It is a type of organization where people are grouped according to their area of professional competence and specialization. Typically this kind of organization is very bureaucratic and has a top-down approach.
This implies that each department will have his manager or director. This kind of organization allows employees to specialize at best in specific functions. However, it will also limit their flexibility.
While most traditional companies run this kind of organizational structure, many startups that need to make sure its small teams remain flexible and adaptable might opt for a different structure, where people are incentivized to form cross-functional teams.
Divisional organizational structure
It is a type of organization where groups are organized according to the projects or products the company focuses on.
This structure is more flexible to the hierarchical organization, as each division will run almost as an independent business, that has independent control over resources and money spent. Each division working as an independent organization can be grouped by product line but also geography.
It is a type of organization that blends elements of a functional and divisional structure. While it sounds appealing in theory, it might be hard to implement.
As it might make people report to several bosses within the same organization and the communication flow might become too challenging as this might also generate confusion in the executive and management.
Flat organizational structure
In a flat organizational structure, there is little to no middle management between employees and executives. Therefore it reduces the space between employees and executives to enable an effective communication flow within the organization, thus being faster and leaner.
It is a type of organization born from the startup way of acknowledging more independence and autonomy to employees, where they are closer to the chain of command, and the decision-making process.
This type of organization still benefits from hierarchies, but it flattens them by generating an adaptable model for organizations. While this kind of approach might work well with small and medium-size organizations, it might be difficult to implement for quite large organizations.
In a functional organizational structure, groups and teams are organized based on function. Therefore, this organization follows a top-down structure, where most decision flows from top management to bottom. Thus, the bottom of the organization mostly follows the strategy detailed by the top of the organization.
In a flat organizational structure, there is little to no middle management between employees and executives. Therefore it reduces the space between employees and executives to enable an effective communication flow within the organization, thus being faster and leaner.
Key Highlights
Functional Organizational Structure:
Groups people based on their professional competence and specialization.
Hierarchical and bureaucratic in nature with top-down decision-making.
Allows for specialization but limits flexibility.
Common in traditional companies.
Divisional Organizational Structure:
Organizes groups based on projects or products.
Each division functions somewhat independently, controlling resources and finances.
Can be grouped by product line or geography.
Offers more flexibility than strict hierarchy.
Matrix Organizational Structure:
Blends elements of functional and divisional structures.
Employees report to multiple bosses, which can lead to communication challenges and confusion.
Complex to implement and manage.
Flat Organizational Structure:
Reduces middle management layers, promoting direct communication between employees and executives.
Faster decision-making and communication flow.
Originates from startup culture, emphasizing independence and autonomy.
More challenging to implement in large organizations.
Hybrid Structures:
Mentioned types of structures can be combined or modified to suit an organization’s needs.
Hybrid structures like matrix-functional, matrix-divisional, or others can emerge.
Advantages and Disadvantages:
Each structure has its benefits and drawbacks, affecting communication, flexibility, efficiency, and decision-making.
Open Organizational Structures:
These structures encourage transparency, collaboration, and adaptability.
Include matrix and flat structures that promote direct communication and shared decision-making.
Siloed Organizational Structures:
Refer to structures that emphasize individual departments or divisions working independently.
Include functional and divisional structures.
Choosing the Right Structure:
Organizations need to consider their size, industry, goals, culture, and market conditions when selecting a suitable structure.
Project portfolio management (PPM) is a systematic approach to selecting and managing a collection of projects aligned with organizational objectives. That is a business process of managing multiple projects which can be identified, prioritized, and managed within the organization. PPM helps organizations optimize their investments by allocating resources efficiently across all initiatives.
Harvard Business School professor Dr. John Kotter has been a thought-leader on organizational change, and he developed Kotter’s 8-step change model, which helps business managers deal with organizational change. Kotter created the 8-step model to drive organizational transformation.
The Nadler-Tushman Congruence Model was created by David Nadler and Michael Tushman at Columbia University. The Nadler-Tushman Congruence Model is a diagnostic tool that identifies problem areas within a company. In the context of business, congruence occurs when the goals of different people or interest groups coincide.
McKinsey’s Seven Degrees of Freedom for Growth is a strategy tool. Developed by partners at McKinsey and Company, the tool helps businesses understand which opportunities will contribute to expansion, and therefore it helps to prioritize those initiatives.
Mintzberg’s 5Ps of Strategy is a strategy development model that examines five different perspectives (plan, ploy, pattern, position, perspective) to develop a successful business strategy. A sixth perspective has been developed over the years, called Practice, which was created to help businesses execute their strategies.
The COSO framework is a means of designing, implementing, and evaluating control within an organization. The COSO framework’s five components are control environment, risk assessment, control activities, information and communication, and monitoring activities. As a fraud risk management tool, businesses can design, implement, and evaluate internal control procedures.
The TOWS Matrix is an acronym for Threats, Opportunities, Weaknesses, and Strengths. The matrix is a variation on the SWOT Analysis, and it seeks to address criticisms of the SWOT Analysis regarding its inability to show relationships between the various categories.
Lewin’s change managementmodel helps businesses manage the uncertainty and resistance associated with change. Kurt Lewin, one of the first academics to focus his research on group dynamics, developed a three-stage model. He proposed that the behavior of individuals happened as a function of group behavior.
Airbnb follows a holacracy model, or a sort of flat organizational structure, where teams are organized for projects, to move quickly and iterate fast, thus keeping a lean and flexible approach. Airbnb also moved to a hybrid model where employees can work from anywhere and meet on a quarterly basis to plan ahead, and connect to each other.
eBay was until recently a multi-divisional (M-form) organization with semi-autonomous units grouped according to the services they provided. Today, eBay has a single division called Marketplace, which includes eBay and its international iterations.
IBM has an organizational structure characterized by product-based divisions, enabling its strategy to develop innovative and competitive products in multiple markets. IBM is also characterized by function-based segments that support product development and innovation for each product-based division, which include Global Markets, Integrated Supply Chain, Research, Development, and Intellectual Property.
Sony has a matrix organizational structure primarily based on function-based groups and product/business divisions. The structure also incorporates geographical divisions. In 2021, Sony announced the overhauling of its organizational structure, changing its name from Sony Corporation to Sony Group Corporation to better identify itself as the headquarters of the Sony group of companies skewing the company toward product divisions.
Facebook is characterized by a multi-faceted matrix organizational structure. The company utilizes a flat organizational structure in combination with corporate function-based teams and product-based or geographic divisions. The flat organization structure is organized around the leadership of Mark Zuckerberg, and the key executives around him. On the other hand, the function-based teams based on the main corporate functions (like HR, product management, investor relations, and so on).
Google (Alphabet) has a cross-functional (team-based) organizational structure known as a matrix structure with some degree of flatness. Over the years, as the company scaled and it became a tech giant, its organizational structure is morphing more into a centralized organization.
Tesla is characterized by a functional organizational structure with aspects of a hierarchical structure. Tesla does employ functional centers that cover all business activities, including finance, sales, marketing, technology, engineering, design, and the offices of the CEO and chairperson. Tesla’s headquarters in Austin, Texas, decide the strategic direction of the company, with international operations given little autonomy.
McDonald’s has a divisional organizational structure where each division – based on geographical location – is assigned operational responsibilities and strategic objectives. The main geographical divisions are the US, internationally operated markets, and international developmental licensed markets. And on the other hand, the hierarchical leadership structure is organized around regional and functional divisions.
Walmart has a hybrid hierarchical-functional organizational structure, otherwise referred to as a matrix structure that combines multiple approaches. On the one hand, Walmart follows a hierarchical structure, where the current CEO Doug McMillon is the only employee without a direct superior, and directives are sent from top-level management. On the other hand, the function-based structure of Walmart is used to categorize employees according to their particular skills and experience.
Microsoft has a product-type divisional organizational structure based on functions and engineering groups. As the company scaled over time it also became more hierarchical, however still keeping its hybrid approach between functions, engineering groups, and management.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
