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Published on September 10th, 2020 | by Ali Dino

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What are the 4 Types of Organizational Structures?

We at Prestige Auditors are always happy to see someone interested in business, especially when they want to set up their own. This is why we always try to educate business owners on various business-related subjects. And today, we’re going to talk about 4 types of business organizations.

Why is this important? Because without a good organizational structure, a company is pretty much doomed to fail. Employees will be baffled, they won’t know what to do, they won’t know where to report, there will be no clear goal to strive for, everyone will be stressed out, and so on. Everything needs a structure, from the human body to a business.

We’ll start off with the first one, which is:

1. Functional Structure

This is a very common structure, and you’ve probably experienced it firsthand. In a functional structure, the workforce is grouped into departments, each of which has its own objective and manager. The manager of each department reports directly to someone higher than them, who might be in charge of a bunch of groups.

The entire departments are overseen by the CEO or COO of the company. Basically, a functional structure looks like a pyramid that starts with the head of the company at the top, then cascades down into different departments.

Cons:

Functional organizations often suffer from a lack of communication between the different groups in the organization. This causes a lot of setbacks. But if managed properly, it shouldn’t be an issue.

2. Divisional Structure

As evident from the name, a divisional structure is “divided” into different sections, each of which acts as a separate company. This is usually the structure that very large companies with different divisions use. The entire structure is overseen by the SEO, but each division sets its rules and budget.

This is also a structure that international companies use. If a company has different branches in different parts of the world, it will most likely go for a divisional structure.

Cons:

The drawback to having a divisional structure, especially if there are too many divisions, is that employees from one division might not be able to communicate well with employees from another division. Also, let’s not forget that more divisions mean more tax paperwork, more accounting, and more auditing.

3. Tall Structure

The tall structure is one of the hippest business structures you will even come across with, owing largely to its effectiveness. Just like the functional structure, this one also has a pyramid-like shape to it. The good part about it, though, is that in this type of structure, you as an employee can communicate with higher managers/supervisions about big decisions that you think would benefit the company. Then, those will be implemented by managers that have higher ranks than others.

Cons:

The bad side is that there are just a whole lot of managers in this structure, which means employees have to wait for a considerable about of time until a decision is made and passed down to them. They could miss out on potential gold mines during the wait. Another issue is that the lower end of the pyramid really sees the higher end, which means that communication is very frail between the top command and the lower players.

4. Matrix Structure

Nope, it’s not a virtual reality world! A matrix structure combines the best of both worlds, which is why we’ll also mix the pros and cons. It’s a very situational business structure, meaning as an employee, the person you report to might change depending on the situation you’re in. This might be a bit confusing because employees might get confused as to who they have to report to, when, and how.

That being said, because employees communicate with different people, the matrix structure has a unique advantage. Everyone knows what the other person is doing, and someone might discover that they are doing better in one field instead of any other, leading to talent discovery and increased career opportunities.

These are just some of the business organizations you will see. There’s a lot more where these came from, and if you want to know more about business entity information structure, we at Prestige Auditors are ready to give you as much info as you need, not to mention our unique talent for forming business strong from the get-go! Call us now, and we’ll cater to all of your business-related inquiries!

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