Using ITIL's concepts: four types of organizational structure

Colleagues drawing a flow chart on the glass

ITIL® 4: Create, Deliver and Support (CDS) is one of four managing professional modules, which provide practical advice building upon the concepts described in ITIL 4 Foundation. CDS explores the creation and delivery of service management, as well as the tools, technologies, and methods that support it.

The organizational structure determines how successful an organization will be in achieving their goals, as it regulates how individuals and teams within an organization interact with each other and with the organization. CDS explores the four main types of organizational structures. Of course, an organization can decide to forego any kind of structure, but that would be a very short-lived organization where nothing gets done!

A functional organizational structure

A functional organizational structure is a typical hierarchal structure based on control, lines of authority, or technical domain. Basically, this is often how organizations were structured in the past, with defined lines of control and the organization structured like a family tree. At the bottom of this tree were the most junior roles, becoming more senior the further up the tree you travelled. In these structures, the organization can be divided into internal groups based on function areas, such as HR, operations, finance, and so on.

An example of a company that uses this type of structure is Tesla, which organizes its business around technical domains, such as finance, technology, engineering, sales, and so on. Tesla has chosen to organize its business in this way, to effectively control its operations to grow and compete with other international vehicle manufacturers.

A divisional organizational structure

A divisional organizational structure is where the organization arranges their activities around market, product, or geographical groups. In this scenario, each division would be responsible for its own HR, production, accounting, marketing, and so on.

General Motors Company has a divisional organizational structure and organizes its business around geographical areas, such as General Motors Europe. The organization uses this structure as there are significant differences between the markets, for example differences in regulation, climate, car ownership, and so on.

A matrix structure

A matrix structure is where reporting relationships are organized as a grid or matrix and people can move across teams as needed. In this scenario, employees can have dual reporting relationships, for example to a line manager, as well as to product, project, or programme of work.

Facebook is an example of a matrix organizational structure. The organization uses this structure, so that the function teams can interact more easily with the geographic and product teams. This provides the organization with a flexibility that allows it to quickly respond to market trends; a crucial advantage in the social media market.

A flat organizational structure

In a flat organizational structure hierarchal reporting lines are reduced as they are seen as barriers to decision-making. However, as the organization grows this can be difficult to maintain. This type of structure is the opposite of the functional organizational structure.

Valve, a video game development company has a flat organizational structure. The organization does not have a middle management or lines of authority. Employees can work on whatever interests them and they have ownership of their work, both the successes and the mistakes. However, this type of organizational structure is not without its controversies. A lack of hierarchy can foster a culture of bullying, as there are no checks and balances in place to report to and deal with bullying. Also, it can be difficult to get employees to work on projects, leading to delays.

Traditionally, organizations were functional and hierarchal. However, this has changed over the years. In a digital service economy, agility is key to an organization’s success and altering their structure can be one way to become more agile.

To adopt more flexible and responsive ways of working, such as Agile and DevOps, many organizations have adjusted their organizational structures. This includes ensuring that a leader’s role is closer to that of a ‘servant’. It also involves creating cross-functional teams, which can be achieved by applying matrix and flat structures.

Organizational structure changes should be managed carefully, as they can cause major cultural challenges within the organization if handled badly. It is useful to refer to the ITIL guiding principles and the organizational change management practice for guidance.

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