Business structure is the way a company is organized internally. There is no single valid organizational structure, but rather different types depending on the company’s objectives.
Business structure is understood as the organization that a company is equipped to function. Each company has an organizational structure that is aligned with its needs and objectives, through which it organizes its activities, its processes and its operation in general.
- The business structure is the framework through which:
- The jobs and departments of the company.
- The different levels of authority and responsibility.
The interaction between the different levels, both the flow of command and the flow of information.
By defining the organizational structure of the company, the parties can know what their role is within the company: each employee knows who their direct manager is and who the different positions are, thus improving internal communication. Furthermore, the business structure facilitates processes within the company and allows responsibilities to be distributed among different departments and positions.
Types of business structure
Broadly speaking, we can speak of centralized organizational structures, which are those in which the management positions stand out above the rest of the members; and decentralized, in which positions delegate responsibilities to intermediate or lower levels. But you can still go into a more detailed classification:
Hierarchical
Based on the principle of hierarchy, in this business structure different departments are established supervised by one or several senior positions, who are the ones who make the decisions.
An advantage of this type of organizational structure is its easy understanding, since authority is perfectly defined; as a drawback, the rigidity of the model, which does not allow subordinates autonomy in decision-making.
It is one of the most widespread organizational structure models, being the most applied in small and medium-sized companies.
Functional
It is one of the most common organizational formulas, in which the company is divided into general functions (administration, logistics, human resources, marketing, etc.) and a section head is placed at the head of each of these departments.
It is a structure in which the specialization of workers prevails and decision-making is decentralized, although this can sometimes mean that employees receive different orders.
Amazon is an example of a company with a functional organizational structure.
By division
In this business structure, the company is organized according to three key elements:
- By products. The organization is divided into groups and each group is responsible for the production of a specific product.
- By geographical areas . In large companies that are active in different geographic areas, each division is responsible for all the company’s products and services in that region.
- By type of clients . The organization specializes and is divided into groups, each focused on solving the needs of a different type of customer.
In a company whose structure is organized by division, each of these divisions will have its own departments (for example, production, sales, administration, marketing, etc.).
Inditex would be an example of a divisional business structure by products (business units): Zara, Bershka, Massimo Dutti, etc. Coca-Cola, for its part, would exemplify a divisional business structure by geographic areas (Coca-Cola Europe, Latam, Asia Pacific, etc.).
Matrix
This type of business structure is a combination of functional and divisional structures, as jobs and departments are classified according to functions on the one hand and divisions on the other. In this way, each employee is part of two chains of command: that of their functional department and that of the division (normally by geographical area).
In this structure, decision-making and the transmission of information is faster, but difficulties or conflicts of competence may also arise due to the presence of two authorities.
The matrix organization system can also be applied when the company wants to organize itself for specific projects, in which people report to two supervisors, the functional department and the project department.
The multinational Nestlé is an example of a matrix business structure, as it has a decentralized organization, both by countries and by projects, networking and a responsible leader at the head of each team.
New business structure models
These four would be the most common typologies of business structures, but in recent times other formulas for the internal organization of companies have emerged. For example:
- Horizontal structure or flat hierarchy , in which the hierarchy within the company is softened, since the majority of the company’s middle management is eliminated, favoring a direct relationship between the higher management and the employees, who enjoy greater capacity for initiative and responsibility. This is the organizational structure model that many start-ups opt for.
- Linear or staff , which combines direct authority relationships with advice from professionals external to the company. A small company that transfers some of its tasks (accounting advice or computer maintenance, for example) to outside personnel would be the clearest example.
Each company chooses its business structure based on its business model and objectives.