What is an organisational structure?

They can be used to define roles, responsibilities and relationships within a company, as well as helping an organisation to achieve their business goals. So, what is an organisational structure and what are the different types?

Types of organisational structures

An organisational structure is the key to improving decision-making, refining the span of control, and defining your human resources. It is usually produced using a structure chart and there are many different types of organisational design.

An organisational structure could significantly impact business performance, growth, and overall success. Choosing the right structure for your organisation will depend on your business model, size, objectives and industry requirements.

For example, a centralised structure is focused on decision-making at the top, while a decentralised structure distributes decision-making across the organisation.

Hierarchical organisational structure

A hierarchical organisational structure is a top-down approach in the form of a line or pyramid system. It follows a chain of command where authority flows from the top to the bottom and employees are ranked at different levels within the organisation.

Each level has a direct supervisor with a clear division of tasks and responsibilities. However, disadvantages include the risk of a restricted flow of information and delays due to multiple leadership layers, as well as the potential for departmental rivalry.

As an example, Amazon operates under a hierarchical structure, allowing for strict control, standardisation, and efficiency across its global operations. They use this organisational structure to facilitate communication and coordination, as well as innovation and adaptation.

Flat organisational structure

A flat organisational structure minimises levels of middle management, while promoting a more decentralised decision-making process. This structure encourages open communication and collaboration, which is widely used in startups and technology firms.

As an example, a flat organisational structure is popular among gaming companies, where employees have no formal bosses and can work on projects of their choosing.

Matrix organisational structure

A matrix organisational structure combines both functional and project-based elements, allowing employees to report to multiple managers. This setup can enhance flexibility and knowledge sharing, but it can also lead to confusion in reporting relationships.

As an example, Google uses a matrix structure, which enables employees to work across different departments simultaneously. They use this structure to encourage cross-functional collaboration, bringing different expertise to projects to inspire innovation.

Divisional or multidivisional (M-Form) organisational structure

A divisional or multidivisional (M-Form) organisational structure has a leadership team based on the organisation’s products, projects or subsidiaries. Commonly used by large companies, this type of structure is useful when an organisation is divided into business units or geographical divisions. Strategies can then be tailored for efficient management.

As an example, PepsiCo uses this type of structure because they have separate divisions for beverages, snacks, and international markets. These business units can operate independently, while aligning with their corporate goals.

Benefits of organisational structures

A well-defined organisational structure can enhance efficiency, decision-making, and communication. Depending on the structure and type of business, decisions can be made faster, tasks can be more focused, and operational processes can be optimised. A well-designed structure allows for business growth and expansion.

A successful organisational structure will have a clear definition of every employee’s role and how their job fits within the system to ensure accountability. Clear roles and responsibilities enhance workflow and productivity, while defined reporting relationships ensure effective information flow.

By defining who does what within an organisation, the business will be more able to manage their employees and meet its objectives.

Key terms in organisational structure

Span of control

Span of control refers to the number of employees reporting to a manager or the number of activities under their control. The larger the number of subordinates or functions, the broader the span of control.

Chain of command

A chain of command in an organisational structure defines how people’s roles relate to each other for the system to flow smoothly. Each role must be clearly defined to ensure reporting accountability.

Delayering

Delayering involves reducing the number of management levels within an organisation to improve efficiency. Less bureaucracy can help to reduce costs, enhance communication and increase productivity.

Delegation

Delegation is the process of assigning tasks and decision-making authority to subordinates. By delegating certain responsibilities, employees can become empowered to develop their own skills, while managers are freed up to focus on strategic initiatives.

Subordinates

Subordinates are employees who report to a manager or supervisor. In a hierarchical organisational structure, there are different tiers of subordinates. Team members is a more common and positive way to describe groups of employees.

How to choose an organisational structure?

Before defining an organisational structure, it’s important to consider various factors. These include your business goals, industry requirements, and workplace culture. Different businesses will work better with certain organisational structures in place.

Remember, an organisational structure is a system that helps to determine how activities are carried out, such as task allocation, coordination, and supervision. When the right organisational structure is in place, an organisation is more likely to achieve their goals.

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