Sometimes work feels like you’re part of a pyramid scheme.

Other times, it’s like you’re in Austin Powers during the scene where Mike Myers’ character is fighting a henchman of Dr. Evil while shouting, “Who does Number 2 work for???!!!!!”. That movie is so classic, btw.

No matter what, structure is vital to how decisions are made and work gets done.

But what is it exactly?

What is an Organizational Structure

Organizational structure may seem like a dull topic, but like most things that are mundane, it plays a major role in how a company works and ultimately succeeds. Success and culture driven companies pay attention to how their company is organized because they know the right structure means the right information gets to the right people. That’s always a good thing, right?

A research article in The Journal of Behavioral and Applied Management defines organizational structure as follows:

…the degree of centralization of decision making, formalization of rules, authority, communication, and compensation, standardization of work processes and skills, and/or control of output by acceptance of only adequate outcomes”.

If that definition seems a little too abstract think of it this way; Companies are structured so:

  • Communication flows throughout the organization
  • There is a clear understanding of who is in charge of what (authority)
  • Everyone knows who can make decisions (and what type of decisions that person can make)
  • Employees know what workers do and how that work is performed (processes and skills)
  • Management can decide how to compensate employees based on where they fall in the structure or what skills they have

When you think about it, org charts are the visual representation of organizational structure. And while it may seem simple, org charts are more than someone’s picture, title and a bunch of lines showing who they report to, who reports to them and what department they work in.

As a matter of fact, there are some awesome software solutions on the market right now that not only show you the who and what, but layer in comp data, decision making authority, skill set, tenure, etc.. Not bad.

Why is Structure

Important

Believe it or not, but how your company is structured plays an important role in the culture. Some companies want an open and collaborative culture, yet create top down and more traditional org structures. On the flip side, some companies are rules and process heavy, yet (in an attempt to be more innovative and modern) create an organizational structure and culture that’s more appropriate for a start-up or technology company.

The relationship between structure and culture isn’t always apparent, since the two are intertwined. But they each have an affect on the other, which is why leaders should be thoughtful on how they structure their teams. Not to say there’s a right or wrong way to structure your company, but there are optimal structures best suited for a company’s culture, strategic initiatives and size.

Different Types of

Org Structures

OK. So know you know what an org structure is and why it’s important.  Now let’s take a look at a 3 types of structures.

Note: There are many ways an organization can be structured and each has its upsides and downsides.  If you’re thinking of changing the structure of your team (or the entire business) consider what goals you want to achieve and then figure out which structure is best suited to fulfill those goals.

Bureaucratic / Hierarchical Organizations

According to Max Weber’s theory of bureaucracy, bureaucratic organizations are defined by:

  1. A clear chain of command
  2. Strict divisions of labor
  3. Continuous hiring of people with specific qualifications

These organizations are traditional in that they prefer hierarchy, command and control management, top down communication, and have strict rules for hiring, promotions and compensation.

It’s hard to think about bureaucratic organizations without bringing up government institutions, but that’s low-hanging fruit.  Private sector companies are rife with bureaucracy. In fact, Harvard Business Review wrote an article that claims more of us are working in bureaucratic organizations than ever before.  How depressing!

Anytime you see a company with a lot of top and middle management, you are looking bureaucracy square in the face. And while you’re probably hard-pressed to find a CEO who says they love hierarchy and bureaucracy (that would be bad PR), most structure their company to make sure this structure thrives.

Pros and Cons

Though the con list is quite lengthy, there are some positive traits to bureaucratic organizational structures. The main pro being, there are clear lines of command, so it’ easy to understand who is in charge. It’s a good place for people who prefer a lot of structure and process.

If you work in a hierarchical organization you know this structure breeds top down communication and authority figures, suppresses collaboration and creates innumerable roadblocks and red tape, which slows growth and innovation.

Matrix Organization

Matrix Organization

According to the Project Management Institute, a matrix organization is an organizational structure: “in which there is dual or multiple managerial accountability and responsibility.”

In this structure, an employee can work on 2 or more teams: their functional team and a cross-functional team. Many companies are implementing matrix structures as a way to deal with information silos and the complexities of multiple projects and limited human capital. For instance, a company can have several projects in play that require the skill sets of certain people. Instead of hiring for each project, the matrix organization allows employees to support 2 (or more) teams.

Pros and Cons

It’s difficult for a functional department to solve company wide problems all on their own. Instead, cross-functional teams can be created by putting together different functional experts (say an engineer, product manager, analyst and marketer) to execute on initiatives. These teams are more effective because they tap into the perspective and capability of different functional experts.

Unfortunately, (and I’ve witnessed this first-hand), matrix organizations can cause confusion for managers and employees. For instance, which team or project takes priority if there are conflicts? What happens if an employee excels on one team, but due to priorities and time constraints, has subpar performance on another? There’s also the issue of employee burnout.

As a way to minimize the negatives, some innovative companies have adopted matrix organizations and autonomous teams meaning the teams are self-led and can manage their own work.

Flat Organizations

In flat organizations, there are few (or no) middle-managers between executives and all other employees and in some cases there are no titles or bosses at all. Tech companies such as 37Signals and Valve Software have been boss-free since their founding. And manufacturing company W.L Gore has been flat(ish) since 1958, which is impressive considering they have over 10,000 employees and earn more than $3 billion in revenue per year.

Pros and Cons

Flat organizations distribute power and authority to self-managed teams, which is great for anyone who opposes traditional hierarchy and excel in self-motivated, high-accountability environments. While you can climb the corporate ladder at some flat organizations, others (such as 37Signals) completely eschew hierarchy and upward mobility, meaning employees can only move into lateral roles.

Flat organizations seem to work well in early stage start-ups or small companies, but as companies scale and focus on productivity or worker output, this structure begins to breakdown.

Of course, there are other types of org structures, including the often confusing Holacracy model. Ultimately, companies should choose the structure (or a mixture of 1 or 2) to help them achieve their strategic goals while keeping employees engaged in their work.