Types of Organization Structure

By Fahad Usmani 30 Comments

Please note that this is an important topic from a PMP exam point of view, and you
may see a few questions on this topic on your exam.

In todays blog post, Im going to explain to you about the organization structure,
why it is needed, its benefits, and its various types. I hope that this blog post will
help you understand the concept of organization structure.

Okay, lets get started.

Organization Structure
Organization structure is a setup or a framework which determines the hierarchy of
people, its function, workflow, and the reporting system in an organization.

The organization structure is an enterprise environmental factor that plays an

important role in guiding the ways in which you behave and your organization runs
its operations.

Why an Organization Structure is Needed?

Every organization must have a well-defined organization structure if it wants to
work efficiently and achieve its goal with fewer hurdles.
Nowadays, organizations have to be very competitive, productive, efficient, and
dynamic if they want to survive and grow. Clients and consumers are becoming
more quality conscious and demanding and they need a quick response from
organizations.

Therefore, to fulfill customer requirements, market demand and for self-survival, it

is very necessary for any organization to define a structure for itself which is best
suited to its requirements and supports its objective.

Lets say your organization is producing a product whose specifications rarely

change. Your customers are satisfied and not more demanding. In this case, what
kind of organization structure will you select?

Of course, you will select the functional organization structure because the
functional structure is good for an organization involved in production operation.

Okay, lets discuss another case.

Suppose your organization consists of 10 people, which is involved with small

projects. Once you complete a project, you start hunting for another project. In this
case, what kind of structure will you select?

In this case, you will select the projectized organization structure, because here you
are dealing with only projects.

Now, lets look at the final case.

Your organization is very big, spread out over a large geographical area and it
works in a dynamic environment where customer requirements and market demand
is constantly changing. In this case, what kind of structure will you select?

In this case, you cannot select the functional organization because the functional
organization structure does not allow quick changes to its operations.

You can also not select the projectized structure because, although this structure
supports a dynamic nature, it cannot account for other things because your
organization is too big and you need some permanent functional units with
supportive staff to keep your organization functioning smoothly, and this is not
possible with a pure projectized organization.

Therefore, you will select a matrix organization structure. This structure has
qualities of the functional organization structure as well as the projectized
organization. So, you will select this structure because only this structure can
support your operations and help you achieve your organizations objective.

Therefore, you can say that an organization needs an organization structure if it

wants to survive. If an organization does not have a proper structure to support its
objective, it will not succeed.

Types of Organization Structure

If you search on the internet for this particular topic, you will see many theories
and expert opinions that differentiate the organization into its various kinds. The
types of organization structure depend on many factors, such as governing style,
leadership style, type of organization, work flow, and hierarchy.

The PMBOK Guide sorts organization structure into the following four categories:

1. Functional Organization
2. Matrix Organization
3. Projectized Organization
4. Composite Organization
And Wikipedia classifies it into six categories:

1. Pre-bureaucratic structure
2. Bureaucratic structure
3. Post-bureaucratic structure
4. Functional structure
5. Divisional structure
6. Matrix structure
Some others divide it into following categories:

1. Simple Organization
2. Functional Organization
3. Divisional Organization
4. Matrix Organization
 5. Team-Based Organization
6. Network Based Organization
7. Modular Organization
There are other classifications available as well, but the above given classifications
are more popular.

Since this blog is aligned with the PMBOK Guide and dedicated to professionals
preparing for the PMP certification exam, I will therefore follow the classification
given in the PMBOK Guide. At the end of this blog post, I will explain the rest of
the classifications in brief.

Note: I have described the first three types of organization structure in separate
blog posts; therefore, here I will give you a very short description of them with a
link pointing to the detailed description.

Functional Organization Structure

This is the most commonly used type of organization structure. In a functional
organization structure, the organization is grouped into various departments where
people with similar skills are kept together in forms of groups; e.g. sales
department, marketing department, finance department, etc. This helps
organizations enhance the efficiencies of each functional group.

Matrix Organization Structure

Matrix organization structure is a hybrid of the functional organization structure
and the projectized organization structure. In a matrix organization structure, you
can see two command structures: vertical and horizontal. Here, an employee may
be part of a functional group but he may also work on a project. This structure
takes the benefits of both worlds.

Projectized Organization Structure

Projectized organization views every job as a project. Here, the project manager
has full authority to complete the project successfully.

Composite Organization Structure

In a composite organization structure, organizations may use any combination of
the above given types of structures.
Suppose your organization is a functional organization and it needs a small
building, and your organization has the capability to construct this building on its
own. In this case, your organization will create a separate small project team to
complete this task.

Before ending this blog post, lets have a brief look at other types of organization
structure, those which are not mentioned in the PMBOK Guide. (Dont expect to
see a question about these types of structure in your PMP exam.)

The Simple Structure

This type of structure is suitable for very small organizations. This structure is
found at the very early stage of an organization; i.e. when it has just started and is
developing. Here, the authority will lie with a single person, and there will be few
rules and a low specialization of work. (Some scholars call it Pre-Bureaucratic
Structure.)

Team-Based Structure
This is another name for projectized organization structure.

The Network Structure

This type of structure is also known as virtual corporations or virtual organizations.
Here, the main organization is linked to outside firms (such as vendors, clients,
associates) with a computer connection in order to achieve collective growth and
profitability. This structure allows them to work as a single unit.

In a network structure, the organization keeps its core business to itself and the rest
of the processes are outsourced. Sometimes this type of organization is also known
as hollow corporations or hollow organizations.

The Modular Structure

In this type of organization structure, the organization outsources some part of a
product. Please note: in the network structure the organization outsources the
processes; here, it is outsourcing only a few parts of the product.

Pre-Bureaucratic Structure
Pre-bureaucratic structure type organizations do not have the standard procedures
and policies. This type of structure is used by a small-scale organization with few
employees who handle simple tasks. It has a central command with one decision
maker at the top position.

The communication is done on a one-on-one basis, and most of the time is

informal.

Bureaucratic Structure
Organizations which use the bureaucratic structure are usually larger and have
standard procedures and processes. This type of structure is suitable for very large
organizations which involve complex operations and require smooth
administration. An example of this type of organization is the food and beverage
industry where they have to follow strict rules and regulations.

Post-Bureaucratic Structure
Post-bureaucratic organizations are fully developed and have various standards and
procedures, with a central command consisting of several board members where
decision making is done by a democratic procedure.

In a post-bureaucratic structure, employees suggestions are taken into account

while making a decision. This encourages employee participation, trust, personal
treatment, and responsibility.

Divisional Structure
In a divisional structure, an organization is divided into various divisions where
people with diverse skills are kept together in the form of groups by a similar
product, service or geographic location. Each division has its own resources
required to function properly and is capable of doing the task on its own.

The division can be based on product, service or the geographical area: e.g. Dell
USA, Dell India, etc.

The Advantages of Having an Effective Organization Structure

An organization structure is the framework which helps an organization to run its
operation effectively and achieve goals with minimal obstruction. The organization
structure defines the relationship among the various departments and teams of the
organization. It helps organizations to delegate authority, power, and
responsibility.

The organization structure defines how an employee will report to his superior,
which helps in coordination and cooperation within the members of the group. The
main advantage of having an effective organization structure is that it reduces the
friction among employees by clarifying the roles, responsibilities, and reporting
structure.

Having a proper organization structure can bring immense benefits to any

organization. A few of these benefits are as follows:

It allows an organization to grow.

It allows you to pay attention to your strategic goal, instead of each department
focusing on its own agenda.
It binds a group of people and points them towards a common goal.
It allows employees to enhance their skills.
It makes the decision-making process efficient, smoother, and faster.
It facilitates specialization of employees.
Better control and utilization of resources.
It establishes a proper reporting system.
It allows easier and better communication which helps in reducing conflicts.
It allows employees to perform better.
It helps employees grow their career and streamline new employees.
It helps identify clear roles and responsibilities.
Conclusion
Every organization must have a stable structure; otherwise, there will be mess and
chaos everywhere. Organization structure shows employees the clear reporting
system which helps in avoiding many conflicts, and supports good communication.
Organization structure is important for an organizations smooth functioning. An
organization should choose its structure wisely depending on its needs and
requirements. If it fails to do so, it will hinder its growth.

This is where this blog post ends. If you have something to add, you are welcome
to post your thoughts or questions in the comments section below.