The organizational structure of your company influences its operations. Depending on how you organize your business, you can have centralized control or delegated authority. Some structures promote team cohesiveness, while others depend on individual initiatives. You have to make sure your organizational structure suits the type of business you are in and matches the requirements of your market environment.

Simple

A simple organizational structure has a hierarchy that consists of a top executive who delegates authority down the organizational ladder. It is appropriate for smaller companies in which a founder directs operations and for regulated businesses in which tight compliance with policies and procedures is essential. The structure is efficient because all activity is coordinated through the direct lines of authority. This organizational structure is slow to react to external changes, because information has to travel up the organization's chain of command and instructions have to travel back down.

Divisional

When a company grows, it becomes too large to operate under a simple organizational structure and often splits into divisions. Each division acts as a smaller company with a simple structure, but the divisions are tied together at the top under a corporate framework. Divisions can be responsible for operations on a geographical base or on the basis of product lines. The structure is as efficient as a simple company, but coordination can be a problem, because each division acts independently and efforts can be duplicated.

Functional

The functional organization structure solves the duplication of effort in divisions by splitting the company into departments based on functionality. For example, one department is responsible for companywide marketing and another one is responsible for all human resources. The structure is hierarchical, but the chief executive delegates authority to the professionals in each specialized department. While duplication is reduced, coordination suffers as each department focuses on its area of activity.

Matrix

In rapidly changing markets, companies must adapt quickly and need a flexible organizational structure, because the hierarchical models are too slow to react to external changes. The matrix structure combines the hierarchy for organizational matters with a responsiveness gained through placing responsibility for executing work at lower organizational levels. Teams operating at the working level have responsibility for carrying out work and interacting with the market. The team members report to a team manager for their work and also report to managers in the company hierarchy for disciplinary and job-related matters. The structure can be inefficient: Work can be duplicated, coordination between teams can be lacking and there might not be a clear path of authority. Its advantage is the ability to quickly respond to customer concerns and market changes.