that are determined based on the business focus.
  It is possible that this departmentalization is done on a function basis, by project and others;
• Specialization : the more a business needs specific and isolated functions, the greater the level of division of functions. Something that impacts the design of the structure considering the departmentalization and definition of hierarchies in the company;
• Hierarchization : the way in which authority is distributed and exercised also needs to be present in the design of the business structure.
  It is this understanding that can lead to a more vertical or more horizontal hierarchy, for example, and has to do with the types of leadership present in the company;
• Scope of control : following on from the previous point, the hierarchy also considers the number of employees that a manager is able to manage.
  This analysis should not be purely quantitative. The type of activity performed by each department, its needs and level of complexity also need to be understood;
• Centralization or decentralization : to design an organizational structure, it is also necessary to know if activities are more concentrated among members at the top of the hierarchy or if there is a more democratic distribution.
  Here, consider, for example, the level of autonomy that professionals from hierarchical levels below top management can have in the company;
• Formalization : finally, the structure also encompasses the standardization level of the company’s processes and tasks.
  If we are talking about a series production line, the processes are more standardized and formal, for example.
  In other cases, the scenario is more open to flexibility and informality and this also changes the form of departmentalization, the type of hierarchy and distribution of “power”.