Types Of Business Organizations: How To Choose The Business Model?

Types Of Business Organizations: Each company has operating specifics. However, some standardized structures encompass a part of the business around specific shared characteristics.

These models are called business organization structures and serve as guidelines for the composition of the hierarchy, organizational chart, functions, processes, and decision-making in corporations. Each of these types of business organizations has advantages and disadvantages.

But do you know what types of organizations these are? Do you understand which is best for your company? Do you know how to choose an organizational structure for your business? If not, it’s time to find out! Read this article and understand how the three main types of business organization work: linear, functional, and line-staff.

Learn About The Main Types Of Business Organization

Linear Organization

The organizational structure called linear is the oldest and takes its name due to the verticalization of the model. It means companies adopting the linear model have well-defined hierarchies and a pyramid-like organizational chart. In it, decisions are always made from the top down. In other words, those in the highest positions have greater responsibility and define the business guidelines, passing them on to the employees in the posts below in the organization chart.

An excellent example of an organization with a linear structure is the army. Despite not being a company, this institution has people in high command positions who make the decisions. Therefore, soldiers are responsible for effectively getting their hands dirty and carrying out what has been defined by higher echelons.

When Is Used

This model will be widely used in companies starting since, at this point, it is important to have a good definition of the hierarchy of each of the employees, and However, more traditional organizations also tend to bet on a linear structure.

Main Benefits

There are several advantages attributed to this type of business organization. Firstly, it appears as an easy-to-implement model since the roles and responsibilities are very well defined. For this reason, it also allows greater clarity for company members about their role in the company.

This model makes decisions more agile since they will concentrate on a few people. In addition, communication is more straightforward because it follows a single direction — from top to bottom.

Main Disadvantages

However, in the linear model, the leader is often overwhelmed, as he assumes much of the responsibility for the future of the business. In addition, the low participation of the team in decision-making hinders innovation within the corporation. Finally, although communication is simple, it is subject to distortions and misunderstandings. The message needs to pass through several people until it reaches the employee at the pyramid’s base, which can cause the “cordless phone” effect.

Functional Organization

In a functional organization, the employees’ roles and responsibilities are assumed by each one, not the hierarchy — as in the linear organization. Instead, it will divide into specialized areas, such as finance, marketing, and human resources. Each room is responsible for its activities and the sector’s decision-making.

Of course, even in this model, neither sector is independent of the other. There is communication between the teams, and all must will align with the company’s general objectives. There is also an available boss — company owner, CEO, chief executive, among other positions —responsible for this alignment and the guidelines of the business as a whole. However, one area cannot make decisions about the activities of another, maintaining a certain level of autonomy.

When Is Used

Small and medium-sized companies use this type of business organization, hardly appearing in the case of huge brands. More stable companies, whose external and internal environment is not subject to rapid and constant changes, also tend to use functional organization.

Main Benefits

One of this model’s main advantages is that authority and responsibility will be based on employees’ knowledge and expertise. It means that people take the highest positions with the most excellent understanding of the subject.

In addition, communication within each sector is more fluid and efficient since the teams are somewhat autonomous. Workers also become more specialized and able to work in a specific company area.

Main Disadvantages

However, this model also shows disadvantages, such as difficulty integrating departments. In addition, each team is very independent in decision-making and activities performed. Therefore, tasks that require interdisciplinarity may be more challenging to serve in this type of business organization. Another disadvantage is that employees of companies of this type lose a good part of the global vision of the business.

Line-Staff Organization

The third type of business organization is called line staff. It is a kind of combination of the other two models presented. In this organizational structure, the company’s sectors assume both line functions — related to the company’s decision-making — and staff from different sectors — linked to advisory and counseling.

To understand better, imagine the administrative-financial sector of a line-staff company. It makes investments, strategic planning, and company spending decisions. However, it can also advise other sectors on the best way to use the available budget, advising them as experts but without participating in decision-making in other areas.

When Is Used

It is a more recent model and, therefore, is more used by modern brands, with more dynamic and interactive work environments and models.

Main Benefits

The main advantage of this model is the combination of the two other models presented. Therefore, it allows for a hierarchy and specialization within the company, all at the same time. Furthermore, as if that were not plenty, the staff function of the sectors allows for more significant interaction between professionals, capable of using the specialized knowledge of colleagues to improve the work of the team in general.

Main Disadvantages

However, like the other models, it also has disadvantages. The main one is related to the possibility of confusion between the functions of managers within the company. It means that, in a line-staff organization, the manager of one area can interfere too much in another, removing the sector’s autonomy. Thus, conflicts and accumulation of functions are risks that need to be mitigated.

Conclusion

Understanding the main types of business organizations is essential for choosing the best business model for your corporation. Therefore, understand the characteristics of your business well and find out which of these models is best suited to your organization. Then, with exemplary implementation and control, you can reduce the downsides of your chosen organizational structure.