Definition of an Organization Type (With a List of Benefits)

By Indeed Editorial Team

Updated September 4, 2022 | Published November 5, 2021

Updated September 4, 2022

Published November 5, 2021

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Businesses rely on structure to stay organized and focused on what they do. The goal for any business is that employees understand their responsibilities, work effectively, and collaborate well within their teams and with their managers. Learning more about choosing the right organizational structure is important in preparing internal teams for success. In this article, we explore what an organization type is, explain the difference between mechanistic and organic structures, share the benefits of each type for a company, and list the different organizational structures.

What is an organization type?

An organization type is a system that outlines how activities occur within an organization to achieve the company's goals. These activities include the company's policies and the specific roles and responsibilities of each employee. An organizational type helps determine how information flows within the organization, from the CEO to each employee. For example, information can flow from the highest-ranking person down to the individual employees, or an organization can divide information sharing between various levels within the organization. Implementing an organizational structure helps everyone stay organized, on task, and efficient.

Organizational structures can be diagrams that outline how power and responsibilities distribute within an organization. Companies can also create them through various departments, geographical offices, product lines, and markets. They outline reporting structure and how decision-making processes occur across the business. Companies often choose an organizational structure that follows their industry standards and caters to the specific needs and sizes of their stakeholders. The more organized a company is, the more likely it operates efficiently and effectively.

Mechanistic vs. organic structure

Mechanistic structures have higher degrees of centralization and specialization within the organization. Companies with these structures typically have strict policies to adhere to and decision-making processes are often bureaucratic. A company that follows a mechanistic structure has more of a hierarchical chart, and all employees understand what's expected of them and the tasks they handle. For example, in a large bank, there's typically a set of formal procedures and functions implemented throughout the organization, and a clearly outlined leader chart ranging from the CEO and executives to the managers and support personnel.

Organic structures are more decentralized with distributed power among different departments or teams. Many teams work on the same project based on their strengths and expertise. Procedures are looser and there's typically more discussion involved in decision-making rather than a chain of command. Organizations that are smaller or fast-moving may adopt an organic structure because it allows for greater flexibility in decision-making. Employees have the power to try new methods and be creative instead of following standard protocols.

Related: What Does Seniority Mean at Work? Structures and Advantages

Benefits of having organizational types

Organizational types create structure and organization within any company, and they help organizations meet financial and business goals. Here are some other benefits of implementing an organizational structure:

Faster communication and decision-making

Structure and organization help facilitate more efficient decision-making and communication. Everyone knows what they're responsible for, who they report to, and who they can talk to if they have questions or need support. When people can communicate well and information can travel quickly, managers and team members can make important decisions faster. Fast decision-making is especially important when relating to tight deadlines, company emergencies, or major stakeholders.

Related: How to Thrive in a Fast-Paced Environment

Defines responsibilities and creates opportunities for improvement

A proper organizational structure means everyone has clearly defined responsibilities and opportunities to improve. Team leaders know how to manage the overall deliverables of the team, and team members know how to contribute to the overall success of each task. It also sets expectations for how individuals can grow within the organization. For example, in a hierarchical organization, employees understand they can always speak to their managers about support and training opportunities. In a decentralized organizational structure, where everyone shares some of the decision-making power, employees take more initiative to solve problems and learn new skills.

Makes operations more efficient and effective

A clearly defined organizational chart helps make operations and teams within the organization more efficient and effective. As everyone knows their roles and responsibilities and everyone is in teams or departments, people can respond to operational requirements and concerns more at scale. It informs employees about what to work on and explains their next tasks. It creates a streamlined system that helps projects and deliverables move through the various departments more effectively.

Greater centralization and employee performance

An established chain of command provides leaders and employees with a clear direction and goal. The organization knows which departments make certain decisions, and can easily consult with those people if necessary. When managers delegate responsibilities clearly, employees know what's expected of them and can work hard to meet those expectations. It also helps managers provide better guidance to their employees and recognize when their employees are improving. Employees are more motivated to work and improve with recognition, which increases the company's overall results, customer satisfaction, and profit.

Related: Guide To Organizational Behaviour Principles

Types of organizational structures

Here's a list of the main types of organizational structures that a company can adopt, depending on its preferences and goals:

Functional organizational structure

The functional organizational structure is one of the most common structures for organizations. Many large businesses use this type because it is simple and clear. A company with a functional organizational structure groups employees together based on their job functions. For example, they might group marketers in one department, salespeople in another department, and engineers in a third department. This type of structure is best for businesses with very defined products or target markets.

A functional structure allows for a higher degree of specialization, problem-solving, and scalability. If the company grows a lot in the future, it can easily increase its department size while maintaining productivity and organization. In addition, this structure separates employees into departments that only focus on a specific set of goals and responsibilities. It helps employees specialize further, build strong accountability for their responsibilities, and improve their skills more quickly to increase the overall success of the organization. Building strong communication between departments is important to implement an effective functional organizational structure.

Related: 10 Manager Responsibilities in a Functional Organization

Flat organizational structure

A flat organizational structure has defined roles, but each individual's power can extend beyond their job title. Everyone is equal, with a specific set of skills and expertise that complement each other. There's typically little management involved in this type of structure. Employees test new methods and have the resources to be creative problem solvers. Instead of having a dedicated leader, employees can collaborate and brainstorm solutions for any challenge or project. As a result, companies can sometimes be more productive with a flat organizational structure than with a functional organizational structure.

Related: What Is a Flat Organizational Structure?

Divisional organizational structure

The divisional organizational structure organizes internal structures based on various markets, products, regions, or target customers. This type of structure is most common for companies that own many firms globally. Companies are grouped based on organizational function into separate divisions and each division has all the resources to support the area they handle, such as the product or service.

For example, a large corporation may sell mortgages, personal banking, commercial banking, and investment products. It may also own multiple offices around the world. As a result, companies create divisions based on the product they support or the regional area. A mortgage division operating in Canada has a fully functioning team of marketers, salespeople, financial advisors, IT support, and engineers. A personal banking division of the same parent company operating in Canada has a separate team of marketers, salespeople, financial advisors, IT support, and engineers. All divisions likely report to the CEO or executives of the larger company.

Related: What Are the Functions of Management? (With Tips)

Matrix organizational structure

A matrix organizational structure has two or more leaders for every project and task within the company. Employees can collaborate across different departments and report to more than one person regarding progress and support. For example, a team working on a specific project has both a senior manager that oversees the entire project and a product or project manager who more closely collaborates and communicates for the project.

Companies often use this type of organizational structure for large-scale projects because it allows for greater collaboration and productivity in a centralized and organized manner. It also encourages open communication between the managers and the team members of various departments, allowing employees to leverage each other's strengths and resources faster. As different departments work together on projects, employees can get assigned to different projects, sharing their knowledge and expertise, which increases the success and scalability of the projects.

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