organizational structure case study examples

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14.1 Organizational Structure: The Case of Toyota

Figure 14.1

Mike Mozart – Toyota – CC BY 2.0.

Toyota Motor Corporation (TYO: 7203) has often been referred to as the gold standard of the automotive industry. In the first quarter of 2007, Toyota (NYSE: TM) overtook General Motors Corporation in sales for the first time as the top automotive manufacturer in the world. Toyota reached success in part because of its exceptional reputation for quality and customer care. Despite the global recession and the tough economic times that American auto companies such as General Motors and Chrysler faced in 2009, Toyota enjoyed profits of $16.7 billion and sales growth of 6% that year. However, late 2009 and early 2010 witnessed Toyota’s recall of 8 million vehicles due to unintended acceleration. How could this happen to a company known for quality and structured to solve problems as soon as they arise? To examine this further, one has to understand about the Toyota Production System (TPS).

TPS is built on the principles of “just-in-time” production. In other words, raw materials and supplies are delivered to the assembly line exactly at the time they are to be used. This system has little room for slack resources, emphasizes the importance of efficiency on the part of employees, and minimizes wasted resources. TPS gives power to the employees on the front lines. Assembly line workers are empowered to pull a cord and stop the manufacturing line when they see a problem.

However, during the 1990s, Toyota began to experience rapid growth and expansion. With this success, the organization became more defensive and protective of information. Expansion strained resources across the organization and slowed response time. Toyota’s CEO, Akio Toyoda, the grandson of its founder, has conceded, “Quite frankly, I fear the pace at which we have grown may have been too quick.”

Vehicle recalls are not new to Toyota; after defects were found in the company’s Lexus model in 1989, Toyota created teams to solve the issues quickly, and in some cases the company went to customers’ homes to collect the cars. The question on many people’s minds is, how could a company whose success was built on its reputation for quality have had such failures? What is all the more puzzling is that brake problems in vehicles became apparent in 2009, but only after being confronted by United States transportation secretary Ray LaHood did Toyota begin issuing recalls in the United States. And during the early months of the crisis, Toyota’s top leaders were all but missing from public sight.

The organizational structure of Toyota may give us some insight into the handling of this crisis and ideas for the most effective way for Toyota to move forward. A conflict such as this has the ability to paralyze productivity but if dealt with constructively and effectively, can present opportunities for learning and improvement. Companies such as Toyota that have a rigid corporate culture and a hierarchy of seniority are at risk of reacting to external threats slowly. It is not uncommon that individuals feel reluctant to pass bad news up the chain within a family company such as Toyota. Toyota’s board of directors is composed of 29 Japanese men, all of whom are Toyota insiders. As a result of its centralized power structure, authority is not generally delegated within the company; all U.S. executives are assigned a Japanese boss to mentor them, and no Toyota executive in the United States is authorized to issue a recall. Most information flow is one-way, back to Japan where decisions are made.

Will Toyota turn its recall into an opportunity for increased participation for its international manufacturers? Will decentralization and increased transparency occur? Only time will tell.

Based on information from Accelerating into trouble. (2010, February 11). Economist . Retrieved March 8, 2010, from http://www.economist.com/opinion/displaystory.cfm?story_id=15498249 ; Dickson, D. (2010, February 10). Toyota’s bumps began with race for growth. Washington Times , p. 1; Maynard, M., Tabuchi, H., Bradsher, K., & Parris, M. (2010, February 7). Toyota has a pattern of slow response on safety issues. New York Times , p. 1; Simon, B. (2010, February 24). LaHood voices concerns over Toyota culture. Financial Times . Retrieved March 10, 2010, from http://www.ft.com/cms/s/0/11708d7c-20d7-11df-b920-00144feab49a.html ; Werhane, P., & Moriarty, B. (2009). Moral imagination and management decision making. Business Roundtable Institute for Corporate Ethics . Retrieved April 30, 2010, from http://www.corporate-ethics.org/pdf/moral_imagination.pdf ; Atlman, A. (2010, February 24). Congress puts Toyota (and Toyoda) in the hot seat. Time . Retrieved March 11, 2010, from http://www.time.com/time/nation/article/0,8599,1967654,00.html .

Discussion Questions

• Do you think Toyota’s organizational structure and norms are explicitly formalized in rules, or do the norms seem to be more inherent in the culture of the organization?
• What are the pros and cons of Toyota’s structure?
• What elements of business would you suggest remain the same and what elements might need revising?
• What are the most important elements of Toyota’s organizational structure?

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BMW’s Organizational Structure (An Analysis)

BMW’s organizational structure represents business operations primarily in the automotive industry, although the company’s hierarchy and structural divisions also address the management of financial services and motorcycle manufacturing. The main support of this company structure is for automotive manufacturing, distribution, and sales. Nonetheless, as BMW’s mission and vision emphasize mobility and transportation products, the corporate structure ensures the strategic growth and development of all segments of the business. The company’s organizational design and structural characteristics influence business growth in the automotive industry. BMW’s organizational structure provides a backbone for implementing business growth strategies.

BMW (Bayerische Motoren Werke/Bavarian Motor Works) implements its competitive strategies with its organizational structure’s support for resources and processes. This business structure enables competence against competitors, including automakers, like Toyota , Tesla , Ford , and General Motors , as well as motorcycle manufacturers, like Harley-Davidson . This competition involves innovative technologies and marketing campaigns, as demonstrated in the Five Forces analysis of BMW . The company’s corporate structure helps keep the integrity of the automotive business organization despite competitive pressure.

Characteristics of BMW’s Structure

BMW’s organizational structure is designed to enable multinational business growth in automotive and motorcycle markets. The company’s structural characteristics support strategic management that buttresses business growth and development in these vehicle markets. The characteristics of BMW’s structure are:

• Departments for corporate functions
• Product segments
• Regional divisions

Departments for corporate functions indicate the global centralization of BMW’s organizational structure and its hierarchy. This structural characteristic allows managerial control that encompasses international operations in the automotive, motorcycle, and financial services markets. In this company structure, the corporate headquarters and their officers are responsible for directing BMW’s generic competitive strategy and intensive growth strategies for multinational operations. Also, human resource development approaches are designed based on communication channels, lines of authority and command, and business processes inherent in this automotive business structure. For example, the department for labor relations implements strategies and programs for BMW’s organizational culture (work culture) through leaders, groups, and teams in the corporate structure. The structural design ensures that the company’s culture is developed throughout the business and its human resources. The following are the departments for corporate functions in BMW’s structure:

• Office of the Chairman
• Customer, Brands & Sales
• People, Real Estate & Labor Relations
• Purchasing & Supplier Network
• Development

Product segments in BMW’s structure are based on the types of products that the company offers to its target markets. The business is known for its automobiles, but also manufactures motorcycles and provides financial services. The persistence and profitable operations of these segments depend on the effective use of business strengths, such as the company’s brands and other competitive advantages mentioned in the SWOT analysis of BMW . The following are the product segments in BMW’s organizational structure:

• Motorcycles
• Financial Services

Regional divisions in BMW’s company structure account for market differences. For example, the European and Asian markets differ in terms of customer preferences and expectations regarding cars and other vehicles. The geographic divisions of this corporate structure support BMW’s marketing mix (4P) involving strategies and tactics based on the characteristics of regional markets. Strategies for distribution and sales in regional and local automobile markets are fine-tuned through the regional divisions of this organizational structure. The following are the regional divisions in BMW’s business structure:

• Other regions

BMW’s Organizational Structure & Business Strategy

BMW’s structure continues improving to support and enable business strategies. The regional divisions in this organizational structure relate to the strategic factors influencing vehicle markets. For example, the performance of these divisions depends on how the industry trends examined in the PESTEL/PESTLE analysis of BMW influence market demand for different types of cars and motorcycles. Moreover, management decisions depend on the characteristics of the automotive and motorcycle business structure. For example, this company structure affects the goals and targets in BMW’s operations management , such as in productivity management, product design, quality management, job design, and layout design.

• Albert, D. (2023). What do you mean by organizational structure? Acknowledging and harmonizing differences and commonalities in three prominent perspectives. Journal of Organization Design , 1-11.
• BMW Group – Brands & Business Segments .
• BMW Group Leadership & Governance .
• BMW Group Report .
• Gandrita, D. M. (2023). Improving Strategic Planning: The Crucial Role of Enhancing Relationships between Management Levels. Administrative Sciences, 13 (10), 211.
• Muzzio, M. (2023). Imagined futures of the automotive industry stemming from uncertainty. Joule, 7 (6), 1099-1100.
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The Nestle Organizational Structure Case Study

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• As a template for you assignment

Executive summary

Nestle is a multinational company that is involved in manufacturing products, in the nutrition, health and wellness industry. Since its establishment in 1886, it has undergone through several changes which its CEO, Brabeck-Letmathe, says are steady and well calculated. A recent change is use of GLOBE, system Codification-Based Strategy, in information use and sharing.

It was meant to improve productivity, efficiency and increase the quality of customer care services. This system changed the way information is accessed, used and shared among employees in various departments all over the world. This system called for a change in the way employees related with management and vice versa which necessitated a change in the organizational structure of the company.

In this report I take a brief look at some of the changes that have occurred at Nestle over the years and the current change due to GLOBE system and the need for it. The structures of the organizational changes that occur at Nestle are discussed in detail.

This process presented challenges for the implementers and Nestle in general since it was met with resistance and delay. This was countered with intensified campaigns to create awareness and lobby for the changes. Finally, an action plan of the change management activities in Nestle is outlined detailed what will be done in each program, who will do it, for how long and the cost to the company.

The Nestle Change Management

Nestle is a multinational company that is involved in manufacturing products, in the nutrition, health and wellness sector. The buzzword in nestle is ‘good food, good life’ which summarizes its mission of providing their consumers with a broad range of food and beverage products for all events that are the best tasting and most nutritious.

Another buzz word for Nestle is ‘creating a shared value’ which Broeckx, (2007) explains means that the corporation creates and pursues long term sustainable value in actions, strategies and processes to all stakeholders be it consumers, communities, shareholders, employees and business partners.

Beside these, are the corporate, business principles where the company outlines its culture, which has been in use for more than 140 years, and are a manifestation of Nestlé’s thoughts on fairness, honesty and long-term thinking (Nestle, 2011).

The company was founded in 1866 by a Swiss national, Henry Nestle in Vevey, in Switzerland. During this time, marketing of products outside the country was through sales agents. This, however, changed in 1900s when the company started buying subsidiaries in foreign countries. In America, the company launched its products after the First World War in response to increased demand for dairy products.

This was done through acquisition of existing factories, and soon after the Second World War, many executives in the Vevey headquarters were transferred to the country. These moves were part of the changing strategies to increase efficiency and productivity for the company (Douglas & Craig, 2009).

The first major change came in 1974 when the company bought majority shares in the cosmetic giant L’Oreal. This was a well calculated move to increase the company’s growth and diversification. The company was criticized for investing in a company that was debt ridden, but soldiered ahead.

The second major change was in diversifying to the pharmaceutical industry by buying a U. S company, Alcon Laboratories, who were makers of pharmaceutical and ophthalmic products. Many other changes came in the 1980s and 1990s when financial improvement through strategic acquisitions and diversifications.

This necessitated the sale of non-strategic and nonperforming businesses while acquiring others such as the 1984 acquisition of Carnation (Nestle, 2011).

Today the company is continually restructuring its business with an annual budget of $3000 million set aside for this. Nestle CEO, Brabeck-Letmathe says that steady and well calculated change is what Nestle implements and does not do this as a fashion thing but as a well thought long term strategy.

He implemented a complete overhaul of the executive board and replaced them with 10 new executives so as to build on the company’s strength something that has guides the company’s organizational changes. Nestle managers’ commitment is what keeps the company steady with their “steeped in Nestle corporate culture” which orients them to focus on the long term goals of the company rather than short term profits.

This corporate culture also established the company’s major strengths such management of corporate growth and its relation to technology. The executive focuses on strengthening and upholding the company’s strength, as opposed to their completed overhaul (Broeckx, 2007).

The most recent change has been on using and sharing information which gave birth to the Codification-Based Strategy of which nestle chose GLOBE. This connects all Nestle departments around the world, and makes company information accessible to all its employees.

This makes information available to all employees and, therefore, no one is more important than the other due to the information he has that others do not have. Information is power, as it allows communication flow between people in the company. However, in order to access specific information or data, one fills request form.

This means employees should be taught how to access and use this information. This also requires a change in the way communication is carried out in the company since the current model could not support the change in information sharing (Nestle, 2010).

The nature of change

As we have seen above, in order for an employee to access specific information or data, one fills request form. This means employees need to be trained on how to access and use this information. Further, the old organizational structure has to go, which in this case was the top-down approach.

Top-down organizational structure used in Nestle had several limitations; professional development followed a vertical manner within a function which does not encourage networking, communication is done through the ranks which do not encourage contribution from employees, cooperation was shadowed by competition and the obedience orientation which discourages initiative (Broeckx, 2007).

This change in the organizational structure will need management strategies to allow employees to cope with change and contribute to the organization’s goals as they are now empowered.

The organizational structure changes that were implemented in Nestles the structurally changing processes approach that involved making substantial changes to the existing organizational structure. This meant that every employee will be oriented to focus on the changes introduced by GLOBE.

This is in line with the corporate ‘Untouchables’ or strong points of the company that focuses on strengthening its strengths and the role of technology in the company. The GLOBE system was meant to improve productivity, efficiency and increase the quality of customer care services, therefore, need to position the organizational structure to meet these needs (Chaudron, 2006).

The structural approach to managing change was implemented by forming steering committees of senior managers to appoint a multidisciplinary team that will design which actions to be taken in order to realize the goal of the company using this new change in information access.

The team assessed the culture of the company, the system used, and the conditions prevailing in the company and came up with recommendations for action which were reported to the committee of senior managers.

The recommendations focused on things such as self-directed work teams, pay for information and restructuring the company away from traditional roles to focus more on the products, customers and geographical point of reference (Management Decisions and Research Center, 2000).

The advantages with this structure as explained by Chaudron, (2006) are that major issues arising in the company are dealt with upfront as opposed to being postponed to the next meeting or such, some aspects of the company such as direct communication flow from marketers to production and finance department improved the productivity of the company and showing the employees that the company really wanted to change the way the company is run.

The disadvantage is that too much information was being revealed to employees and managers felt as if they were losing their bearing or that their power was being taken away from them (Durant, 2008).

Change structures

A traditional hierarchical, pyramidal organizational structure is what existed in Nestle before the GLOBE system was introduced. This system cannot function effectively and efficiently in such a structure. In order for nestle employees to match their goals with that of the company, share ideas with the management, act proactively and collaborate in making the goals of the company realistic, this structure had to change.

Furthermore, the new system of sharing information required highly skilled and informed employees who will no longer need to be supervised. An organizational structure named ‘Nestle for the future’ was implemented (Chaudron, 2010).

This structure focused on addressing four things that were identified as an impediment to organizational management; align employees’ goals with those of the company, utilizing employees’ insight and action, enhancing cooperation and encouraging employees to be proactive.

To divert the employees towards a performance way of life, a program with five parts was then formulated. These programs were implemented simultaneously (Cummings & Worley, 2008).

The flat and flexible structures

This involved dismantling the pyramidal structure and replacing it with a non-pyramidal structure that focused on networking between management and employees. This reviewed structures and retained fewer hierarchical levels worldwide that allowed flexibility and quickness in responding to issues while still sustaining its growth (Cummings & Worley, 2008).

Inspiring management

A review of how management related with its staff showed that action was needed to encourage contributions and cooperation from the staff. This had to start from the way management saw the staff and in regard to this two programs were developed; Nestle leadership program and the grow people program.

Nestle leadership program

The leadership program was done on four bases. These include change had to start with leadership at the top level managers needed to accept they can improve, outsourcing for the program providers and program to be based on feedback from those working close to the managers, colleagues, superiors and subordinates (Carley & Hill, 2009).

Grow people initiative

This involved changing how people were assessed. These new developments were on the basis of cooperation, promotion of personal development and sharing of the information. This changed the way managers assessed by people by just ‘judging’ them as if they are not involved themselves to making them committed developers of people.

A progress and development was introduced for this purpose. The traditional rating model, which focuses on the past rather than the future, was abandoned (Pries-Heje, 2005).

Long-term development

This was aimed at developing long-term careers not in the previous silo thinking model but in developing talents, and skill in a structure which is flexible and responsive to specific talents of skills. Previously careers moved in a vertical manner within one function which was not sensitive to talents and geographical integration.

This was made possible by the network structure, and a talent pool was established which has more than 2000 names from across the globe (Broeckx, 2007).

Dynamic compensation

The new career paths were important, to achieve this, the flattened organization was structured through creation of a new remuneration model. This model allows staff to raise their salaries without the need for promotion.

This involved laying down concrete measures for measuring pays and compensations which encompass not only past achievements but also long term incentives. In addition to this, a long-term incentive plan was introduced (Broeckx, 2007).

Lifelong learning program

This program involved ensuring continuous education and learning experiences for employees which is very important in the ‘Nestle for the future’ strategy. This is in line with nestles philosophy of continuous learning (Cummings & Worley, 2008).

Challenges in the Nestle Change Management

Resistance to change by some managers was a major challenge the ‘nestle for the future encountered where some managers had problems with various aspects of the program. The elimination of the rating system for staff to be replaced by the progress and development guide was too much for them.

They argued that, rating employees drive performance, but Nestle is for long term growth not short tern profits. Those that were unable to cope with this quit, while others were given early retirement. It, however, slowed down implementation of the program in some regions. The program was eventually embraced wholly when it benefits were understood and working become more exciting (Broeckx, 2007).

Delay in program implementation was experienced. This was caused by the managers resisting the changes that were introduced. Though various aspects of this program were meant to run simultaneously, this was delayed for close to two years as the program was viewed with a lot of skepticism and others felt threatened by the changes.

The steering committee composed of the senior managers and the team of employees carried out a vast campaign which included visiting different regions and affiliates and giving presentations on the changes and the benefits to be accrued besides other forms of communication.

The Progress and Development Guide, which had brought a lot of issues was put on the website and operated there so as to aid its implementation (Cummings & Worley, 2008).

The unwillingness of the management to share their skills and gifts with other regions, functions and businesses was an impediment that was encountered in the process of implementing the process. In the flat and more flexible model, networking is the core word which means increased communication and sharing of information between the above.

This took three years to see anything substantial which delayed the long-term learning aspect of the program. Communication was intensified through various channels until people were comfortable with the program (Carley & Hill, 2009).

Action Plan

Reference List

Broeckx, P., 2007. Perspectives for Managers. In R. Hooijberg, J. Hunt, J. Antonakis, & K. Boal, Being There Even When You Are Not:Leading Through Strategy, Strctures and Systems (pp. 96-106). United States of America: IMD International.

Carley, K., & Hill, V., 2009. Structural Change and Learning Within Organisations. United States of America: Carnegie Mellon University.

Chaudron, D., 2010. Begin at the beginning in organizational change. Organized Change Consultancy. Web.

Chaudron, D., 2006. Organized Change: A Tale of Three Vilages: Approoaches to Implementing Organisational Change. The Business Forum , 43-48.

Cummings, T., & Worley, C., 2008. Institutionalizing Structural Change at Hewlett Packard. In T. Cummings, & C. Worley, Organisational Development and Change (pp. 208-216). United States of America: Cengage Learning.

Douglas, S., & Craig, S., 2009. International Brand Architecture: Development, Driver and Design. New York: New York University.

Durant, M., 2008. Managing Organisational Change. United States of America: CCE, CPA.

Kezar, A., 2001. Understanding and Facilitating Organizational Change in the 21 st Centuary: Recent Research and Conceptualizations. United States of America: john Wiley & Sons.

Management Decisions and Research Center., 2000. Organisational Change. Washington, DC: Department of Veteran Affairs.

Nestle ., 2010. Current Situation. Web.

Nestle., 2011. History . Web.

Pries-Heje, J., 2005. eGovernment and Structural Reform on Bornholm: A Case Study. Electronic Government: 4th International Conference (pp. 124-145). Coppenhagen: university of Coppenhagen.

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7 Types of Organizational Structures +Examples, Key Elements

• Published March 15, 2022
• Updated: July 13, 2024

Organizations of all sizes require an established, organized structure to drive business outcomes. However, not all companies function best with a traditional, hierarchical organizational structure.

A lack of organizational structure (or choosing the wrong type of structure) leads to miscommunication, work delays, poor process flows, tepid employees, and other serious consequences that stunt business growth. In contrast, a robust organizational structure enables employees to coordinate teamwork, understand their tasks and responsibilities, reduce conflicts, and boost productivity. 

How do you design an organizational structure that’s right for your company? 

What are common types of organizational structures?

• Functional structure
• Divisional structure
• Matrix structure
• Team structure
• Network structure
• Hierarchical structure
• Flat organization structure

What Is Organizational Structure?

Organizational structure is the backbone of all operating procedures and workflows at any company. It determines each employee’s place and role in the business and is key to organizational development .

A clear structure allows every team member to be involved. When employees know what they’re responsible for and who they report to – which isn’t the case in many fast-growing companies – they’re more likely to take ownership of their work. 

Having a documented organizational structure in place enables employes to improve efficiency and provides clarity for each individual employee and business unit. With this clarity, departments can become more focused on how their actions and goals drive business outcomes.

To build an org structure, you need to consider your business size, life cycle, goals, and positioning. Apart from considering the current environment your company operates in, you should also think of where you want to see the organization in five years, a sign of organizational health .

6 Types of Organizational Change, Explained

The People, Process, Technology (PPT) Framework

The McKinsey 7-S Model Framework, Explained (2024)

Basic Elements of Organizational Structure Design

An organizational structure is based on a range of elements, including:

Work specialization

• Departmentation

Chain of command

Span of control.

• Centralization/Decentralization

Formalization

Work specializations define how responsibilities are split between employees based on the job description. It’s used to split projects into smaller work activities and assign digestible tasks to individual employees. The most common results of improper specialization are low efficiency and burnout.

Documentation

Documentation is an act of grouping specialists on the basis of the job description, skills, location, or other factors that connect them. 

The biggest challenge is choosing the criteria for departmentation. In many cases, it’s no more enoug h to apply functional departmentation – where employees are grouped based on the tasks they perform. Startups often go for matrix departmentation that involves combining two types of departmentation and takes the best out of both worlds. For instance, functional departmentation can be joined by geographical departmentation to better serve clients in different locations.

Chain of command represents a system for passing instructions and reporting within an organization. Ideally, it distributes the power, supports knowledge sharing , and encourages employee accountability .

The traditional chain of command makes decision-making more complex and does not allow for much flexibility. On the contrary, modern approaches strive to enhance employee autonomy and avoid micromanagement.

Span of control regulates the number of direct reporters managed by a single supervisor. It heavily depends on the three aforementioned elements of organizational structure. Furthermore, to identify the right span of control, you need to evaluate your leaders’ capacity, workplace size,  and experience level of employees.

Centralization and decentralization

Centralization and decentralization are the concepts defining how managers, as well as employees, give input on company goals and strategy. While centralization gives leaders the ultimate control over decision-making processes, decentralization allows employees to impact business decisions. 

Formalization determines to which extent business processes, policies, and job descriptions are standardized. It may regulate communication between employees and managers, workplace culture, operational procedures, etc.

Centralized vs. Decentralized Organizational Structures

All organizational structures are either centralized or decentralized. When designing an organizational structure, leaders must decide which is best for your company. Here are the differences between the two:

Centralized organizational structure

In a centralized organizational structure, decisions are made by high-level managers and are distributed down the chain of command. 

Centralized organizational structures have a range of advantages, like clear responsibilities, better process governance , and a straightforward chain of command. It places decision-making responsibilities on leadership who can foresee the long-term impact of important decisions.

The biggest drawback of a centralized organizational structure is the time the decision-making process takes in large companies. For example, individual team managers must run requests up the chain of command before going forward.

For GTM and customer-facing teams, this can slow down the customer experience, resulting in missed opportunities and poor service. It can also hamper companies’ ability to innovate, with centralized organizations being less agile and nimble than decentralized ones.

Often, it’s recommended that early-stage startups and small businesses designed a centralized organizational structure. 

Decentralized organizational structure

In a decentralized structure, lower-level employees identify issues and make decisions without the need to communicate them up the chain of command to upper management. Greater autonomy empowers employees to take action, eliminating process delays, enabling employees with confidence to make decisions, and driving growth.

Even in decentralized organizations, clear hierarchies still exist. The c-suite, directors, and other leadership roles still operate at a higher capabilities than new and entry-level employees. However, teams can make decisions without approval from centralized leadership, allowing them to act fast and take ownership of their areas of expertise.

This type of structure is common for f ast-growing companies, companies with regional markets, and emerging industries. A decentralized structure makes it more accessible for employees to navigate different roles and work on what’s most impactful at that time in a company’s lifecycle.

7 Types of Organizational Structures

The key purpose of any organizational structure is to make decision-making processes straightforward and provide clear definitions for roles and responsibilities. However, there are many ways to achieve that.

Let’s look at seven common types of enterprise organizational structures to help you decide what’s best for your company and its various departments and teams.

1. Functional structure

A functional structure groups employees into different departments by work specialization. Each department has a designated leader highly experienced in the job functions of each employee supervised by them.

Most often, it implements a top-down (centralized) decision-making process where department managers report to upper management. Ideally, leaders of different teams communicate regularly and coordinate their strategies while lower-level employees have little idea of the processes taking place outside their department.

The main challenge companies with a functional structure face is the lack of coordination between departments. Employees may lose the larger company context when focusing on very specific tasks and failing to interact with members of other departments. 

To create a functional organizational structure that works, you’ll need to train leaders to foster collaboration across departments.

Examples of organizations with a functional structure include: Amazon, Starbucks.

• Operational efficiency.
• Encourages employees to specialize their skillsets.
• Empowers employees to focus on their specific role and responsibilities.
• Empowers teams and departments with clear, specific goals that they can work towards. 
• Leads to poor cross-department communication.
• Builds silos.
• Creates obscure roles, processes, and workflows that are company or industry-specific.

2. Divisional structure

A divisional structure organizes employees around a common product or geographical location. Divisional organizations have teams focused on a specific market or product line.

Examples of companies applying a divisional structure are McDonald’s Corporation and Disney. These brands can’t help but split the entire organization by location to be able to adjust their strategies for audiences representing different markets.

These smaller groups are relatively independent and mainly follow a decentralized framework. Still, the leaders of each department are likely to operate under centralized corporate management. It means that company culture is dictated by top management, but operational decisions can be made by each division independently.

Giants such as McDonald’s and Disney also add functional units to their structure for better control.

Examples of organizations with a divisional structure include: Disney, GM, McDonalds.

• Understand individual markets better.
• Promotes flexibility.
• Faster responses to changes or needs that are locality or regional-based.
• Autonomous approaches lead to team experimentation and allow organizations to test multiple strategies, driving innovation.
• Duplication efforts.
• Poor documentation.
• Lack of organizational communication.
• Departments compete against one another.
• Lack of hierarchy understanding.

3. Matrix structure

Within a matrix organizational structure, team members report to several managers at once. Wait, what’ s the point?

Having multiple supervisors allows for company-wide interaction and faster project delivery. For instance, when answering to functional managers and project managers, employees have a chance to collect experience outside their team. While functional managers can help to solve job-specific issues, project managers can bring in knowledge or talents from other departments.

If you go after a matrix organizational structure, you’ll need to find a way to avoid authority confusion and prevent conflicts between managers. 

Examples of organizations with a matrix structure include: Caterpillar, Phillips, Texas Instruments.

• Flexibility to pull employees into more important projects at will.
• Empowers employees to build and test skillsets outside of their pre-determined roles.
• Faster project deliverables.
• Often leads to conflicts among leaders and managers.
• Confusion on authority.
• Frequency of change.

4. Team structure

A team-based organizational structure creates small teams that focus on delivering one product or service. These teams are capable of solving problems and making decisions without bringing in third parties.

Team members are responsible for managing their workload and have full control over the project. Team-based organizations are distinguished by little formalization and high flexibility. This structure works well for global organizations and manufacturers.

Examples of organizations with a team-based structure include: Apple, Cisco, Google, Whatfix.

• Drives growth and innovation.
• Promotes lateral career moves. 
• Provides experiences across departments and teams.
• Experience is valued over seniority.
• Less emphasis on management.
• Is more agile.
• No clear authority.
• Career path growth is not clear.
• Not formalized.

5. Network structure

A network structure goes far beyond your internal company structure. It’s an act of joining the efforts of two or more organizations with the goal of delivering one product or service. Typically, a network organization outsources independent contractors or vendors to complete the work.

In a network organization, teams are built from full-time employees as well as freelance specialists – this way, in-house workers can spend most of their time focusing on the work they specialize in. Such an approach allows companies to adapt to market changes and obtain the missing skills fast.

Working with individuals that aren’t integrated into your company culture results in lower formalization and higher agility.

Examples of organizations with a network structure include: Dow Chemical, H&M, IBM

• Promotes organizational agility and flexibility.
• Fosters collaboration across employees.
• Breaks down silos.
• Cultivates better understanding of industry, products, and customers.
• Creates a web of work-related relationships.
• Creates highly-specialized skillsets in employees.
• Extremely complex and convoluted.
• Lower formalization.
• High turnover.
• Feeling of inequality between full-time employees and contractors/freelancers.
• Difficult to know who has final approval.

6. Hierarchical structure

You must already have an idea of what a hierarchical structure is. It’s the most common organizational structure type that follows a direct chain of command.

A chain of command, in this case, goes from senior management to general employees through a range of executives on the departmental and team level. The highest-level executive has the highest power over the decision-making process.

On one hand, this structure enables organizations to streamline business processes, develop clear career paths, and reduce conflicts. A company hierarchy leaves no place for challenging managers’ authority, which can be good in some cases. 

On the other hand, a hierarchical structure slows down decision-making and may hurt employee morale.

Examples of organizations with a hierarchical structure include: Amazon, Sony

• Obvious chain-of-command.
• Clearly defined reporting structure and individual responsibilities.
• Sets clear career path growth.
• Builds niche skills and specialities.
• Departments and teams create a sense of “we’re in this together”.
• Bureaucracy, processes, and red-tape slow down innovation.
• More resistant to change .
• Employees focus on department goals and KPIs over what’s actually most important for the company.
• Employees at the bottom of the org structure feel like they don’t have an impact.
• Feeling that there is no place to challenge authority.

7. Flat organization structure

In a flat organizational structure, there are few middle managers between employees and top managers. The structure requires less supervision, increases employee involvement, and boosts trust in the workplace.

Due to its simple nature, a flat organization structure, also called a “flatarchy”, is typically used by small businesses and startups.

Examples of organizations with a flat structure include: Value, most small businesses.

• More responsibility for employees.
• Open communication.
• Clear path of approval.
• Implementation happens fast.
• Not scalable.
• Relies on one person to be the decision-maker.
• Leads to employees with generalized skillsets, with a lack of specializations.

Is It Possible to Change an Organization's Structure?

Of course, organizational design can be reconstructed if needed. The business landscape is constantly evolving, and keeping to a structure that has worked for years might simply become inefficient. 

To adapt to market changes, you might need to resort to organizational transformation which affects not only your strategy but also the structure. Whether you want to build an organizational structure from scratch or want to revisit the existing one, you’ll need to get down to the basics.

How to Design Your Organization’s Structure

Whatever structure you choose, you’ll need to make an effort to implement it. Here are eight simple steps towards designing an organizational structure from scratch.

1. Create a charter

First of all, you need to prepare documentation.

You need a project charter outlining the purpose of building a clear structure, key stakeholders, and their responsibilities. This is your rough plan for implementing an organizational structure that should give you a direction for your next steps.

When creating a charter, you’ll be able to answer the following questions:

• Why do we need to design (or re-design) an organizational structure?
• When do we start?
• Who are the key stakeholders in this project?
• What should we do first?
• Where is the company headed? Will our organizational structure be relevant in a year?

2. Build your strategy

To build a structure from scratch, you’ll need to start by outlining a long-term strategy and mapping out goals. Your future vision of your company determines which type of organizational structure will work best for you.

3. Assess your internal processes & systems

If your business has already been operating for quite some time, take a look at your current strategy and try to highlight the areas of improvement. Do you need to revisit your core ideology and company culture? You can only answer this question by talking to your employees and managers.

When you know where you stand and have a clear vision of what you want to achieve, creating an organizational direction shouldn’t be a problem.

4. Design your structure

A clear understanding of your company’s strategy lets you filter out irrelevant organizational structure types and pick the one that fits with your core values, mission, and goals.

Choose one of the seven organizational structures and use it as a template for designing a custom organizational chart. This chart is also known as an organogram  – it’s a diagram used to visualize the relationships between individuals, teams, and departments within an organization

5. Create a transition plan

Next, it’s time to design an optimal workflow for implementing or switching to a new structure. 

Talk to the stakeholders and decide on the deadlines for establishing a brand new organizational structure. Prepare a list of recommendations for top managers and team leaders that will help to communicate the change to the rest of the organization.

6. Implement your new structure

From there, leaders should create an implementation plan that includes training their teams to adopt new roles and skills, as well as how to follow a new decision-making and reporting framework. Week by week, employees will become accustomed to their new organizational structure and adapt to the change . 

7. Monitor the impact

The transition process might take months, and it’s very likely that the performance of individual employees or even entire teams will go down at some point. However, you can assess the impact of a new structure in action only after the transition is complete.

With a new organizational structure in place, run the performance review and talk to executives. It’s important that you monitor the contribution of each individual department – chances are the changes don’t work equally well for everyone at the company.

8. Gather feedback & improve

Again, once you implement an organizational structure, it’s never too late to make adjustments. Alongside performance checks, survey your employees to learn how they feel about a new structure. It can be that their input will help you fine-tune the organizational design without extra cost and effort.

Ready to learn more about building healthy, innovative organizations? These resources can help:

• Types of Organizational Change
• Overcoming Resistance to Change
• Employee Training Methods
• Digital Transformation Challenges

Request a demo to see how Whatfix empowers organizations to improve end-user adoption and provide on-demand customer support

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7 Organizational Structure Types (With Examples)

Updated: May 29, 2024, 5:39pm

Table of Contents

What is an organizational structure, 4 common types of organizational structures, 3 alternative organizational structures, how to choose the best organizational structure, frequently asked questions (faqs).

Every company needs an organizational structure—whether they realize it or not. The organizational structure is how the company delegates roles, responsibilities, job functions, accountability and decision-making authority. The organizational structure often shows the “chain of command” and how information moves within the company. Having an organizational structure that aligns with your company’s goals and objectives is crucial. This article describes the various types of organizational structures, the benefits of creating one for your business and specific elements that should be included.

Employees want to understand their job responsibilities, whom they report to, what decisions they can and should make and how they interact with other people and teams within the company. An organizational structure creates this framework. Organizational structures can be centralized or decentralized, hierarchical or circular, flat or vertical.

Centralized vs. Decentralized

Many companies use the traditional model of a centralized organizational structure. With centralized leadership, there is a transparent chain of command and each role has well-defined responsibilities.

Conversely, with a decentralized organizational structure, teams have more autonomy to make decisions and there may be cross-collaboration between groups. Decentralized leadership can help companies remain agile and adapt to changing needs.

Hierarchical vs. Circular

A hierarchical organization structure is the pyramid-shaped organization chart many people are used to seeing. There is one role at the top of the pyramid and the chain of command moves down, with each level decreasing in responsibilities and authority.

On the other hand, a circular organization chart looks like concentric circles with company leadership in the center circle. Instead of information flowing down to the next “level,” information flows out to the next ring of management.

Vertical vs. Flat

A vertical organizational chart has a clear chain of command with a small group of leaders at the top—or in the center, in the case of a circular structure—and each subsequent tier has less authority and responsibility. As discussed below, functional, product-based, market-based and geographical organizational structures are vertical structures.

With a flat organization structure, a person may report to more than one person and there may be cross-department responsibilities and decision-making authority. The matrix organizational structure described below is an example of a flat structure.

Benefits of Creating an Organizational Structure

There are many benefits to creating an organizational structure that aligns with the company’s operations, goals and objectives. Clearly disseminating this information to employees:

• Provides accountability
• Clarifies expectations
• Documents criteria for promotion
• Designates decision-making authority
• Creates efficiency
• Fosters collaboration

Essential Elements of Clear Organizational Structure

Regardless of the special type of organizational structure you choose, it should have the following components:

• Chain of command
• Roles and responsibilities
• Scope of control
• Decision-making authority
• Departments or teams within the organization

Functional/Role-Based Structure

A functional—or role-based—structure is one of the most common organizational structures. This structure has centralized leadership and the vertical, hierarchical structure has clearly defined roles, job functions, chains of command and decision-making authority. A functional structure facilitates specialization, scalability and accountability. It also establishes clear expectations and has a well-defined chain of command. However, this structure runs the risk of being too confining and it can impede employee growth. It also has the potential for a lack of cross-department communication and collaboration.

Product- or Market-Based Structure

Along with the functional structure, the product- or market-based structure is hierarchical, vertical and centralized. However, instead of being structured around typical roles and job functions, it is structured around the company’s products or markets. This kind of structure can benefit companies that have several product lines or markets, but it can be challenging to scale. It can also foster inefficiency if product or market teams have similar functions, and without good communication across teams, companies run the risk of incompatibility among various product/market teams.

Geographical Structure

The geographical structure is a good option for companies with a broad geographic footprint in an industry where it is essential to be close to their customers and suppliers. The geographical structure enables the company to create bespoke organizational structures that align with the location’s culture, language and professional systems. From a broad perspective, it appears very similar to the product-based structure above.

Process-Based Structure

Similar to the functional structure, the process-based structure is structured in a way that follows a product’s or service’s life cycle. For instance, the structure can be broken down into R&D, product creation, order fulfillment, billing and customer services. This structure can foster efficiency, teamwork and specialization, but it can also create barriers between the teams if communication isn’t prioritized.

Matrix Structure

With a matrix organizational structure, there are multiple reporting obligations. For instance, a marketing specialist may have reporting obligations within the marketing and product teams. A matrix structure offers flexibility, enables shared resources and fosters collaboration within the company. However, the organizational structure can be complex, so it can cause confusion about accountability and communication, especially among new employees.

Circular Structure

Similar to the functional and product-based structure, a circular structure is also centralized and hierarchical, but instead of responsibility and decision-making authority flowing down vertically, responsibility and decision-making authority flow out from the center. A circular structure can promote communication and collaboration but can also be confusing, especially for new employees, because there is no clear chain of command.

Organic Structure

Unlike vertical structures, this structure facilitates communication between and among all staff. It is the most complex, but it can also be the most productive. Although it can be challenging to know who has ultimate decision-making authority, it can also foster a positive company culture because employees don’t feel like they have “superiors.” This structure can also be more cost-efficient because it reduces the need for middle managers.

There is no one “right” organizational structure. When deciding which structure will work best for your company, consider the following:

• Current roles and teams within the company. How are job functions currently organized? Does it foster communication and productivity? Does it impede or encourage employee growth?
• Your strategic plan. What are your company’s goals for the short-term and long-term?
• Feedback from employees, leadership and other stakeholders. What do those within your company say about how the company is structured? What feedback do you have from other stakeholders, such as customers and suppliers?
• Alignment. What structure will best support your strategic plans and address any feedback received?

What is the most common organizational structure?

A functional organizational structure is one of the most common organizational structures. If you are still determining what kind of structure to use, this organizational structure can be an excellent place to start.

What is the difference between an organizational structure and an organizational chart?

An organizational chart is a graphic that depicts the organizational structure. The chart may include job titles or it can be personalized to include names and photos.

What are the four types of organizational structures?

A functional—or role-based—structure is one of the most common organizational structures. The second type—the product- or market-based structure—is also hierarchical, vertical and centralized. Similar to these is the third structure—the process-based structure—which is structured in a way that follows a product’s or service’s life cycle. Lastly, the geographical structure is suitable for businesses with a broad geographic footprint.

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• Case Studies

Case Study Basics

What is a case study *.

A case study is a snapshot of an organization or an industry wrestling with a dilemma, written to serve a set of pedagogical objectives. Whether raw or cooked , what distinguishes a pedagogical case study from other writing is that it centers on one or more dilemmas. Rather than take in information passively, a case study invites readers to engage the material in the case to solve the problems presented. Whatever the case structure, the best classroom cases all have these attributes: (1)The case discusses issues that allow for a number of different courses of action – the issues discussed are not “no-brainers,” (2) the case makes the management issues as compelling as possible by providing rich background and detail, and (3) the case invites the creative use of analytical management tools.

Case studies are immensely useful as teaching tools and sources of research ideas. They build a reservoir of subject knowledge and help students develop analytical skills. For the faculty, cases provide unparalleled insights into the continually evolving world of management and may inspire further theoretical inquiry.

There are many case formats. A traditional case study presents a management issue or issues calling for resolution and action. It generally breaks off at a decision point with the manager weighing a number of different options. It puts the student in the decision-maker’s shoes and allows the student to understand the stakes involved. In other instances, a case study is more of a forensic exercise. The operations and history of a company or an industry will be presented without reference to a specific dilemma. The instructor will then ask students to comment on how the organization operates, to look for the key success factors, critical relationships, and underlying sources of value. A written case will pre-package appropriate material for students, while an online case may provide a wider variety of topics in a less linear manner.

Choosing Participants for a Case Study

Many organizations cooperate in case studies out of a desire to contribute to management education. They understand the need for management school professors and students to keep current with practice.

Organizations also cooperate in order to gain exposure in management school classrooms. The increased visibility and knowledge about an organization’s operations and culture can lead to subsidiary benefits such as improved recruiting.

Finally, organizations participate because reading a case about their operations and decision making written by a neutral observer can generate useful insights. A case study preserves a moment in time and chronicles an otherwise hidden history. Managers who visit the classroom to view the case discussion generally find the experience invigorating.

The Final Product

Cases are usually written as narratives that take the reader through the events leading to the decision point, including relevant information on the historical, competitive, legal, technical, and political environment facing the organization. A written case study generally runs from 5,000 to 10,000 words of text supplemented with numerous pages of data exhibits. An online raw case may have less original text, but will require students to extract information from multiple original documents, videos of company leaders discussing the challenges, photographs, and links to articles and websites.

The first time a case is taught represents something of a test run. As students react to the material, plan to revise the case to include additional information or to delete data that does not appear useful. If the organization’s managers attend the class, their responses to student comments and questions may suggest some case revisions as well.

The sponsoring professor will generally write a “teaching note” to give other instructors advice on how to structure classroom discussion and useful bits of analysis that can be included to explicate the issues highlighted in the case study.

Finally, one case may inspire another. Either during the case writing process or after a case is done, a second “B” case might be useful to write that outlines what the organization did or that outlines new challenges faced by the organization after the timeframe of the initial case study.

* Portions of this note are adapted from E. Raymond Corey, “Writing Cases and Teaching Notes,” Harvard Business School case 399-077, with updates to reflect Yale School of Management practices for traditional and raw cases.