5 types of organisation structure with their benefits and disadvantages

A company's organisation is a key element in its structure and operation. There are several types of organisation, each with its own characteristics, advantages and disadvantages. What are their specific features, advantages and disadvantages? Which types of organisation are best suited to different market situations?

Type of organisation 1: Functional organisation

The functional type of organisation structure is the most common and consists of structuring the company according to different functions or departments, such as marketing, finance, human resources, production, etc. Each department is specialised in a specific function. Each department specialises in a specific business function. 

Benefits of this type of business organisation

• Specialisation: Each department focuses on a specific function, enabling the development of in-depth expertise.
• Efficient co-ordination: The functional structure facilitates co-ordination within departments, as they are grouped according to their skills.
• Control: The clear hierarchy enables better control and effective supervision.

 

Disadvantages of this type of business organisation

• Difficult inter-departmental communication: Barriers between departments can hamper communication and collaboration.
• Lack of flexibility: Decisions can be taken slowly and rigidly, which can limit adaptability to change.
• Organisational silos: Departments may focus on their own objectives without taking into account the company's overall objectives.

 

Examples of companies with this type of business organisation

1. General Motors: This American vehicle manufacturer is organised into several functional divisions, such as finance, sales and marketing, human resources, etc. Each functional division is responsible for a specific area of the business. Each functional division is responsible for a specific aspect of the business.
2. Procter & Gamble: This consumer goods company is organised on a functional basis. It has departments for marketing, finance, operations, etc.
3. Coca-Cola: The Coca-Cola Company is also organised into a number of functions: production, marketing, finance, human resources, etc. Each region of the world is further divided into departments. Each region of the world is further divided into these same functions.
4. Apple: Under the leadership of Tim Cook, Apple has strengthened its functional focus, with separate divisions for hardware, software, design, marketing and so on.

It is important to note that many of these large companies use a combination of organisational structures: functional, divisional and matrix. This allows them to effectively manage their large size and complexity. For example, while Apple has a strong functional focus, it also has divisions based on specific products, such as the iPhone or the Mac.

 

Type of organisation 2: Divisional organisation

The divisional type of organisation structure is used when the company operates in different business sectors or markets. The organisation is divided into autonomous divisions, each responsible for a specific sector. Each division may have its own internal functional structure. 

Benefits of this type of business organisation

• Adaptation to specific markets: Each division is responsible for a specific sector, which means it can better adapt to the needs and requirements of each market.
• Rapid decision-making: Autonomous divisions can take decisions more quickly, making them more responsive to changes in the market.
• Flexibility: Each division can have its own internal functional structure, making it easier to adapt to local needs.

 

Disadvantages of this type of business organisation

• Duplication of functions: Each division can have its own functional departments, which can lead to duplication and inefficient use of resources.
• Complex coordination: Coordination between divisions can be a challenge, particularly when decisions require collaboration between divisions.
• Loss of overall cohesion: Divisions may focus solely on their own objectives, which can lead to a loss of overall company cohesion.

Examples of companies with this type of business organisation

 Siemens AG: Siemens, a German company, is organised into a number of autonomous divisions, such as Siemens Healthineers (medical technology), Siemens Energy (energy), Siemens Mobility (mobility), etc.

1. General Electric (GE): GE is a classic example of a divisional organisation. The company is divided into several independent divisions, such as GE Aviation, GE Healthcare and GE Power, each focusing on a specific product line.
2. Royal Dutch Shell: Shell, an Anglo-Dutch company, is organised into several autonomous divisions, such as exploration and production, refining and distribution, and gas and electricity.
3. Unilever: Unilever, an Anglo-Dutch company, also operates with a divisional structure based on product categories, such as personal care, food and beverages, etc.
4. Nestlé SA: Nestlé, a Swiss company, is organised in several autonomous divisions based on different market segments, such as confectionery, dairy products, beverages, etc.

Type of organisation 3: Matrix organisation

The matrix type of organisation structure combines functional and divisional structures. It allows for a double chain of command, where employees are attached to both a specific function and a division. This encourages inter-departmental collaboration and the management of cross-functional projects. 

Benefits of this type of business organisation

• Improved communication: The matrix structure encourages more open and direct communication between team members and functional departments.
• Inter-departmental collaboration: Multi-disciplinary project teams encourage collaboration and synergy between the company's different functions.
• Optimum use of resources: The matrix structure enables resources to be used more efficiently, drawing on the specific skills of each team member.

 

Disadvantages of this type of business organisation

• Conflicting priorities: Team members may be faced with competing priorities from different chains of command.
• Complexity of decision-making: Decisions may require extensive co-ordination and consultation, which can slow down the decision-making process.
• Need for specific management skills: Managing the matrix structure can be complex, requiring advanced management skills to avoid conflict and ensure effective co-ordination.

 

Examples of companies with this type of business organisation

1. Philips: Philips, a Dutch company, has historically used a matrix structure to manage its global operations. Employees have functional and divisional responsibilities, which means that they may have roles within their department (for example, finance or marketing), but also work on specific products or projects.
2. Aston Martin: This British luxury car company has adopted a matrix structure to encourage collaboration between its different teams and divisions, particularly during the design and production of new car models.
3. Airbus: This European aerospace company uses a matrix structure to coordinate its vast operations and facilitate collaboration between its different business units and geographical regions.
4. Ford Motor Company (US company): Ford has traditionally used a divisional structure, but has also incorporated elements of a matrix structure. This allows for better co-ordination between geographical and product divisions, helping the company to respond more effectively to the challenges of the global marketplace.
5. Ericsson: Ericsson, a Swedish telecommunications company, uses a matrix structure to organise its different business units and functionalities, allowing greater flexibility and collaboration between teams.

 

Type of organisation 4: Network organisation

• The network type of organisation structure is a decentralised structure with divisions or companies working together in an interconnected way to achieve a common goal. These divisions may be internal to a larger organisation or may be separate businesses. This type of organisation is often used in creative industries, strategic alliances or large-scale projects. Partner companies retain their autonomy while collaborating on specific projects. 

Benefits of this type of business organisation

• Flexibility and agility: Partner companies retain their autonomy while collaborating on specific projects, enabling great flexibility and rapid responsiveness to market opportunities.
• Shared expertise: Network partners can contribute their specific expertise, which encourages innovation and creativity.
• Access to new resources: Networking provides access to additional resources, such as technologies or skills, which can be shared between partners.

 

Disadvantages of this type of business organisation

• Complex coordination: Coordination between the various players in the network can be difficult, particularly when there are several partners involved.
• Risk of dependency: A network organisation can make a company dependent on the resources or skills of other partners, which can be risky in the event of a breakdown or conflict.
• Loss of control: In a network, a company may have less control over decisions taken collectively, which may affect its ability to achieve its specific objectives.

Examples of companies with this type of business organisation

1. Star Alliance: This is an alliance of 26 airlines that work together to provide air transport services around the world. Each airline operates independently, but they collaborate on issues such as frequent flyer programmes, code-sharing and flight operations.
2. Toyota: Toyota has historically used a network organisation with its suppliers. The company maintains long-term relationships with a network of suppliers who work closely together on the development and production of automotive parts.
3. H&M: This Swedish fashion company networks with a multitude of external suppliers and designers to produce its clothing. These supplier networks are essential to H&M's ability to bring new designs to market quickly.
4. Zara (Inditex): Like H&M, Zara networks with a multitude of suppliers and designers to rapidly produce and distribute its products worldwide.
5. Unilever: This Anglo-Dutch consumer goods company networks with a multitude of suppliers, distributors and retail partners to produce and sell its products worldwide.

It is important to note that these companies have more complex organisational structures than described here, and may combine elements of functional, divisional, matrix or team-based organisations with their network organisation.

Type of organisation 5: Team organisation

The Team-based type of organisation structure encourages group work and collaboration. Employees are grouped into multidisciplinary teams to accomplish specific tasks. Teams may be permanent or temporary, depending on the company's needs. 

Benefits of this type of business organisation

• Effective collaboration: Multidisciplinary teams encourage close collaboration and direct communication, which improves efficiency and the quality of work.
• Rapid decision-making: Teams can make decisions quickly, enabling greater responsiveness to market needs.
• Motivation and commitment: Working in a team fosters motivation and commitment among team members, as they are collectively responsible for the results.

 

Disadvantages of this type of business organisation

• Difficulty of coordination: Coordination between teams can be complex, particularly when interdependent teams are working on common tasks or projects.
• Internal conflict: Differences of opinion or priorities within the team can lead to conflict and tension.
• Communication overload: Working in a team requires constant communication, which can sometimes lead to communication overload and wasted time.

Examples of companies with this type of business organisation

1. Google: Although Google is a large company with a complex organisational structure, much of its product development is done in small teams. Each team is responsible for its own product area.
2. Amazon: Amazon operates on a principle it calls "two-pizza teams", which is the idea that no team should be too big to be fed two pizzas. This promotes efficiency and responsibility within each team.
3. Atlassian: This Australian software company, known for products such as Jira and Confluence, organises its work into teams. Each team has a specific product area to work on.
4. Netflix: Netflix relies on a culture of small, autonomous teams. Each team has a specific responsibility and is allowed to make autonomous decisions to achieve its goals.

Adapting to specific environments and markets

Here are some examples of different environments and the types of organisation structure best suited to them

Fast growing, dynamic market

In a fast-growing and dynamic market, it is often preferable to opt for an agile and responsive organisational structure. In this case, team and network organisations may be more appropriate:

• Team-based organisation encourages rapid collaboration and communication, enabling rapid response to market changes and seizing opportunities. Multi-disciplinary teams work together flexibly and can adapt their approaches to meet changing market needs.
• The networked organisation enables collaboration with external partners, such as suppliers, distributors or experts, to capitalise on their specific expertise and access to additional resources. This allows greater flexibility to adapt quickly to growing market demand.

 

Mature market

In a mature market, where growth is slower, divisional or functional types of organisation may be more appropriate:

• Divisional organisation allows the company to be segmented into autonomous divisions, each responsible for a specific segment of the market. This allows activities, products and services to be tailored to each specific segment, maximising efficiency and responsiveness in the mature market.
• A functional structure can also be effective in a mature market, allowing specialisation and expertise in each specific business function, which can help maintain operational efficiency and product or service quality.

 

Regulated market 

In a regulated market where regulatory compliance is paramount, a functional structure may be more appropriate:

• Functional organisation allows responsibilities to be divided according to specific business functions, making it easier to implement and comply with regulations specific to each function.
• In a competitive market, a matrix structure may be appropriate. It allows co-ordination between functions and divisions for greater responsiveness to market needs. It also allows functional specialisation to be maintained while encouraging inter-departmental collaboration.

Organisation on several different markets:

In the case of a company operating in several different markets, the divisional organisational structure is generally the most appropriate:

• Divisional organisation allows the company to be segmented into divisions, each responsible for a specific market. This makes it possible to adapt more precisely to the needs and specific features of each market, by having teams dedicated to each division.
• Each division can have its own internal functional structure to manage the activities specific to each market, ensuring greater efficiency and a better understanding of the particularities of each market.

 

Organisation on several international markets:

In the case of a company operating in several international markets, the network organisation scheme may be more appropriate:

• A network organisation enables the company to work with local partners in each international market. This makes it easier to adapt to the cultural, regulatory and commercial specificities of each market.
• Local partners can provide local expertise, access to the distribution network and in-depth market knowledge. This allows the company to capitalise on local advantages while retaining a degree of flexibility.

 

It is important to note that these suggestions are not exclusive and that each company must assess its specific needs, culture and objectives to choose the organisational structure best suited to its environment.

 

Conclusion

The choice of the type of business organisation depends on the specific characteristics of each company, its external environment and its market. Each type of organisation has specific advantages and disadvantages. It is essential to take these factors into account when choosing an organisational structure that promotes efficiency, coordination and adaptation to the challenges and opportunities of the environment and market in which the company operates.
In addition, types of organisation are generally more complex. They may combine elements of functional, divisional, matrix or team-based organisations within a network.

You may also have a look at the 17 criteria of the Employee Engagement Excellencepillar.