Organizational structure types: how to choose the right structure

A professional firm with eight partners has run on a flat organization for twelve years. The senior partner complains that "everyone does their own thing" and that there is no cross-functional coordination.

A service company with twenty employees introduced a matrix structure after a training course. Six months later, 60% of the staff don't know who they report to.

Three typical situations where the underlying question is the same: which organizational model does this company need, at this stage?

Organizational models are structural configurations that define how a company groups people, distributes responsibilities and coordinates work. The literature identifies four recurring macro-models in small and mid-sized companies — functional, divisional, matrix, process-based — plus the simple structure typical of micro-enterprises and the adhocracy adopted in creative settings.

Henry Mintzberg (1979) codified these configurations in the reference classification [1]. Lawrence and Lorsch (1967) showed that none is superior in absolute terms: the best choice depends on the competitive environment, size and portfolio [2]. ISTAT data on Italian industry and market services show that in 2022, 94.9% of companies in Italy had fewer than ten employees and almost always used the simple structure; the choice between more complex models arises from ten employees upward, when the simple structure starts to show its limits [5].

This article describes the four organizational models that matter for a growing company, the criteria for choosing the right one based on the company's life stage, and the signs that it's time to change it. The goal is to replace choice "by accretion" with an informed choice.

What organizational models are and why they are not the same as the organizational chart

If the company had five fewer people or ten more, would the current model still work? The answer is almost always no. Which suggests the model was never chosen: it simply formed.

Many business owners confuse "having an organizational chart" with "having an organizational model." The organizational chart is a representation: it depicts how the company is structured. The model is the underlying logic: it explains why the company is structured that way and which coordination mechanisms it uses. This section proposes a working definition of the organizational model and distinguishes the concept from three terms it is often confused with.

Organizational model vs organizational chart — the model is the structural logic: how I group people, how I distribute responsibilities, how I coordinate work. The organizational chart for smaller companies is the graphic representation of the model applied to a specific company. You can have an organizational chart without a conscious model (you're photographing what happened by accretion); it's better to have a chosen model and then translate it into an organizational chart.

Organizational model vs processes — the model defines the static structure: who is grouped with whom, who reports to whom, who coordinates what. Processes define how work moves through the structure: sequences of activities, information flows, decision points. Process mapping is the tool that makes processes visible within the structure. A change of model changes the processes; a change of process does not necessarily require a change of model.

Organizational model vs company culture — the model can be formalized in a document: it can be drawn, described and changed within a quarter. Culture is the set of actual behaviors: it is built and changes over years. They influence each other, but they are not the same. The same culture can coexist with different models; one model can coexist with very different cultures. This distinction matters because many business owners delay choosing a model while waiting for "the culture to be ready": the model is the variable you can act on in a shorter time.

Assessing when the organizational model holds back productivity and scalability

Is the organizational model a subset of company culture, or one of its ingredients? The two influence each other. But the model is what you can change within a quarter; culture, you can't.

The Bank of Italy documents that adopting structured management practices — monitoring indicators, setting goals, incentives — is positively associated with the productivity of Italian companies, though the link is descriptive rather than causal [3]. The OECD finds that Italian micro-enterprises are about 30% less productive than their European peers, while large Italian companies are on average more productive, and it attributes a recurring lack of management skills to small family-run businesses [4]. The link between model and productivity is not automatic, however: a suitable model can bring significant advantages, while a model imposed without fitting the context produces confusion and resistance.

The four measurable benefits of a well-chosen model:

Decision clarity — people know whom to turn to for each type of decision. Ambiguities over who is responsible for what shrink. Arguments about "is this mine or yours?" become rarer.

Speed of execution — when the boundaries of responsibility are clear, operational decisions are made closer to the point of execution, reducing waiting and approval times.

Scalability — a consciously chosen model is easier to adapt as the company grows. If you want to add people to a structure that "emerged by accretion," you don't know where to place them without creating new ambiguities.

Faster onboarding — new team members understand more quickly whom they report to, whom they need to coordinate with, and where their responsibilities end and others' begin.

The three conditions that make the model's benefits possible:

Adequate size — below five to seven employees, the simple structure is often enough: people coordinate directly without needing formal mechanisms.

Minimum operational stability — a model can be introduced in a company that has at least a core of stable, repetitive processes. In a context of acute crisis or constant change in product or market, the model has no time to take root.

Management's willingness to respect it — the most frequent risk isn't choosing the wrong model: it's choosing a model and then running the company as if it didn't exist. The model only works if whoever leads the organization respects it in day-to-day coordination decisions.

Choosing between functional, divisional, matrix and process-based models

Which of the four models best describes the company today? In most smaller companies, the answer is "a bit of all of them." And that is the first symptom suggesting it's time to make a choice.

Mintzberg (1979) classified five organizational configurations [1]. Four have practical relevance for companies with more than ten employees: the functional structure, the divisional structure, the matrix structure and the process-based structure. To these are added the simple structure of micro-enterprises and the adhocracy of creative settings.

Functional structure — groups people by function (sales, production, administration, marketing). It is the most common model in Italian companies with up to fifty to one hundred employees. The coordination logic is vertical: each function reports to its manager, and horizontal coordination goes through senior management.

Strengths: clear responsibilities, development of specialist skills, efficiency in homogeneous functions. Weaknesses: poor flow between functions, risk of "silos," slow decisions that cut across several functions. Typical case: a manufacturing company with homogeneous product lines and similar customers.

Divisional structure — groups people by business unit, product, geographic area or customer segment. Each division has its own functions. The coordination logic is horizontal within the division and vertical toward central management.

Strengths: autonomy of the divisions, speed of response to the market, a clear P&L for each division. Weaknesses: duplicated functions, risk of internal competition, complex central coordination. Typical case: a company with two or more significantly different product lines or markets.

Matrix structure — combines the functional structure with a project-based or product-based structure. Each person reports to two bosses: the functional manager and the project/product manager.

Strengths: maximum flexibility in allocating resources, built-in cross-functional coordination. Weaknesses: ambiguous reporting lines (the "60% don't know who they report to" from the opening example), high coordination costs, requires significant organizational and managerial maturity. Typical case: engineering firms, consultancies and agencies with several simultaneous projects that share specialist resources. Not recommended below fifty employees without an established organizational culture.

Process-based structure — groups people around key processes (order-to-cash, product development, customer service) instead of by function. The coordination logic is horizontal: the process owner is accountable for the entire flow.

Strengths: elimination of functional silos, end-to-end customer orientation, smooth cross-functional processes. Weaknesses: hard to introduce without existing process mapping, requires a significant redesign of responsibilities. Typical case: service companies with a high level of customer interaction, where the end-to-end process is the main value delivered.

Using size, complexity and stability as selection criteria

Was the company structured for how it was three years ago, or for how it is today? Organizational structures, like clothes, stop fitting when growth changes the shape.

Lawrence and Lorsch (1967) showed empirically that there is no universally superior organizational model: the right choice depends on the characteristics of the environment and of the company [2]. This section proposes a four-variable selection matrix — current size, complexity of the product and service portfolio, stability of the competitive context, degree of homogeneity of the customers served — indicating the model that typically fits best for each combination.

Size is the variable with the clearest threshold:

• Fewer than ten employees: simple structure. The founder coordinates directly.
• Ten to fifty employees: functional structure. The main functions are formalized.
• Fifty to one hundred fifty employees: an evolved functional structure or a divisional one, depending on the complexity of the portfolio.
• More than one hundred fifty employees: a divisional or matrix structure, depending on the strategy.

These thresholds are indicative, not prescriptive: ISTAT data (2022) show that Italian companies with 10-249 employees — the small and medium-sized band — make up 5.0% of the total but generate 38.3% of value added [5]. In this band the functional structure is the most common and, in many cases, the most suitable.

Portfolio complexity — a homogeneous portfolio (a single product, a single market) supports the functional structure well. A heterogeneous portfolio (several significantly different product lines, several markets with different logics) pushes toward the divisional structure.

Context stability — a stable competitive context favors the functional structure: operational efficiency is the priority. An unstable or rapidly changing context favors the process-based or matrix structure, which provide greater flexibility in allocating resources.

Customer homogeneity — customers with very similar needs (commodities) are served well by a functional structure. Customers with very different needs (high customization) are better served by structures that group people around the customer or the project.

Adapting the model to the company's life stage

What life stage is the company in today, and does the current model belong to that stage or to the previous one? The answer separates companies that grow from those that stall as they grow.

A model that worked with ten people can be dysfunctional with fifty. The literature on the company life cycle — Greiner (1972) on the five stages of growth, Adizes (1988) on the ten corporate life-cycle stages — shows that each change of scale often requires a structural reconfiguration. Here are four typical life stages of a growing company, with the prevailing model for each:

Stage 1 — Founding (1-10 employees): simple structure. The founder directly manages all functions. Coordination happens through direct contact. There are no intermediate levels. The signal of transition to the next stage: the founder can no longer directly manage all the operational relationships.

Stage 2 — Structuring (10-50 employees): functional structure. The first functions are formalized (sales, operations, administration). The first functional managers emerge. Coordination happens through procedures and hierarchy. The signal of transition: functions grow more complex, the portfolio diversifies, horizontal coordination decisions slow down.

Stage 3 — Expansion (50-150 employees): an evolved functional structure or a divisional one. Intermediate levels are added. The portfolio diversifies by product, market or geography. Coordination requires formal mechanisms (committees, integration procedures). The signal of transition: the divisions follow significantly different market logics, and centralized coordination has become a bottleneck.

Stage 4 — Maturity or redesign (>150 employees or mature companies): the model is reexamined in light of the competitive strategy. Some companies consolidate the divisional structure; others experiment with the process-based structure or hybrid models.

The link with the cluster on organizational change management is direct: stage transitions are the moments when managing organizational change becomes the most critical skill.

Recognizing the signs that the current model no longer holds

How many of the meetings held last month would have been unnecessary if the model had been clear? Meetings are often a stand-in for coordination — and their number is an indirect indicator of structural quality.

An organizational structure doesn't break with a single event. It wears out through accumulation: decisions that bounce around, meetings that multiply, responsibilities that become opaque, new hires asking "so who decides here?" Seven recurring signs indicate that the current organizational model has run its course.

How to introduce a change of model without disrupting operations

The last time a structural change was announced, how long did it last before it was set aside in practice? Often less than three months. And the real cost is the trust lost, not the structural change that never happened.

Changing the organizational model is not a single act; it's a process. It requires a preliminary diagnosis, a pilot phase and support through the change. The temptation to do it in a single announced redesign almost always triggers the opposite reaction: confusion, resistance, a quick return to the previous model.

The four-phase transition method, calibrated to the attention span of a smaller company:

Phase 1 — Diagnosis (4 weeks): identify the signs that the current model isn't working (see previous section), map the main processes, check the consistency between the formal structure and actual practice. The output of this phase is a shared description of the problem, not yet a solution.

Phase 2 — Design (4 weeks): define the target model, roles and responsibilities, the changes to the organizational chart and the coordination processes needed. The output of this phase is a design document discussed with key managers, not a unilateral decree.

Phase 3 — Pilot (12 weeks): apply the new model to a limited scope (one function, one department, one product line). Observe the real difficulties, correct the design, gather feedback from the people doing the work. The pilot reduces the risk of full implementation and builds internal experience before the change becomes irreversible.

Phase 4 — Scaling (6-12 months): extend the model to the whole organization, carrying over what was learned in the pilot. This phase requires continuous communication, regular review rituals and a willingness to correct course along the way.

The link with the cluster on organizational change management is methodological: the four phases described here overlap significantly with the change management framework for smaller companies, which addresses the human and communication side of the same process.

Recurring mistakes in choosing and applying the model

Does the company's official organizational chart describe who really makes decisions? If the answer is no, the problem isn't the structure: it's the gap between the formal model and the real one.

There are seven recurring mistakes in choosing an organizational model in a growing company.

Limits and conditions of applicability

The frameworks of Mintzberg (1979) [1] and Lawrence and Lorsch (1967) [2] are established theoretical foundations, but they were developed in North American and European contexts of mid-sized to large companies. Applying them to smaller, often family-run companies requires adaptation: interpersonal relationships, family culture and the company's history weigh significantly on whether theoretically optimal models are workable.

The contexts in which formal models are less applicable:

Early stage, still searching for product-market fit — until the company has stabilized its business model, introducing a formal organizational structure can prematurely freeze decisions that need to stay fluid. The simple structure is almost always the right choice at this stage.

Highly creative contexts — agencies, design studios, content businesses: in these settings, a functional or divisional structure can inhibit creative collaboration. The adhocracy described by Mintzberg is the most suitable configuration.

Companies in strategic crisis — an acute crisis requires centralizing decisions, not distributing them. Introducing a new organizational model in a company facing a liquidity or market crisis is an ill-timed investment: the priority is operational survival.

The ISTAT (2022) figure [5] on the size distribution of Italian companies refers to the universe of companies with at least one employee. The "10-249 employees" band that generates 38.3% of value added is the one where the choice of organizational model has the greatest impact; for micro-enterprises with fewer than ten employees, the simple structure is almost always the right choice, and formalizing the model has lower priority than other management safeguards.

FAQ

How often can you change the organizational model? There is no formal limit, but every change has a cost in terms of staff adaptation and operational discontinuity. Common practice suggests not changing the model more often than every three to five years, barring significant events (acquisitions, divestitures, generational transitions).

Does a small company really need a formalized model? Below ten employees, the simple structure is often enough. Formalization becomes useful when the signs described in the section "Recognizing the signs" appear: meetings multiplying, decisions bouncing around, new hires who don't understand whom they report to.

Is the matrix structure suitable for a smaller company? Generally not, below fifty employees. It requires an organizational and managerial maturity that most smaller companies have not yet developed. Introducing a matrix in contexts that aren't ready almost always produces the effect described in the opening example.

Operational summary

The one-hour diagnostic for assessing your current model: seven questions — (1) Do operational decisions often go back up to the founder? (2) Do new hires take more than three months to find their bearings? (3) Are coordination meetings multiplying? (4) Are conflicts between departments recurring? (5) Do functions duplicate each other's work? (6) Is performance data impossible to attribute? (7) Has growth slowed despite market demand?

Three or more yes answers suggest that the current model has run its course. The three possible outcomes: confirm the model with targeted adjustments (fewer than three active signs), evolve toward a model better suited to your current size (three to five signs), redesign with the four-phase method (more than five signs or stalled growth).

Conclusion

An organizational model is never neutral. It makes some things easier and others harder. The relevant question isn't "what is the best model" but "what is the model best suited to this company, at this stage, for this portfolio of activities."

Most smaller companies operate with emergent organizational structures — layered up over time, never explicitly chosen. This typically produces two symptoms: stand-in coordination meetings that multiply beyond what's needed, and operational decisions that go back up to the founder when they should stop at lower levels. Both symptoms indicate a model that has run its course, more than a people problem.

Choosing the right model isn't done once and for all. You revisit it when the scale changes, when the portfolio shifts, when the competitive environment reshapes itself. Transitions are the moments when the model needs to be rediscussed — not with a big announced project, but with a sequence of sustainable interventions guided by concrete diagnoses.

The model, on its own, doesn't produce results. It is the frame that makes the other organizational choices possible: process mapping, delegation, measurement. The wrong frame degrades the value of everything else.

To connect the model to individual roles, the company job description explains how to formalize responsibilities consistent with the structure you've adopted. To place the model within a broader organizational strategy, business systemization provides the reference framework.

A well-chosen organizational structure stops being noticed after a few months. The sense of working "without friction" on what matters is the most reliable sign that the model is doing its job.

Sources and references

[1] Mintzberg, H., "The Structuring of Organizations", Prentice-Hall, 1979; "Structure in Fives: Designing Effective Organizations", Prentice-Hall, 1993. Available at: https://www.pearson.com/store/p/structure-in-fives-designing-effective-organizations/P100001046398

[2] Lawrence, P. R., Lorsch, J. W., "Organization and Environment", Harvard Business Press, 1967. Available at: https://www.hbs.edu/faculty/Pages/item.aspx?num=18

[3] Baltrunaite, A., Formai, S., Linarello, A., Mocetti, S., "Proprietà, governance, management e performance delle imprese: evidenze dalle imprese italiane", Banca d'Italia, Questioni di Economia e Finanza no. 678, March 2022. Available at: https://www.bancaditalia.it/pubblicazioni/qef/2022-0678/QEF_678_22.pdf

[4] OECD, "OECD Economic Surveys: Italy 2024", OECD Publishing, January 2024. Available at: https://www.oecd.org/content/dam/oecd/en/publications/reports/2024/01/oecd-economic-surveys-italy-2024_18011b9d/78add673-en.pdf

[5] ISTAT, "Annuario statistico italiano 2025 — Capitolo 14: Imprese" (2022 data), Italian National Institute of Statistics, 2025. Available at: https://www.istat.it/storage/ASI/2025/capitoli/C14.pdf