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What are the different types of organisational structure?

Updated 03 December 2020

4min read

Nick Green
Financial Journalist

Management structures for your business

Every growing business needs a strong organisational structure. Without one, your employees may be unclear about their roles and responsibilities, unsure about whom they report to, and inefficient in their time management.

If you find yourself bombarded with questions from your staff, it could be because you don’t yet have a strong enough organisational structure in place. Here’s how to go about achieving one.

Find out:

What is organisational structure?

Your organisational structure (as opposed to your business structure) is the hierarchy in your business. Some call it the management structure. It outlines who is responsible for each area of the business, whom they report to and who reports to them.

A good organisational structure is one designed to help your business meet its goals. It makes it easy for each employee to know exactly what their role is and how it helps the business goals. By contrast, a poor organisational structure might be one based purely on seniority / pay grade, or one that has fallen into place without much planning as the business has grown.

You can map out your organisational structure in a diagram, similar to a family tree.

What are the different types of organisational structure?

Though no two businesses are identical, most organisational structures fall into one of three main structures:


The functional structure is a traditional form that’s widely used and tends to work well for smaller firms. It is a relatively simple set up: a CEO is in charge of a team of directors, under whom are managers for each division (finance, HR, marketing etc.). The managers are then in charge of operations or general staff. With a functional structure, it’s possible for the managers to ask something of an employee from a team other than their own, but if the employee has any problems, they speak to their own manager. Businesses with lots of branches might have their functional structures within each location.

It works because it gives employees structure while allowing your workforce to collaborate.

It has limitations because communication is the keystone of the structure, which means there can be problems if this breaks down.


Creative companies often benefit from a project-based structure. Typically, there is a director overseeing everything, and a selection of project managers each in charge of their own team of staff. The same or similar skills may occur in different teams, but each team will work on their own distinct projects or areas of the business. A design firm, for example, could have multiples teams each made up of several graphic designers, writers and software developers.

It works because it enables focused working on each project and encourages strong teamwork

It has limitations because it can be difficult to coordinate multiple project teams and ensure that they work together effectively for the business. Teams can also become isolated.

Matrix structures

Matrix structure involves a combination of functional and project-based structure. It enables you to have a project-based structure alongside top-level management. Employees report to both their team leader and their division manager.

For example, imagine a big hotel with lots of rooms and restaurants spread across a complex. There are managers in charge of reception, housekeeping and the restaurant (which are ‘functions’), and then team leaders for the different areas of the hotel, such as the beach front, the honeymoon suites and the standard rooms. Staff report to their area team leader, but are also supervised overall by the manager in charge of their particular function.

It works because it enables your employees to feel part of a team but have the support of others in their specialism.

It has limitations because it can confuse employees about who is in charge as they may have two people to report to.

Which organisational structure is best for my business?

To find the right organisational structure for your business, consider factors such as:

  • Business size
  • The number of locations
  • The physical working environment (e.g. a small office / a large warehouse / remote workers around the country etc.)
  • The nature of your work
  • Your business goals

If you’re a relatively small company, you might find a functional structure helps you stay in charge of each division while handing over responsibility for the day-to-day running of them. For agencies and companies selling products, a project-based structure can help each team work towards a unified goal. Larger businesses benefit from some kind of top-level management as it helps ensure a large workforce follow consistent company procedures. For that reason, functional or matrix structures tend to work well, but the CEO or managing director will need to take the time to employ well-organised managers who can effectively communicate, delegate and handle responsibility.

Many businesses change structure over time. As your business grows, you might find that you need to introduce a new structure. Don’t be afraid to adopt a trial and error approach to decide what works best for your business.

How do I set up or change my organisational structure?

Remember that abrupt or major changes can disrupt productivity and in some instance may also harm morale. For this reason, it may be best to introduce changes gradually to see what works. Give your staff plenty of warning and make sure everyone is fully informed about what the new structural changes mean for them.

When the time comes to introduce the changes, you can help them to settle in smoothly by following these tips.

  • Have discussions at every level – Listen to employee feedback to help you work out what needs to change (and what should stay the same). It will also help your people to feel respected.
  • Try it out – If possible, trial the new structure on one division, such as a single branch or project team. This can highlight any potential issues you need to fix before rolling it out across the entire business.
  • Communicate constantly – Keep your employees updated through the transition period. This will help them feel supported and will ensure they know whom they need to report to.
  • Be clear – Explain clearly why you’re making the changes and the ways in which you think this will make their experience at work better. Also make it as easy as possible to understand the new structure and give your staff exact dates on when the changes will be implemented. Use multiple channels for this – for instance, company-wide meetings followed up by emails and perhaps even one-to-one meetings with line managers.

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About the author
Nick Green is a financial journalist writing for Unbiased.co.uk, the site that has helped over 10 million people find financial, business and legal advice. Nick has been writing professionally on money and business topics for over 15 years, and has previously written for leading accountancy firms PKF and BDO.