Employee Management

Three models for structuring your staff

Organize your employees to improve your small business’s efficiency and culture.

Published: December 08, 2014
Updated: February 16, 2017

You have the ideas. You have the energy. Now you need the structure.

Structuring your business in the right way can improve your company's efficiency, communication, and culture. But each of the three organizational structures — functional, divisional, and matrix — has its pros and cons.

Consider each system and how it might help or hinder your business. Even if you're a sole proprietor or have a very small team, these models can offer insight into structuring your time, projects, and division of responsibilities.

Functional structure for a business

The functional structure organizes employees by specialization. For example, you could devote one person to sales and another to marketing, and the two would function separately. Each functional person is his or her own department and department head.       

  • Pros: Grouping staff by function gives each department a focused goal. The accounting department, for instance, focuses on efficient financial management and can avoid distractions from unrelated parts of the business.

  • Cons: There is danger of tunnel vision if a focus is too narrow. Employees might not know what's happening outside of their departments, which can lead to a disconnected culture and poor communication.

This may be the best option if your business operates with standardized procedures and very specific staff roles. Even if your business has only a few employees, this structure can help you assign responsibilities so that employees stick with their specializations.

Divisional structure for a business

The divisional structure divides employees by region or product team. These divisions are larger than departments in functional systems and operate more independently. If your business produced speakers and headphones, for example, your staff could be split between two product lines: a speaker division and a headphone division. Different divisions have their own leadership and resources.

  • Pros: The autonomy of divisions gives supervisors the authority to act quickly without appealing to a chain of command, allowing for streamlined decision making and efficient problem solving. Missteps are confined to the division in which they began, allowing others to work uninterrupted when complications occur.  

  • Cons: Because divisions operate without reporting to one another, inconsistency, including incompatible products and ideas, can result. This independence also requires each division to have its own accounting, HR, and customer service teams. The repetition adds up, and costs increase in proportion to the number of divisions.

This model may be best if you have a larger small business. Consider structuring your staff by division if your company produces several distinct products or targets different geographic regions.

Matrix structure for a business

The matrix structure blends the functional and divisional systems by grouping employees by function and project. Each employee has a long-term role (e.g., in sales or accounting) as well as short-term projects (e.g., the 2014 Smith account or the new cordless speaker proposal). Each employee has two supervisors: a long-term function leader and short-term project leaders.

  • Pros: Because employees work on evolving projects, as well as within a specialization, they work with a wide range of people and ideas. This increased interaction creates an inclusive company culture and gives employees opportunities to share opinions and collaborate.

  • Cons: Increased communication can cause confusion about leadership. Having each employee report to two supervisors means that staff structure is more complicated, and employees may be unsure of whom to go to with questions. This system also puts employees in the path of more people, proposals, and activity, which can make for a distracting atmosphere where employees struggle to prioritize.

This may be the correct choice if your business works on a variety of products and projects, especially ones that operate with only a few employees with overlapping roles.

Striking the right organizational structural can generate a variety of benefits for small businesses of any size.