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Best Organizational Structures for a Business

Blueprints on how companies are run and how information is passed within the organization

What are the Best Organizational Structures for a Business?

Organizational structures are essentially blueprints that reveal how companies are run and managed and how information is passed within the organization. An organizational structure is literally a chart or diagram that depicts the logistical organization of a company.

 

Best Organizational Structures

 

Finding the most appropriate organizational structure for a business depends on a number of factors. Below are three of the most important factors to consider in choosing among the best organizational structures for a business:

  1. The industry the company fits into
  2. The overall size of the company
  3. The company’s goals (what it hopes to achieve, whether that be in terms of finances or how the company intends to be of service to its customers)

 

Summary: 

  • Organizational structures are essentially blueprints that reveal how companies are run and how information is passed within the organization.
  • Traditional line organizational structures are simplistic but rigid. It can take a good deal of time for information to pass through the company, with each link reporting to ONE direct supervisor. Such a structure is best suited to smaller companies.
  • Functional organizational structures are similar to line structures; however, each tier may share information and offer direction horizontally (to one another). The structure is ideal for large companies with many departments and for those companies that need to meet strict deadlines.

 

Types of Organizational Structures

 

1. Traditional

 

Traditional Line Organizational Structure

 

A traditional line organizational structure is truly the place to start for most companies, especially the smaller ones that don’t necessarily comprise a vast number of departments or require a major number of links in the chain of command/communication. The image below is an example of what a traditional line organizational structure looks like:

With the traditional structure, simplicity is the primary distinguishing feature. It is a top-down approach. Direction and communication start with the head of the company (in this example, the company is led by the chief executive officer). The next tier or link in the chain is a director. It is the individual (or office) that oversees a department or segment of the company. Finally, within each department, there are managers and employees.

With the traditional line organizational structure, the process of communicating information is very much narrowly focused. All information starts at the top and is passed down, typically from one individual to the next. While the practice keeps things simple, it’s a rather rigid organizational structure and, because there is no horizontal sharing of information, it can take a substantial amount of time to process information throughout the company. The traditional organizational structure is best suited to small businesses that, again, comprise a fairly small number of departments and a limited number of employees.

 

2. Functional

 

Functional Organizational Structure

 

The image above reveals what a functional organizational structure looks like. It differs from the traditional line structure by means of the existence of established channels for the horizontal sharing of information and direction, with a substantial increase in the sheer number of lines of communication.

With the traditional structure, individual employees communicate directly with their immediate supervisors. With the functional structure, however, employees often communicate with individuals whose control they don’t fall immediately under.

The functional type of organizational structure is ideal for larger companies with a lot of departments and for companies that need to meet short timeframe deadlines.

 

3. Project-based

 

Project-based Organizational Structure

 

One final organizational structure to look at is the project-based structure. It breaks a company up into groups based upon the projects it needs to complete. There is, of course, a primary leader – the director. Then, there is a manager appointed to oversee the team assigned to complete each project.

The project-based structure features the best of both the traditional line and functional organizational structures: it’s simple, with the first tiers answering only to a direct supervisor. The final tier is the team responsible for completing whatever project is set before them. However, each member of the team can easily get information and assistance from the other members.

 

Related Readings

CFI offers the Financial Modeling & Valuation Analyst (FMVA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following resources will be helpful:

  • Board of Directors
  • Key Performance Indicators (KPIs)
  • How to Assess Effective Management
  • Types of Organizations

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