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The Top 3 Ways to Structure Your Organization

Summary: How should you structure your organization? Find out the 3 main organizational structures in this article.

Learn about the top 3 ways you can structure your organization.
Q: We're a growing multidisciplinary consulting company based in the Los Angeles area. Until now, we have been growing erratically and things here have gotten confusing. For a company like ours, what type of organizational structure do you recommend?

A: There is no one structure that works for all organizations.

The right organizational structure for your company must be clearly understood by all, easily controlled by management, stable yet adaptable as to grow with your growing company, and most importantly, it must direct the people in your company toward performance and results rather than efforts alone.

Let's talk about three possible organizational structures here:
  • The Functional Structure
  • The Matrix Structure
  • The Knowledge Structure
In a functional structure, you have autonomous functional experts (i.e. Vice Presidents) reporting to a CEO/executive decision-maker. The clear advantage of a functional structure is its clarity. When someone looks at a functional org chart, they clearly understand who reports to whom and what the levels within the organization are. Unfortunately, this clarity on paper does not always translate in clarity of performance, as people functioning within such a structure often have no clue about the bigger picture and how their particular functions are affecting it. A functional structure also has the disadvantage of being rigid and not really allowing for the type of "out of the box" doers that keep a company innovative and lead to successful growth. The functional structure was originally developed in a manufacturing setting and therefore still works best in similar environments.

In a matrix structure, people from various functions throughout the company are split up into different project teams but still bear primary responsibility to their functional manager. The main advantage here is that various functional "experts" converge into teams which create the very products and/or services that will lead to make-or-break performance for the company. On the negative side, however, is the high-maintenance nature of the matrix structure. A matrix structure is highly complicated and unstable. Loyalty to teams is conditional, as the person's primary responsibilities lie under their functional manager. It takes very self-disciplined employees, strong leaders/managers, and excellent project coordination to make a matrix structure successful.

A knowledge/network structure looks similar to a matrix structure, but has one fundamental difference that makes it significantly more stable and effective - unlike a matrix structure where the solid reporting lines go to functional managers and dotted reporting lines go to team leaders, in a knowledge structure the solid reporting line is to team leaders and the dotted reporting lines go to functional managers. In embracing this structure, management guru extraordinaire Peter Drucker likens the functional department as a person's home, but the team as his/her workplace. In the knowledge structure, middle management is replaced by a team headed by a team leader. This team is composed of functional experts, but it is the teams that are making the fundamental recommendations to the executives as opposed to the functional middle managers. The knowledge structure gets right down to the core of the organization, is scalable as the company grows, and can be most effective in achieving superior performance. Like a matrix structure, a knowledge structure also requires people to have great self-discipline. A major disadvantage of such a structure is that without the required self-discipline, teams can develop delusions of grandeur and make decisions beyond their scope which adversely affect the rest of the organization.

In your particular case, I recommend trying to pull off a knowledge structure (that's what consulting is all about, isn't it?) or at the very least a matrix structure. In all likelihood you are probably pursuing a combination of these anyway, as you surely have consulting teams that are implementing solutions for your clients.