What Organizational Structure Should My Team Use?

Gusto Editors

Teams are like origami — everything has to fold together just so in order to make a true work of art. An effective organizational structure grows organically around whatever it takes to reach a company’s pie-in-the-sky mission. It’s reflected in the way people relate to one another, how teams are organized, and how folks communicate and make choices. Basically, your structure holds everything together. It’s your glue and blueprint for growth.

That’s why it’s so important to spend time and energy on creating an organizational structure for your company. Already have some semblance of a team shape? No problem. There’s still a lot of value in taking a closer look at the way your business operates so you can make sure your team is ready to rock it. In this article, we’ll take a look at four common structures that can get you there.

Why your organizational structure matters

Put simply, it’s hard to get things done when your company doesn’t work as well as it should. A convoluted company can be confusing, ineffective, and it can impede your business’s ability to keep the best ideas bubbling up. Things are a lot easier to manage when there’s only one person on the team. But as you grow to 20, 100, and beyond, you need a framework to keep everything running smoothly.

Types of teams

But first, let’s visualize a few of the shapes a team structure can take. From the most rigid to the most flowy, there are two extremes:

  • Mechanistic: This type of structure is extremely hierarchical with a very clear chain of command. The military is a stereotypical example.
  • Flat: This type of structure, also called “organic,” is a lot more flexible. The chain of command isn’t as clear-cut.

A number of things are determined by the structure your company goes with:

  • Roles and responsibilities
  • Hierarchy of ownership and opinions
  • How people will be organized
  • Lines of communication and accountability

At some level (pun intended), it all boils down to the paths of communication between your employees. So start by taking a long look at how people interact (or how you want them to), and then design a structure that builds on that vision.

Types of organizational structures

The more common structures include a hierarchy, which is vertical, a flat organization, which is horizontal, and a matrix. The newer, less common one of the bunch is a Holacracy. Within each of these structures are a number of different ways to organize and differentiate people and teams:

  • By function, where people are grouped by abilities or skillsets (i.e. marketing, accounting, etc.)
  • By division, which might refer to a particular process, industry, product, or service (i.e. consumer/commercial, sport/luxury)
  • By location, which is simply a division based on where people are physically located

Hierarchy (Vertical)

Chances are you’ll recognize this pyramid structure: Layers upon layers of people, with each layer shrinking in number, but growing in authority, until you reach the peak. This is a traditional structure, and by far the most popular among larger organizations. This style works best when leadership is strong and empowers people below them to act like owners and contribute ideas. It doesn’t work when people are more focused on climbing to the top instead of doing great work.


  • With a centralized structure, it’s clear who has authority and how decisions are made.
  • Everyone has clear roles and responsibilities, and that delineation means there are also distinct lines of communication and succession. There’s an obvious progression for ambitious employees to follow.
  • People can feel more secure because they have a sense of the pecking order and can defer to certain people for decisions. Fewer people at the top means quicker approvals for high-level decisions.
  • There’s a sense of leadership across the company when people can follow the lead of the folks on top.


  • Having so many layers can drag out communication and decision-making, leading to bottlenecks.
  • There’s also less room for experimentation and innovation, since people on lower levels lack the authority to test or pursue new ideas. Employees may be able to see where they want to go, but they may not feel like they’re fully in control.
  • Because people work and communicate up or down, there’s less motivation to go sideways and share information across silos.
  • Collaboration can also stall as people try to climb their own way up the ladder.

Flat (Horizontal)

In contrast, most of the layers are crossed out in a flat organization. This helps spread out decision-making, giving managers more responsibility and individual contributors a greater opportunity to be directly involved in projects. This model can work well within small organizations and startups, but it isn’t without its pluses and minuses.


  • The flat structure creates more opportunity for self-managing teams and open allocation. Employees have a lot of freedom to decide what they want to work on and when.
  • It can cut out extra layers of management, which brings your personnel costs way down.
  • People don’t have to jump through so many hoops while trying to communicate ideas.


  • Some flat organizations have admitted problems with internal controls, because an unclear structure for reporting can lead to poor handling of human resource issues.  
  • It can impact employee retention, since more people are vying for growth opportunities.


A matrix structure uses a grid to define how communication and work flow through the organization. People might be pooled together by skillset, then assigned to different projects — meaning each person reports to more than one person or team.


  • A matrix organization can enable your team to be responsive to multiple streams at the same time, whether that be different products, regions, sectors, etc. Since different groups are constantly working together, it’s an efficient way to share information across a company.
  • If you don’t have the resources to hire more people, sharing talent through this kind of structure can be incredibly helpful.


  • As explained in detail by Stanley M. Davis for HBR, the tradeoff is a significant amount of complexity. Who has priority if an employee is given conflicting directions by different managers?
  • It can be difficult to keep lines of communication, reporting, and authority clear, leading to confusion and division within teams.


Holacracy is a newer organizational structure, and while it’s received a lot of attention through proponents like Medium and Zappos, the concept isn’t necessarily well understood. In its simplest sense, it’s a highly structured way of working that aims to make people more self-reflective and creative. Yes, it also means getting rid of the buttoned-up titles and bosses we’re so familiar with — but it’s much more than that.

When you think about a typical workplace, each person has one job and one manager, which may or may not be relevant to what has to get done. In a Holacratic structure, power is redistributed among groups called “circles,” who make their own decisions without reporting up the ladder. Employees have multiple “roles,” which are defined by the circles they’re a part of. These roles are fluid and evolve to fit the work that needs to get done.

As a team structure, Holacracy is based on a set of ground rules that promote open dialogue and democratic thinking. Anyone is free to run with an idea because there are more opportunities to take risks and greenlight true creative genius. This happens at regular “governance meetings,” where ideas are decided upon, “tensions” are discussed, and roles are rejiggered depending on priorities. Holacracy creator Brian Robertson describes it as more of a “distributed autocracy,” where decisions are made by the people who are closest to the project, and not just the leaders at the top.

Here’s how that takes shape within an organization:

  • Dynamic roles are created and regularly updated based on what the team and organization need, rather than the person filling the role. Authority is also given to the role itself instead of the person holding it. This is because individuals aren’t limited to one role. In fact, they can hold different roles on different teams at the same time, depending on their interests and bandwidth.
  • Authority is given to a role, rather than to an individual, and a particular role may have decision-making authority in a specific area. Authority is further delegated to interconnected but self-managing teams, or “circles.” The team itself decides how to reach the goals set before them.
  • Rapid iterations happen on a frequent basis. Each circle reviews its roles and the work being done, and then adjusts to address problems or take advantage of new opportunities. Change happens incrementally, rather than in one fell swoop. Everyone in a Holacracy also regularly shares “tensions,” which is just another word for challenges or opportunities. These are discussed as a group, and can be used to improve the role structure or to identify next steps.


  • This kind of structure helps bring leaders out of the woodwork.
  • Fresh ideas get spotlighted and executed quicker since more people have a voice.
  • It leads to extremely creative solutions since leadership ebbs and flows depending on the project.


  • It can slow things down since the structure and terminology are so complex.
  • It requires a lot of education for people to feel comfortable being a part of a Holacratic org.
  • Rules can also be difficult to enforce since authority can change depending on the role.

Your team’s structure doesn’t have to make everyone run around in circles. Now that you have a deeper understanding of the various ways companies organize their teams, your decision will be a whole lot clearer. And with a thoughtful shape in place, you’ll have an easier time building toward your shiny vision, role by role, and brick by brick.

Gusto Editors Gusto Editors, contributing authors on Gusto, provide actionable tips and expert advice on HR and payroll for successful business management.
Back to top