What Is An Organizational Structure And How Does It Affect Business?

Your business needs a technique to determine the company’s staff roles and responsibilities. In this case, it should have an organizational structure. It’s a system that frames how activities are conducted to accomplish goals in an organization. It also establishes how information flows between various levels of your business. 

An organizational structure primarily stems from executives to managers, then staff. Without it, your business productivity may crumble because of the lack of a clear predefined communication pathway, perhaps due to commotion in leadership. 

The type of structure you select depends on the size of the organization you have. The larger your business, the more intricate your organizational structure should be. But no matter what business you’re setting up, developing an effective organizational structure helps define team member roles and the relationships between different departments. 

With that in mind, below is a detailed guide on organizational structure.

Types Of Organizational Structures

Firstly, you ought to know different organizational structures to determine which one works best for the type of business you’ve set up. They’re as follows:  

  • Functional structure: Also known as a bureaucratic structure, it categorizes staff based on their task specializations and features different departments. It separates teams into subgroups with someone in charge of them. Every department has a manager who supervises the staff and is also under an executive who oversees numerous departments. The team member in management should possess solid skills to ensure all staff under them follow the business rules and complete their assigned tasks.

    A merit is that staff are classified according to their skill, encouraging them to do their work and fostering teamwork. However, it may not promote productivity because of the strict hierarchy rules requiring everyone to submit to someone. They could be more focused on completing their work than putting up some creativity. Or there could be a lack of communication among other departments.
  • Matrix structure: It’s a blend of different organizational structures. Staff is split into teams that report to two managers: a project and a functional manager. It encourages the division of resources. On the other hand, it could be expensive, and you may notice a disconnect in leadership.
  • Divisional structure: It’s more suitable for an enterprise majoring in multiple products and services. Your enterprise will have different divisions, each functioning as a separate business. Every section has a common goal: to make sales and profits. The disadvantage of this structure is a tight competition which could make staff lose focus on the plan and fail to communicate.
  • Flat structure: Also known as a horizontal structure, it mostly has minimal to no levels of management. Staff can freely communicate with the management. It improves business decision-making, encourages communications, uses resources appropriately, and decreases costs. On the other hand, there might be a conflict in leadership, an inability to grow, and you could quickly lose control.
  • Hierarchical structure: It comprises leaders, managers, and other staff in a top-down fashion. It’s more beneficial, especially if you run a large business. It gives a clear distinction of authority and motivates the team to work towards getting a promotion. The drawbacks are a decrease in innovation due to bureaucracy, which makes lower-ranking staff feel they have little share in the company and can’t express their feedback.

Each organizational structure has its features, strong points, and challenges. Having one of them gives a business more advantages since it allows them to focus on making profits rather than just running it. Thus, take your time and pick the most favorable for your business to enable you to manage your operations more appropriately.  

Types Of Organizational Structures

How An Organizational Structure Affects Your Business

You can benefit from using an effective organizational structure. Below are eight positive ways in which it can affect your business:

  1. Makes Operations Efficient

Dividing your business functions into departments enables you to do business operations efficiently. Firstly, it helps your business reduce costs by avoiding the same tasks being done by many departments. Secondly, it ensures all jobs are allocated and launched on time. And you can trace outcomes by having meetings to gather input, identify the challenges, and discuss a way forward. 

Lastly, it helps ensure everyone has a detailed job description, which avoids blame games when they fail to do their job. When there’s a division of teams, each staff member is aware of what they’re supposed to do and gets to it right away to avoid any delays. Doing so helps you boost your company’s overall performance. 

  1. Enables Businesses To Focus On Customer Service And Sales 

With an effective organizational structure, you’ll focus more on satisfying your customer’s needs instead of fixing issues with business operations. Operational problems can be time-consuming; by the end of the day, you’ll find you’ve done very little in your business. 

  1. Enhances Decision-Making 

The flow of information within the organizational structure allows you to make decisions quickly. It’s possible when there’s effective communication within departments. You won’t have to wait long for a specific sector to make crucial decisions for the company before you can proceed. 

  1. Allows You To Operate In Multiple Locations

Suppose your business is thriving, and you’re launching different ones in separate locations. In that case, an organizational structure can enable you to put in place management chains to ensure every business location thrives. It also ensures they’re operating according to your company’s guidelines. It’s beneficial because, as a sole business owner, you may be unable to run your business from different locations.

  1. Boosts Staff Performance

An organizational structure provides staff with an environment where they’re comfortable working. They perform better because of the specific tasks and responsibilities assigned to them. Everyone will appreciate being given a role they enjoy. 

  1. Encourages Coordination

An organizational structure is beneficial since it helps bring together different departments in your business. It also allows various departments to interact and share information. Coordination also enables your business to achieve its objectives. It lets you make the necessary adjustments on areas with shortcomings.

  1. Motivates Independence, Creative Thinking, And Innovativeness

An effective organizational structure with a clear division of authority gives everyone a sense of belonging. Also, incentives such as promotions for those who’ve done specific jobs effectively encourage staff to look for creative ways to accomplish their goals. It fosters innovation among your team members, enabling you to make profits.

  1. Clear Communication

Communication is an essential requirement for running your business. When everyone knows who they’re supposed to report to, it lets the company communicate transparently. They can also speak about their concerns quickly and have them addressed.


An organizational structure is a critical component of your business. It helps you achieve goals and objectives since the staff has predefined roles. Consider enlisting professional assistance to design an effective organizational structure and a chart that works best for your business. Eventually, you’ll start making sales and reap enormous profits.


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