Organizational structure

Organizational structure is the formal system of task and authority relationships that controls how people coordinate their actions and use resources to achieve organizational goals, defining the division of labor, reporting relationships, and coordination mechanisms (Mintzberg H. 1979, p.2)^[1]. Draw an organization chart. The boxes show positions; the lines show who reports to whom. But that chart captures only the visible skeleton. Beneath it lie questions of power, communication, and coordination that shape how work actually gets done. Why does this company have seven management levels while that one has three? Why are engineers grouped by product here but by specialty there?

Structure isn't neutral. It shapes what people pay attention to, who they talk to, what they're rewarded for. A functional structure—grouping engineers with engineers, marketers with marketers—builds deep expertise but can create silos. A divisional structure—grouping all functions serving a product line together—improves coordination but may duplicate resources. No structure is universally best. The challenge is matching structure to strategy, environment, and organizational capabilities.

Key dimensions

Structure varies along several dimensions:

Hierarchy

Vertical differentiation. How many levels exist between top management and frontline workers. Tall structures have many levels; flat structures have few^[2].

Span of control. How many people report to each manager. Wide spans (15-20 reports) require delegation; narrow spans (3-5 reports) enable close supervision.

Specialization

Division of labor. How work gets divided into distinct jobs and roles.

Departmentation. How individual jobs get grouped into units—by function, product, geography, customer, or process^[3].

Centralization

Decision authority. Where decisions get made. Centralized organizations concentrate authority at the top; decentralized organizations push authority down.

Formalization. Extent to which rules, procedures, and documentation govern behavior.

Structural forms

Common structural types:

Functional structure

Specialist grouping. Departments organized around functions: marketing, finance, operations, human resources^[4].

Advantages. Economies of scale, deep expertise, clear career paths within functions.

Disadvantages. Coordination problems across functions, slow response to change, diffused accountability for products or customers.

Divisional structure

Self-contained units. Divisions organized around products, regions, or customer segments. Each division contains its own functional capabilities.

Advantages. Better coordination within divisions, clear accountability, adaptability to diverse markets^[5].

Disadvantages. Duplication of resources, potential inconsistency across divisions, reduced economies of scale.

Matrix structure

Dual reporting. Employees report to both a functional manager and a product/project manager.

Advantages. Balances functional expertise with product focus, improves information flow.

Disadvantages. Ambiguity, conflict between managers, complexity, slower decision-making^[6].

Network structure

Outsourced operations. Core organization coordinates external partners who provide capabilities.

Advantages. Flexibility, access to specialized capabilities, reduced fixed costs.

Disadvantages. Coordination challenges, dependence on partners, knowledge leakage.

Contingency factors

What structure fits depends on:

Strategy. Cost leadership strategies favor efficiency through functional structures. Differentiation strategies favor responsiveness through divisional or matrix structures^[7].

Size. Larger organizations require more formalization, more levels, more specialization.

Technology. Routine technologies suit mechanistic structures; non-routine technologies suit organic structures.

Environment. Stable environments permit centralized, formal structures. Dynamic environments require decentralized, adaptive structures.

Contemporary trends

Structures continue evolving:

Flatter organizations. Delayering has reduced hierarchical levels in many organizations—Deloitte's 2025 research shows 85% of leaders seek greater structural agility^[8].

Agile teams. Cross-functional teams that form, deliver, and dissolve around specific work.

Platform organizations. Digital platforms that coordinate external contributors rather than employing them.

Organizational structure — recommended articles

Organizational design — Management — Strategic management — Organizational change management

References

• Mintzberg H. (1979), The Structuring of Organizations, Prentice-Hall.
• Daft R.L. (2015), Organization Theory and Design, 12th Edition, Cengage.
• Burton R.M., Obel B., Håkonsson D.D. (2015), Organizational Design, 3rd Edition, Cambridge University Press.
• SHRM (2024), Understanding Organizational Structures.

Footnotes

1. ↑ Mintzberg H. (1979), Structuring of Organizations, p.2
2. ↑ Daft R.L. (2015), Organization Theory and Design, pp.89-104
3. ↑ Burton R.M. et al. (2015), Organizational Design, pp.45-62
4. ↑ SHRM (2024), Understanding Organizational Structures
5. ↑ Mintzberg H. (1979), Structuring of Organizations, pp.134-148
6. ↑ Daft R.L. (2015), Organization Theory and Design, pp.178-192
7. ↑ Burton R.M. et al. (2015), Organizational Design, pp.234-248
8. ↑ SHRM (2024), Understanding Organizational Structures

Author: Sławomir Wawak