Organizational structure is the system by which an organization directs its activities in order to achieve its goals.
It can include various elements, including rules, roles, and responsibilities. Organizational structure determines the flow of work and information through a company and its levels. It’s not just about hierarchy—it’s about creating clarity and alignment across roles and workflows.
And with 88 percent of professionals saying they experience workplace friction—like inefficient processes, poor communication, or unclear roles—it’s clear that structure plays a major role in how smoothly teams operate. Structural complexity doesn’t just slow things down; it creates confusion, impacts engagement, and makes it harder to get work done. That’s why evaluating and adjusting organizational structure strategically can lead to real gains in clarity, collaboration, and performance.
Companies that evaluate and choose an organizational structure strategically can improve workplace effectiveness and efficiency. And whether you’re managing a flat, functional, or matrix setup, modern HR tools like HRIS platforms make it easier to design and manage structures that encourage transparency and engagement.
In this article, we’ll explore what organizational structure means, the different types, and how they shape success across industries.
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Key insights
- Organizational structure is a framework that defines how organizations direct activities to achieve goals, influencing how work and information flow
- Different types of organizational structures include functional, flat, divisional, and matrix, each with unique advantages and challenges
- A well-chosen organizational structure enhances efficiency, clarity in roles, and adaptability to market changes
- Visual tools like organizational structure charts are instrumental in understanding and managing these frameworks
- Integrating organizational structure into HR strategy aids in navigating challenges and maintaining high retention and engagement levels
Centralized vs. decentralized organizational structures
In centralized organizational structures, decision-making authority sits at the top. This more traditional structure typically puts a C-level leader at the top along with a leadership team, and team members sit within a chain of command. This setup often means consistent control and streamlined decisions, making it easier to implement policies uniformly.
On the other hand, decentralized structures spread decision-making across various levels. A leadership committee might empower project managers to operate semi-independently, or a small company might make all decisions collaboratively. This approach boosts agility and empowers team members to make informed choices based on direct insights.
Choosing between centralized and decentralized depends on your organization’s goals, size, and industry. Balancing control with flexibility can enhance strategic alignment and empower your team.
Types of organizational structures
Let’s dive into some of the most common organizational structures.
Functional organizational structure
In a functional organizational structure, each department manages itself independently, which often boosts efficiency and expertise. The company organizes people according to their skills and functions in the company, and each department leader reports to the CEO.
Advantages of a functional organization include:
- Allowing people to specialize in specific roles
- Giving teams a sense of self-sufficiency
- Scaling easily for companies of all sizes
Disadvantages include:
- Hampering interdepartmental communication and interaction
- Creating silos
- Obscuring company strategies and processes
Flat organizational structure, or horizontal organizational structure
A flat organizational structure, also called a horizontal structure, works best for companies without many levels between upper management and staff, such as new start-ups. A flat structure “reduces the number of hierarchical layers, giving people more autonomy and improving communication across the organisation.” In this structure, almost everyone has equal power.
Advantages of a flat organizational structure include:
- Allowing for less supervision
- Encouraging more involvement from and giving more responsibility to all team members
- Creating more open communication
- Allowing for more agile, faster implementation of innovative ideas
Disadvantages of a flat organizational structure include:
- May be confusing for people who do not have a direct supervisor to report to
- Can create generalists rather than specialists
- Is difficult to maintain with growth
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Divisional or multidivisional organizational structure
A divisional organizational structure is one in which a company’s divisions control their own resources, operating almost like a smaller company within the larger organization. This works well in enterprise companies with many larger markets, territories, or departments.
Experts say silos can “thwart cooperation,” so companies using this structure benefit from encouraging open communication across teams.
Advantages of a divisional organizational structure include:
- Allowing divisions to make decisions independently and flexibly
- Adapting to customer needs
- Greater autonomy in individual departments allows for more innovation
Disadvantages of a divisional organizational structure include:
- Creating divisions between departments with poor communication and low interaction
- Can create intercompany division rather than unity
- Can lead to duplicate resources
Matrix organizational structure
A matrix organizational structure is one in which cross-functional teams form fluidly according to project needs, with people moving from one department to another as needed. This structure can be motivated by the desire to use “the best of two or more forms of departmentalization” to flexibly harness the people skills present within the organization.
Advantages of a matrix organizational structure include:
- Encouraging people to use their skills in different ways
- Allowing for a more dynamic, innovative, and agile organization
- Letting supervisors choose team members based on the needs of a project for maximum success
Disadvantages of a matrix organizational structure include:
- Frequent change can feel challenging for team members
- Can create a conflict of interest between the needs of department and project managers
Team-based organizational structure
In a team-based organizational structure, companies group people into teams based on shared goals or projects, emphasizing collaboration and flexibility. According McKinsey & Company, companies that shift toward a team‑focused model can realise up to 30 percent efficiency gains.
Advantages of a team-based organizational structure include:
- Enhancing collaboration and innovation
- Allowing quick adaptability to changes
- Empowering teams to make decisions
Disadvantages of a team-based organizational structure include:
- Ambiguous roles
- Challenges in coordinating across teams
- Requires strong leadership to manage dynamics
Circular organizational structure
A circular organizational structure places leaders at the center, radiating outward in rings representing levels of responsibility. This model emphasizes clear communication and a smooth flow of information, with experts calling it “an egalitarian and flexible form for fuller engagement and resilience.”
Advantages of a circular organizational structure include:
- Promoting open communication
- Encouraging a holistic view of organizational goals
- Building a sense of community
Disadvantages of a circular organizational structure include:
- Can be confusing without clear hierarchies
- May slow decision-making processes
- Requires strong communication skills
Network organizational structure
A network organizational structure relies on external partners and alliances, coordinating across various locations and organizations. Research indicates that organizations with strong network‑style flexibility and external partnerships achieve higher innovation output and improved performance.
Advantages of a network organizational structure include:
- Adapting to market changes
- Accessing external expertise and resources
- Encouraging innovation through diverse inputs
Disadvantages of a network organizational structure include:
- Dependence on external entities
- Potential for misaligned goals
- Challenges in maintaining control and consistency
How to choose the best organizational structure for your company
Finding the right organizational structure means thinking about hierarchy, span of control, and communication. A well-defined hierarchy clarifies reporting lines, while the right span of control ensures managers can effectively oversee their teams. Clear communication channels enhance decision-making and responsiveness.
Each organizational structure has its benefits. But the most significant benefit is choosing and maintaining a structure customized to your organization, rather than letting your workflows and reporting structure simply “happen.”
The benefits of a clear, customized organizational structure include:
- Clear pay structure: Establishes transparency and fairness in compensation
- Efficient operations: Optimizes processes and reduces redundancies, enhancing productivity
- Team member initiative: Empowers team members by clarifying roles and responsibilities
- Adaptability: Allows the organization to respond swiftly to market changes and opportunities
Organizational structure example
Imagine a mid-sized tech company using a matrix structure to stay agile and drive innovation. Cross-functional project teams bring together professionals from engineering, marketing, and sales, with each reporting to both a functional manager and a project lead.
In this model, the engineering team owns product development while marketing focuses on go-to-market strategy. Together, these teams collaborate to launch new products efficiently, using their combined skills to respond to market needs with speed and creativity.
A matrix structure enables flexible, dynamic teamwork, but it depends on clear communication to navigate competing priorities between departments and projects. This example shows how the right organizational structure can support strategic goals, unlock team potential, and boost performance.
Why should organizational structure be part of modern HR strategy?
A well-thought-out organizational structure prepares companies to meet future challenges and adapt to market changes. When you incorporate it into a comprehensive HR strategy, it keeps retention and engagement high. It also provides professionals with clear expectations about how their roles and responsibilities fit into the company.
This clarity empowers professionals to contribute with confidence and purpose. Ultimately, a strong organizational structure supports a thriving culture where people feel aligned, valued, and ready to grow.
<< Download a free org chart template to streamline your planning >>
Organizational structure FAQs
What is an organizational structure in business?
An organizational structure in business is the framework that shapes how work gets done, from how teams are organized to how decisions are made. It creates clarity around roles, supports collaboration, and helps people stay aligned as the company grows.
How does a company’s organizational structure impact project management?
A company’s organizational structure shapes planning, communication, and delivery. It influences decision-making, team collaboration, and resource sharing. With role clarification and team alignment, project work flows more smoothly, and people can focus on driving impact instead of managing roadblocks.
Which organizational structure is best?
Ultimately, no single organizational structure is best across the board. The best organizational structure for your company will vary depending on your organization’s size, needs, growth, culture, and more. We recommend choosing an organizational structure according to your company’s goals and the vision you have for your future.
What is an organizational structure chart?
A great way to understand organizational structures is to visualize them with an organizational structure chart, a visual representation of the exact hierarchy of any given structure. This highlights how the company organizes its people, who reports to whom, and the relationships various teams and individuals have.
This tool can be helpful when choosing an organizational structure and as a way to track and manage yours after you’ve chosen it.
Technology can be a tremendous tool for managing and visualizing your structure of choice. An HRIS platform with features like HiBob’s Core HR software will allow you to create a customized org chart that displays the relationships between your people, teams, and departments for full clarity and transparency of your organizational structure.
