The 8 Types Of Organisational Design
If you’ve invested a great deal of time and effort in hiring the best talent and setting clear goals for your company, it’s just as important to structure your organisation effectively.
Whether you’re a small business or a large corporate enterprise, organisational design matters. It’s how your business connects people, teams and work together to ensure things get done. Get that structure right, and your employees will have clarity on who does what, how work flows, and how everyday operational decisions align with your business goals.
We’ve listed out eight common types of organisational design to help you determine which structure might best fit your business today and in the future as it evolves.
Overview
Classical Organisational Designs
Most large companies typically adopt a tried-and-tested, traditional organisational structure with a classic organisational chart on the wall, clear reporting lines and a clear hierarchical structure. Though these designs bring order, you risk creating silos if you don’t manage them carefully.
1. Functional Structure
A functional structure groups employees by their specific functions or roles, like the finance, marketing, operations and human resource departments. This organisational design is neat, tidy and familiar, especially in established organisations and government.
Advantages Of Functional Structure
These are the common benefits of adopting a functional structure.
Clear home base: Employees know and understand their department, manager and career path.
Comprehensive knowledge and expertise: A team quickly develops shared skills and knowledge when they work together on the same functions.
Efficient training and development: The organisation can offer professional development for a team of people doing similar work with just one training program.
Good for stability: Functional structure is an effective approach in a business environment that doesn’t experience rapid and frequent change.
When you bring these benefits together, they show that a functional structure can provide strength to businesses that value clarity, qualified expertise and steady performance. From a people and wellbeing perspective, guidance such as Safe Work Australia’s resources on good work design also reinforces how thoughtful structures can support performance and healthy, sustainable work.
Disadvantages Of Functional Structure
Although a functional structure may be compatible with most corporations and government departments, it won’t be the best approach for everyone. These are some potential drawbacks that this particular organisational design might create for some businesses:
Insular thinking: Areas of the business can fall into the trap of focusing on their own goals, rather than those of the entire business. Siloed thinking stops the department from seeing the bigger picture.
Slow decision-making: As work moves through multiple departments and managers, important decisions that need to be made can significantly slow down.
Handballing between departments: Clients and customers can get shifted from one department to another because “that’s not our area”.
Innovative thinking can stall: Employees tend to stay in their familiar lane instead of thinking broadly, which often leads to a drop in innovation.
If you identify these patterns as commonplace within your business, it may indicate that it’s time to rethink your current organisational design. You might find it useful to explore a real-life business restructure case study for inspiration.
2. Divisional Structure
A Divisional structure forms teams based around products, regions or customer groups. Each division within the organisation operates like a mini-business unit, with its own functions inside it.
Advantages Of Divisional Structure
Some businesses may gain a lot by adopting a divisional structure in these ways.
Closer to customers: As the business divisions concentrate on a particular product, region or market segment, they may have the opportunity for closer customer interaction and service.
Faster business decisions: Less cross-department workflow issues mean crucial decisions can be made faster.
Clear accountability: The leaders of each division take ownership of the results for their part of the business.
A divisional structure is also useful for large organisations with a vast range of products, services or geographies.
Disadvantages Of Divisional Structure
As a type of organisational design, the divisional structure may present some disadvantages for some businesses:
Duplicated effort: The structure can see numerous divisions repeating the same functions and systems.
Culture clashes: Multiple divisions can make it harder to foster a consistent culture across the whole business.
Uneven share of resources: One division in the organisation may get more attention, and therefore more resources, than other areas of the business.
Healthy competition between divisions can also slide into unhealthy rivalry if the divisional structure isn’t well-managed.
3. Matrix Structure
A Matrix structure places two structures on top of each other. Employees report to both a functional manager and a project manager or product leader at the same time.
Advantages of Matrix Structure
For the right businesses, these can be common advantages that come with adopting a matrix structure:
You have the option of flexible use of talent across various projects, locations and business units.
A matrix structure naturally encourages collaboration, with employees often working with multiple teams and leaders.
It’s a good approach for complex organisations that require specialist depth and agility.
Project managers also benefit from the direct access to expertise they get from different departments.
Drawbacks of Matrix Structure
Like the other types of organisational design we’ve explored, the Matrix structure also presents possible disadvantages.
Reporting to two managers can cause problems, especially if there are conflicting instructions or miscommunication.
The structure can force additional meetings and coordination to maintain alignment between everyone in the matrix.
Employees can feel stretched between priorities and deadlines.
In order to work successfully, the Matrix structure ultimately requires strong communication and decision-making discipline.
Modern And Adaptive Organisational Designs
The next three types of organisational design structures take a different approach. They’re built around the understanding that, for some businesses, work is not so much about ticking boxes on a chart or checklist and more about teams of people solving real problems for clients.
Modern and adaptive organisational designs concentrate on versatility, collaboration and employee empowerment. There are certainly clear structures still in place, but these structures allow for flexibility when markets change or customer needs evolve.
4. Team-Based Structure
A team-based structure groups the employees of the business into cross-functional teams that own a problem or outcome, rather than just a task.
The Pros Of Team-Based Structures
A team-centric organisational design offers several compelling benefits:
Solving problems becomes faster as team members draw on their unique skillsets to work together.
Stronger ownership of decisions, with teams taking accountability for outcomes as well as tasks.
Employees build broader skills by working beyond their home department.
A team-based structure can also be highly beneficial for innovation and experimenting with new ideas in the business.
The Cons Of Team-Based Structures
The team-based organisational structure can also cause potential problems for some businesses.
A lack of clarity in reporting lines and authority can lead to confusion among staff.
A shift towards a team-based structure can result in people feeling torn between their team and their original department.
This type of organisational design needs capable leaders to coordinate priorities and manage capacity.
Without suitable alignment, teams can drift away from overall company goals.
5. Network Structure
The network structure maintains a purposely small core organisation, then develops a specially curated ‘ring’ of contractors, agencies and partner organisations around it. The idea is that you’ll call on this extended network to deliver specialist work when and where you need it.
Benefits Of Network Structures
A business that adopts a network structure can benefit in a variety of ways:
The leanness of the core team enables you to scale up or down with ease as needs change.
The business can draw on specialist skills and knowledge without hiring full-time employees.
Network structures facilitate productive collaboration with external experts and innovators.
As a type of organisational design, it’s particularly helpful when your business depends on partnerships and ecosystems.
Challenges Of Network Structures
At the same time, network structures can pose significant challenges to some organisations:
Culture and quality can vary across external partners.
Structurally, it can be harder to keep everyone aligned to a single vision and service standard.
Network structures rely on strong contracts, communication and relationship management.
Employees within a network structure can also feel unsure about which teams or partners they belong to.
6. Modular Organisation
Modular organisations are built from semi-independent units. Each one is responsible for a portion of the value chain, product or service.
Advantages Of Modular Organisations
Businesses that work within a modular organisational structure can benefit in the following ways:
Easy to plug in new modules or switch underperforming ones.
Each module can focus on a clear outcome and customer need.
Helpful when different parts of the business move at different speeds.
Supports experimentation without disrupting the whole organisation.
Combined, these advantages enable modular organisations to become more adaptable, resilient, and ready to seize new opportunities as they arise.
Challenges Of Modular Organisations
On the other hand, modular organisations can also present issues to some businesses. They may find that:
The various facets of the business still need to be on the same page about strategy, values and ways of working.
Integration work can be complex and time-consuming.
The failure of one module can affect the whole service or product.
Leaders must balance autonomy with ensuring all groups adopt shared standards.
Without clear alignment and strong leadership, a modular organisation can quickly shift from being flexible and innovative to fragmented and difficult to manage.
Emerging Organisational Designs
Some organisations of all sizes are looking beyond conventional organisational structures and are instead experimenting with new designs and ways of working.
With a stronger focus on self-management, shared authority and digital-first collaboration, these models won’t suit every organisation. However, they will offer useful ideas that you might apply to your business.
7. Virtual Organisation
A virtual organisation conducts most of its work and business operations online. Employees may work fully remotely, spread across several locations and time zones, with little to no need for a physical office.
Key Features Of Virtual Organisation
Common features associated with a virtual organisation include:
Widespread usage of digital tools for communication, collaboration and workflows.
Hiring from a broader pool of talent, not just concentrated in one city or country.
Flexible work patterns to support work–life balance and inclusivity.
Requires intentional effort to build culture, trust and connection.
When these features are in place and working well, a virtual organisation can be highly efficient and strongly connected.
Advantages And Disadvantages
Though a virtual organisation can lower office costs, broaden access to talent across the world and support flexibility, employees can risk isolation, miscommunication and the blurring of boundaries. To reduce these risks, the organisation's leadership team must implement communication rhythms and set clear expectations so that the structure can foster a sustainable and psychologically safe working environment.
8. Holacracy
A holacratic structure is an alternative organisational design that distributes authority into roles and circles, rather than it being held mainly by a few leaders at the top.
The Core Principles Of Holacracy
Businesses that work within a holacracy follow these principles:
They define roles with clear accountabilities, separate from job titles.
They make decisions in structured meetings rather than relying on an informal hierarchy.
They empower teams to develop and evolve their own ways of working.
They build continuous change into the system so that structures adapt as the organisation learns.
Together, the key principles of holacracy form a living, flexible organisation that distributes authority and enables teams within the business to respond quickly to change.
Advantages And Disadvantages Of A Holacratic Structure
A holacracy, as a chosen organisational design, can present benefits and drawbacks for businesses that take it on board.
For values-driven organisations, holacracy can improve ownership, transparency and responsiveness. At the same time, for some employees more used to a traditional hierarchical structure, transitioning to a holacratic organisational design can feel complex.
Not every company has the want or the ability to fully adopt holacracy. Many will simply borrow elements, such as clearer role definitions or more participative decision-making.
Common Factors That Influence Organisational Design
Ultimately, there is no single “best” organisational design. Context, strategy and the people will determine which structure is the most appropriate choice for your business. But the best choice should align with why you exist and where you’re heading.
External factors like market change, regulation, competition, technology and customer expectations all shape what will work. Equally as important are internal factors like the size of your organisation, growth stage, culture, leadership style, departments and employees’ skills.
In the end, the goal is to decide on an organisational structure that supports collaboration and decision-making, rather than getting in the way.
Find An Organisational Design That Suits Your Business With The Woohoo Company
If your organisational design was drawn years ago and rarely questioned, it might be time for a refresh. A simple review of your organisational chart with your leaders, employees and human resources team can uncover small changes with big impact.
If you’d like a trusted partner to walk through this with you, the Woohoo Co. crew is here to help.
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Frequently Asked Questions
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Organisational design refers to the way a business is structured, whether you’re a small business or a large Government department.
A well-set-up organisation ensures people can do their best work to make your business strategy work. The design determines who does what, how the roles within the business fit together and how responsibilities across the business get shared. When all is working well, the outcome will be an organisation that has the right people with the right skills working on the right things.
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Organisational designs are typically classified into three distinct categories.
Among the classical organisational designs are Functional, Divisional and Matrix structures.
Modern and adaptive organisational designs include Team-based, Network and Modular structures.
Emerging organisational structures include virtual organisations and holacracy-based structures.
Which structure best suits your business depends on a variety of internal factors, like the size and growth stage of your business, as well as external factors, like changes in the market and your competition.
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You may need to reassess the current organisational design of your business for any of the following reasons:
Decision-making has gotten increasingly slow
Work bounces between various teams within the organisation
No one has clear end-to-end ownership.
Other common indicators of the need to refresh your structure include overlapping roles, general confusion over responsibilities and people in leadership roles frequently putting out fires instead of concentrating on strategy and achieving business goals.
You can also measure company culture regularly to identify early signs that your existing structure is creating friction, slowing down decision-making processes or holding your talent back.