The different types of organization chart in business
michel
•
5 min read
Every business is unique, and so is its organizational structure. While some prefer classic designs, others are innovating with bolder structures. Whether by industry, size or stage of development, choosing the right structure is crucial to achieving your strategic goals.
Organizational structure is the skeleton of your business. It defines roles, responsibilities, and overall functioning. In this article, learn about the five most common types of structures and their benefits to help you make the right choice.
Hierarchical organization chart
Functional organization chart
Divisional organization chart
Matrix organization chart
Circular organization chart
1 - Hierarchical organization chart
A hierarchical organizational structure contains a direct chain of command from the top of the organization to the bottom. Senior management makes all critical decisions, which are then passed on through the various levels of management. If someone at the base of this organizational pyramid wants to make a decision, they need to go through the chain of command for approval.
Advantages:
Control orientation: Helps employees understand different levels of leadership with clearly defined management roles.
Clear career and promotion path: Offers a clear career path, with progression through the various levels of management over the years.
Clearly defined authority: Different levels of authority and power, facilitating communication and ensuring that employees know their supervisors.
Disadvantages:
Poor communication: Dividing employees into different departments and levels can cause a lack of communication due to the number of supervisors.
Slow decision making: Management decisions take time to go down through the various levels, slowing down business responsiveness.
Additional costs: Requires considerable overheads to support senior management, which can weigh on profits in the event of excessive bureaucracy.
2 - Functional organization chart
A functional organizational structure groups employees by specialty, skill, or similar roles, based on levels of hierarchy that include different departments under the direction of designated leaders. Large businesses commonly use this structure because it brings together people with similar knowledge and makes it possible to effectively achieve business goals.
Advantages:
Increased productivity: Specialized skills allow employees to work more quickly and effectively.
Skills development: Experienced managers teach their teams, improving the skills of all members.
Clarity: Create an environment of clarity with departments that specialize in areas such as marketing, human resources, customer service, or operations.
Minimized operating costs: By organizing employees by functions, departments can reduce duplication of work, saving money.
Disadvantages:
Impediment to decision-making: Can affect efficiency when management is not available to provide feedback on urgent projects.
Competition between departments: The objective of each department can lead to competition between them.
Limited scope: Employees may not understand how their role relates to business goals and other departments.
3 - Divisional organization chart
A divisional structure segments employees based on products, markets, or territories rather than roles.
Divisions:
Based on the market: Divisions separated by market industry or customer type.
Based on products: Divisions separated by product line.
Based on geography: Divisions separated by region or territories.
Advantages:
Accountability and transparency: Easier to hold individuals accountable and assign responsibility.
Local competitive advantage: Managers have the autonomy to make business decisions at the local level.
Improves corporate culture: Enables unique perspectives and exemplary behavior in smaller groups.
Increase the effectiveness of offers: Enables product options or geographic availability to be expanded more effectively.
Increase the effectiveness of offers: Enables product options or geographic availability to be expanded more effectively.
Disadvantages:
Higher costs: Operating costs are higher and it may be necessary to have a central division to oversee the entire business.
Limited economies of scale: Prevents taking full advantage of economies of scale.
Encourage rivalries: Divisions can be seen as competitors, leading to political struggles.
Silo mentality: May cause resistance to change and a reluctance to collaborate.
4 - Matrix organization chart
The matrix organizational structure combines two or more types of structures, such as project management and functional management. Philips first used this structure in 1970, and other multinational companies like General Motors adopted it later.
Advantages:
Encourages collaboration: Brings together highly qualified team members from various departments.
Increase efficiency: Combines project management and functional management structures to adapt to changing markets.
Develop new skills: Helps employees gain new skills and valuable experience.
Disadvantages:
Unclear managerial and team roles: Power dynamics can be poorly defined, causing confusion.
Slow decision process: Involving more than one manager can slow down decision-making.
Work overload: Employees may experience burnout due to additional workloads.
Difficult to measure performance: Assessing employee performance can be complicated due to their multiple roles.
5 - Circular organization chart
The circular organization chart organizes the company in concentric circles, with management at the center and teams spread around. This approach replaces the traditional hierarchy with a more collaborative structure.
Advantages:
Strengthened communication: Facilitates open dialogue between all levels of the organization.
Collective vision: Encourages a comprehensive understanding of everyone's role, strengthening engagement.
Innovation: Promotes an environment conducive to creativity and flexibility.
Disadvantages:
Complexity of implementation: Difficult to apply in large structures due to its unconventional nature.
Clarity of roles: May cause ambiguities in the definition of responsibilities.
Difficult transition: Traditional businesses may encounter resistance to change.
Conclusion
To conclude, we presented the five most common types of organization charts: hierarchical, functional, divisional, matrix, and circular. Keep in mind that no organizational structure is ideal for every business. Each type has its pros and cons. To determine which structure is best for your business, think about how much autonomy you want to give to your employees, the innovation you want to encourage, the size of your business, and the importance of employee interaction.
