Organizational Structure – Definition

Cite this article as:"Organizational Structure – Definition," in The Business Professor, updated September 15, 2019, last accessed October 23, 2020,

Back to: Management & Organizational Behavior

Organizational Structure Definition

An organization structure is a visual diagram that represents the hierarchy, roles, and responsibilities of the employees in the company. Organizational structures use markets, geographical locations, products, functions, or processes to guide them depending on various business sizes. The structure of an organization determines the operating procedures that the company is going to use.

A Little More on What is an Organizational Structure

Every company needs an organizational structure to help define the elements the business needs for it to run properly. The elements include:

Chain of command

The chain of command defines the tasks that the management delegates to every employee within the organization. It also helps to know the ranks of leadership that every business department will need. Generally, it helps employees understand how to communicate through the leadership ladder.

Span of control

The span of control in an organizational structure gives an understanding of the mangers and their management roles in the organization.


Centralization enables the team to know which people are responsible for making decisions within each department. Centralization is achievable after the team establishes the chain of command.

Centralized versus decentralized organizational structures

A centralized organizational structure is a formal structure where every department has specific roles in the company. The structures also have slim spans of control where the employees know who is responsible for making decisions in each department.

Every employee is accountable for their work because they each have their roles and responsibilities. A good example of a centralized organization structure is the military which has ranks each with their roles.

Decentralized structures, also known as organic structures, have a wider span of control, and loose departmentalization. The company can have many teams working on different projects, but they are all under one leader.

The team members work on projects based on the capabilities of the team rather than on the roles of each team member. A decentralized organizational structure helps employees to be creative as they keep trying new things.

Types of Organizational Structure

Companies implement many organizational structures in the real world, these include:

Functional organization structure

Functional structure, also known as bureaucratic structure, divides the company into departments according to the job functions of the employees. For example, a company that uses a functional structure will divide marketers, salespeople, auditors, and customer care into separate departments.

A functional structure allows only specialized employees in the departments. In this case, the employees are not able to grow as they stay in one department forever. A functional structure can also create communication barriers between the departments, especially if the company has different products.

Divisional organizational structure

Large companies that have different business units incorporate the divisional structure. The company using this structure has different leadership teams on different products or projects.

An example of a company using the divisional structure is the Johnson & Johnson company. The company has different lines of business and products. Each business unit will be operating as its own company, having its sales, marketing, and customer service department.

Flatarchy organizational structure

Flatarchy organizational structure is a structure common with a start-up or small company. It allows employees from different levels to make decisions in the organization.

An example of this type of structure is when an organization has an internal hub or innovation center. The company lets the employees pitch any new ideas that might help the company grow. The company will continue running using its normal structure, but this encourages creativity among employees.

Matrix organizational structure

A matrix structure is a structure that allows the employees to report to other bosses depending on the project. For example, a construction company could be having an engineer working on one project.  Later on, a new project comes up, and they need his brains on that project.

The engineer will have to report to two bosses at the same time.

Matrix organizational structure allows the employees to share their knowledge within different divisions in the company. The employees also get to improve their skills and grow professionally. However, the employee needs to understand their roles at the different divisions, as it can be challenging to communicate with the various bosses.

Network organizational structure

Companies that work together to share common resources often use the network structure. A company can also use this type of structure to describe its activities if it outsources most of its services from freelancers.

For example, a company may be outsourcing its website for developing services. Any employee who requires these services will know the contact person for the job from the network structure.

 Benefits of having an organizational structure

  • Organizational structures help new employees understand the people who run various processes in the company
  • Organizational structures define the hierarchy of leadership within the company
  • The structures also define the roles and responsibilities of every employee in the organization
  • Structuring enables the organization to know how they can better strategize to achieve its overall goals
  • Organizational structures help each department to be productive as each has its management team. The employees direct their energy into building the company
  • An organizational structure comes in handy when the company wants to change its leadership. The company will need to make a few adjustments if they already have a structure in place
  • The structure allows the company to know the salary grades of each employee and draw the payment structure.


Every organization needs to have a working organization structure, as it gives room for growth in the company. A company should be strategic when deciding which structure is best for the company. The employees need to understand the hierarchy and functions of everyone in the organization.

References for “Organizational Structure › … › Organizational Structure

Was this article helpful?