Types of Organizations

Different organizational structures adopted by companies

Written by CFI Team

Updated May 7, 2022

What are the Different Types of Organizations?

This article on the different types of organizations explores the various categories that organizational
structures can fall into. Organizational structures can be tall, meaning that there are multiple tiers
between the entry-level workers and top managers of the company. They can also be fairly flat, which
means that there are very few levels between employees and management.

Types of Organizations

At a Glance

In the same way that no two people can ever be the same, no two companies are identical. Although
they may come across as having similar organizational structures within an industry, there will always be
differences between firms.

The main reason for adopting a structure is to outline a clear hierarchy of the different company
positions. In such a manner, every subordinate knows who to report to. Considering how vital an
organizational structure is to the different facets of the business, managers should take their time
determining the type of structure to take on. This article highlights the main types of organizations that
currently exist.

Flat Organization

A flat organization is exactly as its name suggests. While individuals may hold an expertise, hierarchy and
job titles are not stressed among general employees, senior managers, and executives. In a purely flat
organization, everyone is equal.
Flat organizations are also described as self-managed. The idea behind this organizational structure is to
reduce bureaucracy and empower employees to make decisions, become creative problem solvers, and
take responsibility for their actions. Since there are minimal or no levels of middle management, a
company that adopts this structure can end up being more productive by speeding up the decision-
making processes.

Apart from increased productivity, firms with flat organizations have leaner budgets, since they don’t
involve any pricey middle-management salaries. The only thing to keep in mind is that this structure
typically works best for small to medium-sized companies. This way, a firm can decentralize decision-
making while still maintaining its corporate integrity.

Functional Organization

Also referred to as a bureaucratic structure, a functional organization is one that divides a firm’s
operations based on specialties. Ideally, there’s an individual in charge of a particular function. It’s like
any typical business that consists of a sales department, human relations, and a marketing department.
It means that every employee receives tasks and is accountable to a particular superior.

A functional organization confers several benefits. For one, there’s a total specialization of work.
Secondly, work is performed more efficiently since each manager is responsible for a single function. The
only drawback to adopting a functional organization is the fact that there’s a delay in decision-making.
All the functional managers must be consulted when making major decisions, which can take time.

Divisional Organization

A divisional organization structures its activities around a market, product, or specific group of
consumers. For instance, a firm can operate in the United States or Europe, or sell products focused on a
specific group of customers. Gap Inc. is the perfect case in point. It runs three different retailers –
Banana Republic, Gap, and Old Navy. Although each one operates as a separate entity that caters to
different consumer segments, they are all under the company Gap Inc. brand.

General Electric is another ideal example; it owns numerous firms, brands, and assets across different
industries. Although GE is the umbrella corporation, each division works as an individual firm. The
diagram below will give you an idea of what a divisional organization looks like.
Matrix Organization

A matrix organizational structure is a bit more complex, in that there’s more than one line of reporting
managers. It simply means that the employees are accountable to more than one boss. Most firms that
take on this organizational structure often have two chains of command – functional and project
managers. This type of organization works best for companies with large-scale projects.

A matrix organization offers several benefits. They include a clear articulation of the company’s mission
and objectives, effective use of limited resources, and improved retention of professionals throughout
the life of a company. Additionally, a matrix structure provides a practical way of integrating the firm’s
objectives with operations.

How to Choose from Different Types of Organizations

A type of organization serves as a framework that a firm can use to establish communication structures
and authority among employees. However, it is crucial that a company chooses a type that suits its
needs best.

1. Size

Size is a major determining factor when deciding which type of organization to adopt. A small to
medium-sized business does not require a vast and highly-detailed organizational structure. On the
other hand, larger companies require more intense frameworks to ensure that operations run smoothly.
Such firms employ more staff and, therefore, require more managers. For such companies, a matrix
organization is the most suitable.

2. Life Cycle

A firm’s life cycle is another essential factor to consider when setting up a company’s organization.
Business owners who are trying to grow and expand their operations should choose a structure that
allows for flexibility and smooth expansion.

3. Business Environment

Another factor that comes into play when determining the type of organization is the external business
environment. A dynamic business setting where the consumers’ needs change constantly requires a
stable and sound organizational structure that can weather the storm of a rapidly-changing
marketplace.

The Importance of Adopting Proper Types of Organizations

1. Better Communication

Keeping open channels of communication is crucial to the success of every organization. As such, an
organization needs to be designed in such a way that individuals and departments are able to
coordinate their efforts.

2. Set Organizational Priorities

A sound organizational structure is essential for setting priorities. In a tall hierarchical structure, the
managers and executives determine the most crucial objectives that need to be met first. The heads of
departments can then determine how to allocate different resources and the specific tasks to designate
first.

3. Better Employee Performance

If a company isn’t well organized, the employees won’t know which tasks to perform or who to report
to. Defining the organizational structure makes the company objectives clear to every stakeholder. In
such a way, every employee knows what he or she needs to do.

Depending on the type of organization, senior managers and executives are also able to establish their
roles. They can determine whether they need to actively support their employees or simply assign tasks
and await results.

Summary

Choosing a type of organizational structure is important to a company’s management. It’s therefore

crucial that business owners pick the right organizational type to help operations run more smoothly.
There are different types of organizations that a company can adopt, such as functional, flat, matrix, and
divisional organizations.
When determining which type of organization to take on, there are several factors that should be taken
into account. They include the size of the company, the business environment, and the life cycle that the
company or its products are in.

Although it sounds like a daunting task, establishing an organizational structure is worthwhile and brings
many benefits. For one, it improves communication among a company’s stakeholders. It also helps
managers set priorities right. This way, managers know what resources to allocate to different
departments. Finally, it helps ensure better employee performance.

Additional Resources

Thank you for reading this guide to the Different Types of Organizations. To keep learning and advancing
your career, the following CFI resources will be helpful:

Free Forms of Business Structure Course

Bureaucracy

Corporate Structure

Employee Turnover Rate

Office Politics

Types of Organization

What is an Organization?
Meaning of an Organization: – An organization is an entity such as a company or an association that
consists of one or more people and has a specific purpose. The word is derived from the Greek word
organ, meaning instrument or instrument, musical instrument and organ. An organization is a group of
people who work together, like a neighborhood association, a charity, a union, or a corporation.
Organization is also the act of forming or establishing something (like an organization). Let’s go through
the five common types of organization and reasons why you might consider each of them.

What are the types of organization?

There are 5 types of organizations such as Line Structure Organization, Line and Staff Organization,
Functional Structure Organization, Matrix Structure Organization and Project Structure Organization.

Line Structure Organization

Meaning of Line Structure Organization: – Line structure organization is the simplest and oldest form of
organization structure. It is called as a scalar type of military or divisional or organization. Under this
system, authority flows directly and vertically downward from the top of the managerial hierarchy to
different levels of managers and subordinates, and down to the operative level of workers. It is also
known as the chain of command or scalar principle.

Advantages of Line Structure Organization: –

Simple to understand and simple to operate;

Communication is fast and easy;

Feedback can be acted upon faster;

Responsibility is fixed and unified at each level and authority and accountability are clear-cut, hence
each individual knows to whom he is responsible and who is or in truth responsible to him;

Since it is especially useful when the company is small in size, it provides for greater control and
discipline in the organization.

It is a stable form of organization.

Disadvantages of Line Structure Organization: –

It is a rigid and inflexible form of organization;

Line authority has a tendency to become dictatorial;

It overloads the executive with suppressive activities so that long-range planning and policy making are
often neglected;
A line organization can suffer from a lack of specialization. This is because each department manager is
concerned only with the activities of his own department.

Different departments may be more interested in their interests rather than overall organizational
interests and welfare;

This is likely to encourage nepotism;

It might stop progress and prevent the unit to work effectively.

It does not provide any means by which a good worker can be rewarded and a bad one can be punished.

Line and Staff Organization

Meaning of Line and Staff Organization: – Line and staff organization, in management, approach
authorities (For example: – managers) establish goals and instructions that are then met by employees
and other workers. A line and staff organizational structure attempts to present a large and complex
enterprise in a more flexible way without sacrificing managerial authority. Staff groups support those
who are engaged in the central productive activity of the enterprise. They back up their work. Staff
groups help the organisation in analysing, researching, counselling, monitoring, and in evaluating
activities.

Advantages of Line and Staff Organization: –

Line officers can mainly focus on the task as planning and checking is done by the employees.
Specialization provides expert advice and proficiency in management.

Since the organization includes line and staff functions, decisions can be made easily.

Staff officers provide complete factual data to line officers covering activity within and without their
units. This will help to create more coordination.

It provides ample opportunities for the advancement of workers.

Staff services provide a training ground for various positions.

This arrangement is flexible for newcomers in that employees can be forced to make early adjustments
to the line arrangement.
Staff experts are ideologically oriented to look forward and have time to undertake program and
strategic planning and analyze the potential impacts of future potential events.

Disadvantages of Line and Staff Organization: –

Confusion and conflict may arise between the line and the staff. Because the allocation of authority and
responsibility is not clear and the lower level members may be confused with various line orders and
staff advice.

The staff usually advises the lines, but the line makes decisions and tasks. So employees often feel
powerless.

Too much reliance on staff officers may not be beneficial to the business as line officers may have to lose
a lot about their decisions and duplication.

Since staff specialists demand high pay, it is expensive.

Employees are unable to carry out its plan or recommendations due to lack of authority. So they
sometimes become ineffective, this will make them careless and indifferent to their jobs.

As the line is performed, with advice provided by employees, if things go right, the employee takes
credit and if things go wrong, the line gets the blame for it.

3.Functional Structure Organization

Meaning of Functional Structure Organization: – Functional Structure Organization is one of the most
common structures of organization. They are grouped based on their specific skills and knowledge.
Under this structure, the employees are divided into groups by the organization according to a particular
or group of tasks. Where functional structures operate well in stable environments, where business
strategies have little inclination for change or mobility, the level of bureaucracy makes it difficult for
organizations to react quickly to market changes.

Advantages of Functional Structure Organization: –

The executive or the team leader has the knowledge and experience of that particular field. For
example, the person heading the IT department will have the education and skill necessary to shoulder
this responsibility and successfully run his team.

Because the employee has expertise in that particular field, the work is more efficient and precise. There
are fewer mistakes. This also helps with the motivation of the employees of the company.

Since all team members come from similar backgrounds it allows them to share ideas and come up with
solutions. There is a sharing of knowledge, which is always beneficial.
The employees also having a clear idea of the hierarchy of the firm. They need not report or answer to
several managers.

Also, the employees feel secure in their work. They see that their work and efforts is not going
unnoticed. This sense of security helps them perform better.

Disadvantages of Functional Structure Organization: –

The work can be quite one dimensional. After a while, the employees may start feeling monotony or
boredom. The lack of new challenges can make them unenthusiastic for the job at hand.

In this structure, the manager must take care of the appraisal system. If the correct approach is not
taken then conflicts may arise between the employees regarding promotions or appraisals.

Also, this form of organization requires a high degree of specialization which is difficult to establish

If there is a necessary change of personnel it can disrupt the whole system and its balance. Also, it is
quite a rigid structure, not leaving a lot of scope for adaptation.

In Functional Organizational Structure, the employees never gain any knowledge or skills outside their
own department. This can cause difficulties in inter-departmental communication.

4. Matrix Structure Organization

Meaning of Matrix Structure Organization: – A matrix organizational structure is a structure of

organization in which some individuals report to more than one supervisor or leader, which is described
as solid line or dotted line reporting. More broadly, it can also describe the management of cross-
functional, cross-business groups and other work models that do not maintain rigid business units or
silos grouped by function and geography. For example, an employee may have a primary manager they
report to as well as one or more project managers they work under.

Advantages of Matrix Organization: –

Since there is both vertical and horizontal communication, it increases coordination and this leads to
greater and more effective control over operations.

As the matrix organization is handling many projects, the available resources will be fully utilized.

It focuses organizational resources on specified projects, thus enabling better planning and control.

It is highly flexible in following rules, procedures etc. Experience here is the best guide for setting rules
and procedures.
As any department has to put its efforts towards the completion of any one project, employees are
effectively motivated.

Disadvantages of Matrix Organization: –

Since, there is more than one supervisor for each worker, this causes confusion and conflict and reduces
effective control.

There is continuous communication both vertically and horizontally, which increases paper work and
costs.

It is difficult to achieve downward balance on projects technical and administrative aspects.

Project Structure Organization

Meaning of Project Structure Organization: – A project structure organizational structure is used to

determine the hierarchy and authority of people involved in a specific project. This organizational
structure is temporarily created for specific projects for a particular period, for the project to achieve
the goal of developing a new product, specialize in various functional departments such as production,
engineering, quality control, marketing research etc. and will be ready to work together. These
specialists return to their duties as soon as the project is completed.

In fact, the project organization is established with the aim of overcoming the major weakness of
functional organization, such as absence of unity of command, delay in decision making and lack of
coordination.

5.Project Structure Organization

Meaning of Project Structure Organization: – A project structure organizational structure is used to

determine the hierarchy and authority of people involved in a specific project. This organizational
structure is temporarily created for specific projects for a particular period, for the project to achieve
the goal of developing a new product, specialize in various functional departments such as production,
engineering, quality control, marketing research etc. and will be ready to work together. These
specialists return to their duties as soon as the project is completed.

In fact, the project organization is established with the aim of overcoming the major weakness of
functional organization, such as absence of unity of command, delay in decision making and lack of
coordination.

When to use the project structure organization?

It is a one-time task and is fixed in the context of a single, specific goal.

It is big in scope It is unfamiliar or lacks precedent.

It is complex and calls for a high degree of freedom.

Successful completion of the project has a high stake.

The result is very important for the organization.

Advantages of Project Structure Organization: –

It is a notable depiction of the relationship between environment, strategy and structure.

The team can focus properly.

The clustering of activities on the basis of each project initiates new authorization patterns.

As experts from different organizations are ready to work together under the project organization, it
helps in coordination.

This makes for personal control and determination of personal responsibility.

Disadvantages of Project Structure Organization: –

The uncertainty can be attributed to the diverse background of the professional who is deputed in the
project.

The project manager finds it difficult to control in the traditional way in order to motivate and control
employees, in the absence of a norm of lines and norms responsible for communication.

Project completion may be delayed.

Effective project management can also be hindered by top management who may not be fully aware of
the problems in the project center.

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WHAT ARE THE TYPES OF ORGANIZATION, ADVANTAGES OF LINE STRUCTURE ORGANIZATION,
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AND STAFF ORGANIZATION, FUNCTIONAL STRUCTURE ORGANIZATION, TYPES OF ORGANIZATION