Organization Structures Types play an important role in almost all aspects of an organization. It severely impacts employee morale, profitability, and many other facets of an organization’s lifecycle. In this comprehensive post, we explore 8 Organization Structure Types which are widely used among all organizations be it a startup or a multinational company operating in various geographies. Developing a comprehensive understanding of these Organization Structures Types is critical for organizational success.
Organization Structures Types 1: Formal Organization
The functional form categorizes tasks by categories, such as marketing, finance, manufacturing, and administration. Despite the fact that the functions may vary from sector to industry, the structure is based on the abilities required to complete sets of activities. For instance, plants are a component of the manufacturing function, sales may have their own “arm,” and marketing may be a distinct division. In a functional Organization Structures Types structure, it is thought that functional skills are the most essential and strategic organizational abilities, thus they are prioritized and placed in the center. The phrase “general management” is employed because functional organizations tend to be centralized, meaning that the activities of the various functions do not mingle until the top level.
| PROS | CONS |
| Functional specialists are professionals in their respective professions | Frequently results in individuals constructing their own empires and looking out for themselves |
| People move vertically to acquire expertise in areas of competence | It becomes increasingly difficult to transcend departmental borders. Customers often hear that as “not my organization” |
| Functional forms make it easy for people within and outside the company to choose who to contact for certain requirements | The functional form also makes it difficult for functional units to collaborate and communicate, as each unit has its own language and incentive system |
| Prevents the duplication of resources and enables the various specializations to take advantage of economies of scale | Each functional group has the propensity to develop its own subculture |
| Each department has distinct responsibilities, making it easy to keep track of who is accountable for what | Integration systems and processes that are powerful enough to overcome functional obstacles might be difficult to discover |
| Many organizations start with this kind of organizational structure | Functional forms do not aid young people in learning general management skills. |
Organization Structures Types 2: Product-Based Organization Structures
Companies that deal with marketing or consumer goods frequently employ the “product form,” which organizes duties linked to certain products and assigns them to “product managers.” The product manager is responsible for many or all of the characteristics of a product or product line. In its most basic form, the product Organization Structures Types structure generates a number of smaller, single-product-line businesses, each with its own functional support specializations. However, the product manager is often just responsible for promoting and selling the product.
He or she must rely on an operations manager to control expenses and ensure the product’s quality and timely delivery. Typically, the financial and operational tasks remain unchanged, but the marketing and sales functions are assigned to the product manager. This blends the functional and product forms. The essential idea here is that the product structure management wishes to demonstrate the significance of the company’s goods by making the product manager accountable for the line’s profitability. The product manager’s responsibility is to ensure that the work of all specialists contributes to the achievement of the product’s objectives.
Apple Follows Product-Based Organization Structures
| PROS | CONS |
| The benefit of the product form is that it makes use of the advantages of the functional format while minimizing the disadvantages | Too complex for smaller enterprises |
| Focus is placed on a single product, and specialist personnel and resources may be allocated to those who require them and removed from others that do less effectively | Expensive to hire and retain functional specialists in each product division to perform the same task twice |
| This is a more flexible and productive method of utilizing resources than the functional form | Duplicate resources won’t be a problem if each product line sells sufficiently, but total company expenses might be reduced |
| Product form is also an excellent method for training general managers | With these smaller, product-focused functional units, there is a risk that skill development and optimal skill use may not receive sufficient attention |
| Product managers develop the ability to perceive and manage across functions in order to achieve a successful end result | Strict corporate control over earnings can lead to tight controls over product lines, making it more difficult to take risks, adapt, and generate new ideas |
| Each product manager is compensated and urged to focus on his or her own line and not bother about the others, communication and coordination barriers tend to persist within the product form. |
Organization Structures Types 3: Customer-Oriented Organization Structures
When management wants to ensure that the company’s focus is on the client’s demands and not on how effectively it creates products (functionally) or what brands it wants to market, it employs departmentalization by customer (product). The customer form is becoming increasingly prevalent in our increasingly service-oriented culture. We believe that the customer form is underutilized even in the industrial industry, where managers have historically prioritized internal concerns above customer issues.
In addition, sales departments frequently employ customer departmentalization or segmentation to provide various terms to different sorts of consumers (volume discounts to large customers, for instance). The customer structure demonstrates that management is aware of the demands of its many client groups and has selected those with the greatest sales potential.
The client form is an excellent technique for management to keep track of the source of revenue. Companies that separate their clients into several categories are more likely to comprehend and satisfy their demands.
However, the customer form makes it difficult to suit everyone’s demands. This complicates production or service scheduling and reduces manufacturing runs, which are more costly.
| PROS | CONS |
| The client form is an excellent technique for management to keep track of the source of revenue | Customer form makes it difficult to suit everyone’s demand |
| Companies that separate their clients into several categories are more likely to comprehend and satisfy their demands. | Complicates production or service scheduling and reduces manufacturing runs, which are more costly. |
Organization Structures Types 4: Geographic Structures
Although there are others who believe that the customer form and the geographic structure are hybrids, we do not subscribe to this viewpoint. We believe that client market categories and geographic regions do not always correspond, and as a result, they need to be analyzed independently.
The geographic form categorizes an organization’s activities according to the location of the activity being performed. This is often determined by how difficult it is to transport the good or provide the service across a considerable distance. For instance, in the past, a lot of individuals attempted to turn the real estate industry into a national one, but it generally stayed local until the Internet got more famous and made it feasible to turn it into a regional or even national one.
The meatpacking and construction sectors are two more that, for the most part, have retained their traditional organizational systems. A significant number of businesses organize their sales teams according to geographic location. Additionally, in a global economy, many “regional divisions” are nations, and each country has its own culture, laws, finances, and manner of doing things.
In addition, many “regional divisions” are countries. It’s possible that distance isn’t the sole factor to consider while thinking about a geographic shape. Organizing things based on location might also be done according to changes in legislation, cultural standards, and geographical factors. For instance, multinational corporations that have locations in a variety of countries are frequently familiar with the trade-offs that must be made between centralized control and the complexity of the many operating environments.
Amazon Europe follows Geographical Organizations Structures
When a business establishes divisions depending on location, it may focus on the demands of clients in a smaller region and minimize the expenses associated with transporting goods or services. Due to the fact that fully-functional mini-companies are frequently organized by location, this structure also provides managers with a place to learn how to manage a firm. Additionally, it assists managers in remaining closer to their consumers than a national or global functional structure would.
Geography might make it difficult for the management of a firm to see the various client groups in their marketplaces. They can also make it difficult for units to communicate and collaborate. They make it more difficult to calculate returns on investments, set goals for financial and other types of success, and determine the outcomes of an organization’s actions.
| PROS | CONS |
| When a business establishes divisions depending on location, it may focus on the demands of clients in a smaller region and minimize the expenses associated with transporting goods or services. | Geography might make it difficult for the management of a firm to see the various client groups in their marketplaces |
| This structure also provides managers with a place to learn how to manage a firm | They can also make it difficult for units to communicate and collaborate. |
| It assists managers in remaining closer to their consumers than a national or global functional structure would. | It is more difficult to calculate returns on investments, set goals for financial and other types of success, and determine the outcomes of an organization’s actions. |
Organization Structures Types 5: The Divisional Structure
The divisional form is likely the most prevalent type of organization in major American corporations today. Strategy and Structure, a classic by Alfred Chandler, describes how this structure emerged at DuPont and General Motors in the early 1900s. In his recently published book The M-Form Society, William G. Ouchi discusses the form in depth.
The divisional Organization Structures Types structure may be viewed as an extension of the product form, but the general manager has a great deal more authority and influence over the situation. A person is placed in charge of a “company” characterized by a collection of items, a location, or a cluster of products. Typically, these divisions will be responsible for their whole operation, including funding, raw materials, production, sales, and marketing. They may also have the ability to organize their divisions as they see fit, which might be advantageous given that firms confront varying circumstances.
According to Ouchi, the M-form enables organizational units to be both autonomous and reliant on one another. He stated that the organization shouldn’t include sections that are fully reliant on one another, as in the functional form, or completely autonomous, as in the product form (where there are profit and investment centers). By achieving a balance between these two extremes, organizational units can maximize revenues while still sharing the costs of expenses that affect the entire company.
Ouchi believed that all units should be interdependent and share resources. Hewlett-Packard, for example, fits nicely with the pure M Form. At the conclusion of the 20th century, H-P was divided into around fifty semi-independent components. One produced oscilloscopes, another produced medical tools, a third produced computers, etc. Each division marketed to a somewhat different clientele and manufactured products in a little different manner. However, they all had origins in the realm of electrical engineering and produced objects in comparable ways. The majority of them also relied on central laboratories to generate fresh ideas for their research. T
The formal structure of the divisional form illustrates the conflict between dependency and independence in organizations and provides a means of achieving a balance between the division’s autonomy and the corporation’s central authority.
| PROS | CONS |
| Enables organizational units to be both autonomous and reliant on one another | The divisional form is complex and requires experience and judgment to manage well |
| It Provides means of achieving a balance between the division’s autonomy and the corporation’s central authority. | It can lead to embarrassing redundancies and breakdowns in service to the consumer. |
Organization Structures Types 6: Matrix Structures
Numerous early organizational management theories were incompatible with the matrix framework. The regions of power expanded, there was less command unity, and the limits of authority became so hazy that they vanished. However, the form continues to exist because it satisfies a combination of requirements that were initially seen in the aerospace industry: projects that were extremely costly, talent pools that were tiny, and projects that were extremely complex and required highly specialized abilities.
In a matrix organization, there are several methods to do a task. One is a functional array consisting of managers responsible for engineering, manufacturing, sales, buying, etc. The individuals responsible for a program’s budget are known as project managers. Therefore, the functional managers are responsible for the people and their abilities, but the project managers are responsible for the finances. Both of them require the other to do their duties.
A functional employee has at least two supervisors in the matrix form: the project manager and the functional department manager. One pays his money, and the other is a significant component of his performance assessment since it allows him to evaluate his work on many projects. Matrix companies are most effective when both managers and employees possess specialized talents. To manage and work in a matrix, you must have high levels of trust, communication, negotiation, teamwork, the capacity to shift priorities and concentration, and attention to detail.
Human resource specialists taught managers and employees that decisions should be based on expertise, persuasion, and logic, not hierarchical position and formal roles, and that misunderstandings, disagreements, and conflicts should be resolved through confrontation and problem-solving, not by appealing to a higher authority, winning/losing, avoiding, or covering up differences.
Overall, the matrix organization should prioritize tasks and outcomes over rank and prestige. The matrix’s dual authority Organization Structures Types structure enables individuals to concentrate on project efficiency while maintaining the functional structure’s specialized growth. This ensures that there are always available resources when they are required.
| PROS | CONS |
| When a project has limited resources, high demand for resources that are only temporary, and a high level of complexity and unpredictability, matrices or hybrids thereof are frequently employed. | The high expense of maintaining the two management levels |
| Compared to the functional form, this “loose” structure assists individuals in determining how to handle issues in similar scenarios. | The “matrixed” employee typically has two or more “bosses” and must choose when to listen to each one. |
| Training and sustaining this employee, which is highly reliant on social abilities, is either prohibitively expensive or impossible | |
| Managers who are accustomed to more conventional arrangements are unable to let go of concepts such as “one person, one boss” and the “line of authority” and therefore cannot function in a matrix organization. |
Organization Structures Types 7: Amorphous Structures
The Organization Structures Types, which does not have a discernible form, develops on their own. In the absence of regulations or official organizational charts, each manager is responsible for forming the groups that are necessary for them to carry out their responsibilities. Amorphous systems demonstrate that the top managers either have a great deal of trust in the intermediate managers or that they don’t care about the structure of the company.
Every community matures and adapts in its own unique fashion, depending on the resources at its disposal and the requirements it must fulfill. The organizational manager can be replaced with a “high-risk, high-reward” alternative known as the amorphous organization. Due to the rapidity with which they expand, these organizations are frequently referred to as “organic.”
If they have good working conditions, members of amorphous groups have the potential to be highly motivated and productive. In the event that they do not, the individuals contained within them may get highly agitated, resulting in a lack of productivity.
It’s possible that Digital Equipment Corporation (DEC) was the greatest illustration of an amorphous organization from the early modern age when it was just being started off. DEC was the second largest computer maker after it gradually evolved into that position. In the nearly defunct firm, there were hardly any organization charts. A variety of people’s interests and judgments throughout the course of time led to the establishment of separate departments and divisions. Management did not have any control at all.
Instead, they placed a great deal of reliance on the capability of their subordinates to define and decide the manner in which the task would be carried out. Denmark is an example from more recent times. Oticon is a manufacturer of hearing aids, and its Chief Executive Officer, Lars Kolind, restructured the business into what he referred to as a “spaghetti organization.” This new Organization Structures types was implemented in 2013. He got rid of all the job descriptions, dismissed all of the secretaries, and tore down the walls in the headquarters office building because he was concerned about the lack of communication that existed between the departments and the barriers that separated them.
Employees were instructed that whenever they needed to work on a project with another person, they should just roll their carts together so that they were side-by-side. Personal computers, phones, and other office supplies were all placed on carts and wheeled around the workplace. Following this extensive restructuring, Oticon reported an increase in both income and new ideas while simultaneously noting a decrease in expenditures.
Forms that are “organic” or “amorphous” seem to be getting more popular as the number of high-tech, entrepreneurial businesses, many of which are based on the Internet, grows in the Information Age. The rise of so-called “virtual organizations,” in which most of the traditional operations of an organization are outsourced, makes the landscape of structural options even more confusing.
Where is the organization when a company hires an independent manufacturer to make a contract-designed product and then uses an independent sales organization to distribute and sell the product? Is there a frame around it? Where is the “organization” if it’s just a group of people working from home on different projects and staying in touch through different networks, maybe just until a project is done? Design decisions are affected by new theories about how networks are put together. There are a lot of choices.
| PROS | CONS |
| There is the potential for amorphous organizations to provide a highly inspiring atmosphere for achievement-oriented, internally driven personnel | Amorphous organizations can devolve into morasses of disorganized, aimless effort that generate little more than friction and heat |
| As long as they possess the appropriate talent, they can adjust to environmental or technological changes quite fast | the recruitment mechanism must be modified to choose only candidates who meet the organization’s requirements |
| they are frequently engaged by entrepreneurs that are focused on quick expansion and either think that excessive structure is stifling or lack the time to address the difficulties of the organization. | This unchecked development may be extremely costly and even lethal. |
Organization Structures Types 8: Hybrid Organizational Structures
There are several organizational systems in society that combine the aforementioned types. Many businesses blend elements of two or more kinds in an effort to have the best of both worlds. The risk, of course, is receiving just negative outcomes. Hybrids frequently expand on one of the two forms by including various methods to promote integration, such as task forces and work teams, which are frequently used to coordinate operations between functional or product-form organizational components.
The most frequent hybrid forms are
(a) the functional/product, in which product managers do not have complete authority over the business’s operations or finances,
b) the geographic/customer type in which area managers separate their sales teams by customer segment.
Many organizations post-pandemic have gone resorted to this type of Organization Structures Types
| PROS | CONS |
| Hybrids enable an organization to adapt its structure to the demands of the environment, its current personnel, and other design restrictions, such as existing systems and historical momentum | They might be difficult to comprehend |
| Creates a lack of transparency | |
| People who work in hybrid organizations might become irritated and lose hope when they do not know who is responsible for what and to whom they should report. | |
Samrat is a Delhi-based MBA from the Indian Institute of Management. He is a Strategy, AI, and Marketing Enthusiast and passionately writes about core and emerging topics in Management studies. Reach out to his LinkedIn for a discussion or follow his Quora Page