Some of the most common types of organizational design are functional, matrix, product or divisional, customer, and geographic. Each of these is characterized by one primary organizing factor such as location, the nature of the work, or the types of skills a team has. Organizational design can be determined by characteristics such as the nature of the business, workforce culture, and company size.
Functional structure is one of the simplest types of organizational design. Employees are grouped into major work functions, which are then arranged into a hierarchy. Some common categories include finance, marketing, and sales. Each of these categories will typically have an executive lead, managers, and staff. Larger companies may have supervisors who report to the managers, while other staff members report to them.
Divisional or product structure is one of the most complex types of organizational design. It consists of a top executive who oversees several small departments. Rather than having a hierarchy of executives, managers, and staff, the structure consists of highly-specialized groups run by an assortment of managers. While this type of organizational design enables leaders to narrow their focus, there is also the risk of duplicating efforts as there are so many managers dealing with similar issues.
Matrix structure is a combination of the functional and divisional types of organizational design. As with divisional structure, there is a manager or executive responsible for overseeing each category. The hierarchy is similar to functional design because each division has separate teams for each project or major function. For this reason, an employee will typically report to two managers, one who manages the project and another who manages the category. Common categories include finance, sales, and manufacturing.
The customer type of organizational design is determined by the needs of the customer base. A top executive typically oversees several vice presidents, each assigned to a different kind of customer. This enables each department to specialize in a specific type of product or service delivery and its particular challenges.
Geographical organizational design divides departments by location. Typically one executive oversees several different offices that have the resources to run essentially on their own. This type of design is used primarily when geographic differences have an impact on the way a business is run. It relies on managers with specific knowledge of an area to make informed business decisions that could not be made by a corporate group.