Organizational Structure: Definition, Types & Examples

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  • 0:03 Organizational Structure
  • 0:51 Hierarchy, Flat, & Flatarchy
  • 2:25 Functional &…
  • 3:55 Matrix Structure
  • 4:38 Lesson Summary
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Lesson Transcript
Darlisha Oliver

Darlisha has a Master of Science degree in Accounting

Expert Contributor
Wendy Kwong

Wendy has an Honors Bachelor of Commerce degree from Laurentian University in Canada. She has over 10 years of teaching and accounting experience.

Organizational structure influences how a business operates from the inside out. In this lesson, we'll explore the three most common forms of organizational structure relevant to today's business.

Organizational Structure

Every system in the world has a structure that defines how it works. Thank goodness for structure! What if the plants and trees decided they were tired of supplying oxygen and had the freedom to pick up another job? I wonder how long we'd last?

The organizational structure of a business defines its entire culture. It affects how its employees communicate and operate to achieve the goals of the company. Organizational structure also influences productivity, employee relations, and marketing strategies. It is important for a company to define the most strategic organizational structure that will allow it to effectively and efficiently accomplish its goals. The organizational structure of a small company may differ from that of a large company. Let's take a look at some of the most common organizational structures.

The Hierarchy, Flat, & Flatarchy

Almost all organizations have some form of a hierarchy in its organizational structure. The hierarchical structure is linear in nature as authority, information, and tasks flow from the top down. Generally, there is a top executive that filters information to subordinate employees without regard to the employee's ability to contribute or improve work processes. This type of structure is good for maintaining authority, but does not allow for free thinking, work efficiency, or collaboration.

The flat structure is totally opposite from the hierarchy. This structure doesn't implement titles, seniority, or job descriptions and allows for employees to freely contribute to the work as they feel necessary. Flat structures are most common in start-ups and small to mid-size businesses. However, most organizations that start off with a flat structure eventually end up taking some form of a hierarchy. As the business grows, it becomes less practical as the need for streamlined processes increases.

The flatarchy structure is a hybrid of a hierarchy and flat structure. Organizations that operate under a flatarchy have linear authority and specialized teams that allow for creativity and innovation. This type of structure is common when an organization is developing a new product, service, or business process that requires input from different individuals from different parts of the organization. Although this structure doesn't reassign job duties or titles, it allows the organization to effectively address market and industry changes without having to restructure the organization's personnel.

Functional & Divisional Structure

This one's pretty easy to remember. A functional structure organizes a business by activity or purpose. Most businesses that use this structure have departments dedicated to a single function. Some common examples are the accounting, marketing, and human resources departments that exist at almost every company.

A major benefit of this type of structure is that it fosters focus and the use of specialized skills for one function. The accounting department employs skilled accountants that focus on the company's financial data and do not have to worry about producing goods or providing services. The production department manufactures the goods and does not spend its time analyzing financial statements. If they did, there would not be any goods to sell.

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Additional Activities

Writing Prompts about Organizational Structure

The following writing prompts are designed to help you reflect on what you learned in this lesson. After you complete them, you can check your conclusions in the ''Hints and Solutions'' section.

Story Prompt

Write a story about your first day of work as a newly hired employee at a large company that sells athletic footwear for men, women, and children. As you are introduced to people from different departments, what do you learn about the company's organizational structure?

Journal Prompt

Imagine you have recently relocated to a new city and several of your family members are looking to open a restaurant together. Write a journal about how you would explain the organizational structure section of the business plan in order to obtain bank financing. Include a discussion about the characteristics of the business and what organizational structure it would lend itself to.

Short Essay Prompt:

Write a short persuasive essay (3-5 paragraphs) about what type of organizational structure millennials would prefer when entering the workforce. Would they prefer more structure or more freedom in the workplace? What do they expect and value in the workplace?

Hints and Solutions

Story Prompt: Since this large company sells different lines of athletic footwear to three types of consumers, you would quickly learn that the company has a matrix structure. The need for departmentalized leadership would be self-evident when you are introduced to the directors for each division of footwear.

Journal Prompt: Since the restaurant is a small start-up and a family business, the nature of the business would lend itself to a flat structure. With family members as employees, everyone contribute to the business as necessary without significant emphasis placed on job titles and seniority. However, if the business were to grow over time and take on more employees who are not family members, eventually, there may be a need for some level of hierarchy in order to streamline processes during daily operations.

Short Essay Prompt

While millennials value a degree of structure in order to receive support and guidance for achieving career goals, they generally expect more freedom and flexibility in the workplace. Therefore, they usually prefer to avoid workplaces with a hierarchical structure. Since they value creativity and innovation, a ''flatarchy'' structure would empower them to think freely and make decisions.

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