Selecting the Appropriate Organizational Structure for your Business

When establishing a new business, the company’s organizational structure has to be the center of attention. The structure has to be decided as per the company’s scope, industry and commercial objectives. Organizational structures have to be as ordered and simply defined as communication flowcharts or algorithms. Inadequately conceived organizational structures will cause inactive, unproductive communication in which executives at various levels will fail to maintain order and efficiency. Discussed below are some of the most common types of organizational structures used by most businesses –

Functional – The functional structure is the most universally applied. It is a flowchart or a set of commands with a high ranking decision making board given the most importance, and with several low level managers overseeing key aspects of the organization such as the human resources or HR department, department for marketing, accounting, etc. All these sub-sectors have to directly report to the board. These sections are administered independently by the department supervisors. This form of organizational structure is easy to understand as businesses and their core functions can be easily compartmentalized. However, if all the responsibilities are not shared and the main executive at the top is incompetent, such a structure can fail and cause frustrating problems for the business in question.

Product – An alternative of the functional structure, this structure is used mainly by larger companies that have a huge capital share in the market. In this structure, a group of the chief administrators sit at the top, while various products are divided into mini-corporations. For instance, Mars Incorporated started off as a global manufacturer of confectionery but subsequently went on to create other departments for pet food, animal care services and other food-related departments. Since products do not depend on each other in such a structure, there is less chance of the entire company failing because of just one particular product.

Customer – For companies that offer services, the customer-based organizational structure is ideal. This is purely an alternative of the product-based structure, in which the various business departments are divided into a specific customer category – for instance, target consumer group, demographic targeting, etc. The supervisors of each department would then report quickly to the company leader at the top. This structure is planned to prevent overlap, mix-ups and redundancies.

Regional – If a conglomerate gets big and attains national or global influence, splitting up the business into regional compartments is the best to go. This is also a form of the functional organizational structure, with the main administrators based in the home country of the business placed at the top of the hierarchy, with the reporting sections being administered by regional managers.

While most companies use some form of the functional organizational structure, it is up to the business executives to understand which structure is best suited to manage the company. Mixing and matching the best factors of each of the aforementioned structures to create a hybrid organizational structure is an ideal way of maintaining structured communication and reduce redundancies.


The organizational structure of a company plays a major role in its success. Some of the most common organizational structures include functional, product-based, customer-based and regional. While the functional structure is the most frequently used, it would be rewarding for companies to opt for a hybrid structure that incorporates the best of each structure.   

Reshali Balasubramaniam

Head of HR, HR Counselor and adviser at and EFutureTech Systems. Submit your resume online and be contacted by prospective employers.

company culture, Development, Employees