3 Types of Management Structures: Which Is Best?

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Are there different types of management structures? How do you decide what management structure will work best for your company?

There three main types of management structures: functional, mission-oriented, and hybrid. You can choose the management structure that best accomplishes your goals and maximizes output.

Read more about the types of management structures below.

Running a Company and Types of Management Structures

Previously, you learned how to improve your managerial output and productivity by adjusting your activities, leverage, and time management to improve the performance of your team. Now, we’ll look at how to improve the performance and output of an entire organization by effectively structuring and wielding control.

As organizations grow, they have more to keep track of and they often benefit from restructuring. There are three types of management structures that you can use to structure your company:

Structure #1: Functional 

In this centralized structure, individual business units are only responsible for their unit-specific tasks. Any function that they share with another unit (for example, human resources), is handled by a group that handles the shared function for all units. 

There are advantages to this structure:

  • Economies of scale. It’s cheaper to share resources or buy in bulk. For example, Intel requires expensive computer equipment. It’s more economical to buy one machine that all the business units share rather than each unit buying their own equipment and only using it occasionally.
  • Shared expertise. Knowledge managers can share their expertise across the whole company, not just their unit, which gives them much more leverage.
  • Focus. Business units can focus on their work rather than what they need to do their work (personnel, equipment, and so on) since dedicated departments will deal with acquiring resources.

There are also disadvantages:

  • Large workloads. Functional groups have to meet the needs of many units.
  • Bureaucracy. There are additional administrative layers that take time to work through.
  • Resource competition. Since business units don’t have free and unlimited access to their own resources, there’s sometimes conflict over the shared resources if two units need something at the same time.
  • Distance. Because units focus only on their work, departments such as engineering and manufacturing tend to be cut off from the marketplace because their work never requires dealing directly with customers. As a result, they lose touch with what customers want.

Structure #2: Mission-Oriented 

This is another of the types of management structures. In this decentralized structure, every individual business unit is responsible for both its unit-specific tasks and all other tasks that come with running a business, such as hiring, purchasing, offices, and so on. Each unit is responsible for its own hiring, purchasing, offices, and so on, and each unit reports to a regional office or the corporate executive office.

There’s only one advantage to this structure, and that’s speed of responsiveness—each unit can quickly respond to local conditions, such as bad weather that slows down delivery at one franchise location. Speed is very important—the point of businesses is to respond to their environment.

The disadvantages of this structure are:

  • Inefficiency. There’s redundancy between business units—for example, each one has to set up its own HR department.
  • Weak company-wide performance. Since every unit acts almost as its own company, the units are disconnected and can’t easily work together.

Structure #3: Hybrid

This structure is a combination of mission-oriented and functional. Ideally, it harnesses all the advantages of each system and dispenses with the disadvantages. This is one of the types of management structures that means companies can and should shift closer to and farther from each pole as they acquire new resources and adapt. 

  • For example, if a company buys a new piece of equipment, it might shift towards centralization because all the business units would benefit from it. 

Grove’s Law states that any large organization that has a common business purpose will ultimately move to a hybrid structure. This is because as businesses get bigger, they have more things to keep track of and need the advantages of a functional structure as well as those of the mission-oriented approach.

  • Example #1: Intel has four functional units (sales, technology development, administration, and manufacturing) and three business units (component, microcomputer, and system). All of the units report to the executive office.
  • Example #2: Conglomerates don’t have a common business purpose, so they tend to be mission-oriented, though the companies that make up the conglomerates tend to be hybrid.

The major challenges of the hybrid structure are how to allocate resources between business units and how to handle resource-related conflicts. Middle managers are perfectly poised to solve these issues—there are enough of them to manage the workload of allocation (corporate managers aren’t numerous enough) and they’re close to those who need the resources to know how much each unit needs (central allocators are too far away to accurately predict demand).

Now that you know the different types of management structures you can decide what is best for your organization.

3 Types of Management Structures: Which Is Best?

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  • How to increase your managerial output and productivity
  • The 11 activities that offer a higher impact on output
  • How meetings can be used as a time management tool

Carrie Cabral

Carrie has been reading and writing for as long as she can remember, and has always been open to reading anything put in front of her. She wrote her first short story at the age of six, about a lost dog who meets animal friends on his journey home. Surprisingly, it was never picked up by any major publishers, but did spark her passion for books. Carrie worked in book publishing for several years before getting an MFA in Creative Writing. She especially loves literary fiction, historical fiction, and social, cultural, and historical nonfiction that gets into the weeds of daily life.

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