Teams are like origami: everything has to fold together just so in order to make a true work of art. An effective organizational structure is reflected in the way people relate to one another, how teams are organized, and how folks communicate and make choices. Basically, your structure is what holds everything together.
That’s why it’s so important to spend time and energy on organizational design. In this article, we’ll take a look at four common structures that can get you there.
Why your organizational structure matters
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. As your company grows, you need a framework to keep everything running smoothly.
Types of teams in an organization
There are a few shapes a team structure can take. From the most rigid to the most flowy, there are two extremes:
Mechanistic: This type of setup has an extremely hierarchical structure, often called a line structure, 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 and decentralized. 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.
Four types of organizational structures
The most common structures are the hierarchy (vertical), the flat organization (horizontal), and the matrix. A fourth, Holacracy, is a less common, more experimental approach to self-management. Within each of these structures are a number of different ways to approach departmentalization, or how you group people and teams:
Functional structure: People are grouped by abilities or skillsets (i.e. marketing, accounting, etc.)
Divisional structure: Organized around an industry, product, service, or subsidiaries (i.e. consumer/commercial, sport/luxury)
Process-based structure: Organized around the stages of a workflow, like intake, production, and delivery.
Location-based structure: Divided 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. The hierarchical organizational structure is a traditional one, 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.
Pros of the hierarchy structure:
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 communication channels and succession. There’s an obvious progression for ambitious employees to follow.
People can feel more secure because they have a clear sense of the reporting relationships 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.
Cons of the hierarchy structure:
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 levels of authority are crossed out in a flat organizational structure. This creates decentralized 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.
Pros of the flat (horizontal) structure:
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 layers of middle management, which brings your personnel costs way down.
With less formalization, people don’t have to jump through so many hoops while trying to communicate ideas.
Cons of the flat (horizontal) structure:
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.
Matrix
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 both a functional manager and a project manager (or product manager).
Pros of the matrix structure:
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 in cross-functional teams, 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 make resource allocation far more flexible.
Cons of the matrix structure:
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
Holacracy is a self-management system that replaces traditional managers and job titles with a defined set of rules. It drew a lot of attention in the mid-2010s when companies like Medium and Zappos adopted it. Today it’s more of a niche experiment than a mainstream model.
In a typical workplace, each person has one job and one manager. In a Holacracy, power is distributed in a circular structure. Teams are grouped into self-managing “circles,” which make their own decisions without reporting up the ladder. Employees hold multiple “roles” across circles, and those roles evolve as the work changes. Authority belongs to the role, not the person filling it. Teams hold regular governance meetings to discuss “tensions” (challenges or opportunities) and adjust roles accordingly. Creator Brian Robertson calls it a “distributed autocracy,” where decisions are made by the people closest to the work.
Today, few organizations adopt Holacracy in full. More often, teams borrow pieces of it, such as clearly defined roles and a regular process for surfacing problems, and apply them inside a more traditional structure.
Pros of the Holacracy structure:
It brings leaders out of the woodwork, since more people have a voice.
Fresh ideas get spotlighted, added to workflows, and executed faster.
Leadership shifts with the project, which can produce creative solutions.
Its practices, like role clarity and tension-sharing, can be borrowed without adopting the whole system.
Cons of the Holacracy structure:
Complex rules and terminology can slow things down.
It requires significant training and strong change management before people feel comfortable.
Rules can be hard to enforce when authority shifts by role.
Some employees find the lack of managers and the constant change disorienting, and it can lead to turnover.
Few companies run it in full, so there’s less proven playbook to follow.
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 vision.
FAQs
What is a network structure?
A network structure is a flexible organizational model in which a small core team coordinates a web of semi-independent units, partners, or outsourced providers. Instead of a formal chain of command, work runs through contracts, relationships, and shared information. It’s common in companies that rely heavily on outside specialists.
How is a matrix structure different from a network structure?
A matrix structure operates inside one company: employees report to both a functional manager and a project manager. A network structure often extends beyond the company, linking a small core team with outside partners and contractors. A matrix relies on formal dual reporting, while a network relies on contracts and collaboration.
How do I know when it’s time to change my organizational structure?
Common signs include slow decisions, unclear ownership, duplicated work, and teams that struggle to collaborate as the company grows. If people often don’t know who can approve something, the structure probably no longer fits. Plan the shift with clear communication and change management so the transition doesn’t disrupt work.
What is span of control?
Span of control is the number of direct reports a manager oversees. A narrow span allows closer oversight but adds management layers. A wide span flattens the organization and speeds decisions, but can stretch managers thin. The right size depends on how complex the work is and how experienced the team is.
Can a company use more than one organizational structure?
Yes. Many companies use a hybrid structure, such as a functional hierarchy with a matrix overlay for projects, or self-managing teams inside a traditional reporting line. Mixing models keeps clarity where you need it and flexibility where you don’t. Different departments or subsidiaries can also use different structures.
Quick note: This is not to be taken as tax, legal, benefits, financial, or HR advice. Since rules and regulations change over time and can vary by location, consult a lawyer or HR expert for specific guidance.
