Nonprofit organizations and their employees and volunteers often find themselves in a difficult situation. They want to impact the world for good, but they also need to balance the needs of donors with those of service recipients.
This is not an easy task when your organization deals with many different types of people who have varying opinions on what should happen next and how the goals should be accomplished.
One way that nonprofits can better manage these complicated relationships is by formalizing an organizational structure model to align resources for maximum impact while still remaining true to their values and missions.
Nonprofit leaders need to understand the structure of their organization, not in its organic current state, but with a clear understanding of the characteristics, pros and cons of these structures to maximize the resources they steward. Strategic alignment is the key to long-term success.
This article will introduce you to some common organizational structures including hierarchical (top-down), functional, flat (horizontal), departmental (divisional), matrix (cross-functional), team-based, network.
Video – 3 Nonprofit Organizational Structures
What Is A Nonprofit Organizational Structure?
Nonprofit organizational structures, commonly represented as org charts, define and align the relationships between different parts of your organization. Organizations use this type of model to map out who reports to whom to help understand how their workflows. This is all for the sake of alignment of your resources to your goals.
For example, if your mission is to deliver goods to the homeless in your city, you need an organizational structure that allows you to coordinate the different jobs of purchasing, storage, delivery, and more. Without a plan for how these roles work together, you will not be able to succeed.
An organizational structure is not an org chart. Org charts help visually represent an organizational structure once that structure is identified. Read more about organization charts in our article on the topic.
What Are The 3 Organizational Structure Types
Typically, there are seven to nine organizational structures that are referenced. In the world of HR and organizational development, these are summarized into 3 categories:
- Vertical – Both functional and divisional
- Vertical and horizontal – Typically referred to as a cross-functional matrix
- Boundary-less – aka: Open Boundary – Hollow, Modular, Virtual, and Learning types
Vertical Organization Structures:
Vertical org structures refer to the type of reporting structure you would typically find in a large enterprise. These organizations are often called “hierarchical” because there is a clear chain of command and people report only to one or two people who report up their own chain. Most traditional corporations fall under this category – Google, Ford, IBM, Dell would fall into this category.
Pros of vertical org structures:
- It is the most widely adopted structure and therefore is well known, easy to understand.
- Individual contributors only perform the assignments that they are most suited to accomplish.
- Each area of responsibility grow subject matter experts (SMEs) which leads to efficiency, quality, and process optimization.
- Vertical structures are excellent when top leaders set direction and make decisions in a centralized manner and then communicate that direction to the people who will do the work.
Cons of vertical org structures:
- Work becomes siloed along with staff relationships which can lead to culture drift and an us versus them mentality.
- Silos of work and thinking promotes a lack of natural communications and coordination with other internal teams.
- Hierarchical structures promote rigid processes and are more resistant to change.
- Poor management skills will cause entire teams to fail and thus negatively impact organizational goals.
As you can imagine, there are many benefits to using this type of organizational structure. It is often effective in very large companies or organizations that have well-defined processes and procedures for achieving their vision. There are fewer opportunities
Vertical And Horizontal (Matrix Organizations)
A matrix organizational structure is a type of organizational structure that has both vertical and horizontal dimensions. When we take the functional and divisional structures of a vertical organization, you end up with a matrix of functional responsibilities being a part of a divisional focus.
In the end, you end up with a functional manager and a divisional manager both being accountable for the shared performance of employees and teams.
Pros of a Matrix Structure:
- Promotes teamwork and cooperation between teams.
- More opportunities for advancement as the matrix allows for upward mobility.
- Increased collaboration across boundaries.
- A cross-functional team is better able to complete large, complex projects because they have support from other areas.
- Matrix structures are highly flexible and allow organizations to respond quickly to changing business conditions.
Cons of a Matrix Structure:
- Often, matrix structures don’t work as there is not enough leadership and the power is diffused and therefore control and accountability is lost.
- Reporting relationships can become convoluted with too many cross-functional responsibilities.
- When reporting lines are blurred between functional groups, it becomes more challenging for people to know who is ultimately responsible for the work being performed.
- When there are too many layers, communication overhead can cause response times to exceed customers’ expectations.
- Too many matrix structures mean that organizations have more management positions than staff positions. Matrix structures often require more staff at all levels which adds cost, complexity and raises the possibility
Open Boundary Structures
The Open Boundary Structure is a recent entry into the teaching of organizational structures and practices of organizational development.
In an open boundary organizational structure, the lines and boxes in a typical vertical structure are eliminated. Departments are replaced by teams that form and dissolve as projects dictate. Flexibility and effectiveness to address growth opportunities trump hierarchy in an open boundary organization.
There are 4 types of open boundary structures: Hollow, Modular, Virtual, and Learning. This SHRM article provides more depth on these specific types.
The open boundary structure is ideally suited for small companies or organizations just emerging into an enterprise. When implementing this type of structure, it’s critical that you have strong leadership operating at all levels of your organization. Leadership determines how teams are assembled, who has decision-making authority, and who is responsible for specific functions.
One organizational structure isn’t necessarily better than another; it depends on the unique needs and goals of your organization. There is no one-size-fits-all solution when it comes to helping your nonprofit achieve success.
And keep in mind that the organizational structure of your organization will change over time in alignment with your stage of growth and strategic direction.
Pros of an Open Boundary Structure:
- More effective in smaller organizations where there are fewer silos of control.
- Promotes greater collaboration with team members.
- Teams are more focused when they have a specific organizational goal to accomplish.
Cons of an Open Boundary Structure:
- Leadership must be strong, but distributed throughout the organization so multiple leaders are in charge at any given time; this is a challenge for startups and small organizations.
- Lack of clear organizational structure and reporting relationships make it difficult to determine who has the authority to make decisions and who is accountable for performance.
- Too many teams or matrix structures can lead to too much overhead resulting in slow decision-making and an inability
Stages of Growth and Changing Organizational Structures
During the lifetime of an organization, the structure of the organization may change many times.
Organizations maneuver through 4 stages of growth: Startup, Expansion, Consolidation, and Diversification.
Surprisingly, most startups have a vertical, hierarchical structure despite everyone wearing many hats. The founder(s) call the shots and certain individuals are responsible for specific functions. i.e. highly centralized
Rapid growth is the make or break stage when growing from the Startup stage. While still typically centralized in their structure, expansion stage organizations begin delegating responsibilities to teams.
Open boundary or matrix structures may be established although vertical, hierarchical approaches may also be well leveraged.
After rapid growth in the Expansion stage, growth will slow a bit and allow for the systemization of processes, increased delegation, and creation of departments/teams.
As an organization matures it can once again experience rapid growth. The centralization that proved helpful in the past may now be a hindrance and feel highly bureaucratic.
At this stage, decentralization is required and a move toward matrix and open-boundary structures is favored as part of re-invention.
How to Choose A Nonprofit Organizational Structure
There is no one-size-fits-all solution when it comes to helping your nonprofit achieve success. Even country and state regulations may dictate specific roles and structures that must exist and the level of accountability they have. These regulations alone may limit organizational structure and design.
When limits are placed on you, get creative and find the opportunity that is presents!
The following questions should be asked in determining the right structure for you:
- What type of organization are we?
- Is our focus on outcomes or outputs?
- What work is better centralized versus decentralized?
- Are we better suited for vertical, hierarchical structures or horizontal organizational structures?
- What is our vision and how might we align our structure and processes with achieving that vision?
- What has (or hasn’t) worked in the past and how do we build on those learnings?
- Have we had success with a different type of structure?
Different types of nonprofits will find some organizational structures more beneficial than others. The following list highlights some considerations:
• Charities, Health, and Human Services – Organizational structures are often flexible with clear reporting lines of responsibility. These types of organizations typically have a hierarchical structure with departmentalized teams.
• Educational – Highly decentralized organizational structures match well with academic environments where individual departments or schools can operate largely independently of each other.
• Healthcare – Organizations in the healthcare field are often highly decentralized with multiple teams tasked to achieve a common goal.
• Arts and Culture – These types of organizations have a high degree of decentralization whereby each member has autonomy in their specific area. Similar to the Healthcare sector, this type of organization relies heavily on volunteers which requires these members to be self-starters.
• Environmentally Focused – For nonprofits that are environmentally focused, it is important to note that these types of organizations typically have flat structures with clear decision-making processes.
• Social Services – These types of organizations usually rely heavily on volunteers and may even have a focus on mission first and foremost not profit-making. Due to this, they often choose to have a highly decentralized structure that weighs more heavily on outcomes than outputs.
• Religion – Since these organizations are often faith-based, they put a large emphasis on the common good of people as well as their religious beliefs. Depending on the organization’s focus and vision, those two aspects may indicate a hierarchical, flat, or matrix organizational structure.
Now that you have gained a better understanding of nonprofit organizational structures, it’s time to develop your own. Once you determine the structure, codify it in an organizational chart.
Remember that there is no “one-size-fits-all” solution here. What works for one organization may not work for another since each has its own unique needs, objectives, and culture. Nonprofits are constantly trying to balance centralization and decentralization in order to get the best results.
If you need help figuring out your ideal structure, hiring a consultant can be helpful. Just make sure that the consultant has experience with nonprofit structures and organizational design.
Remember, Organizational Design consultants are not just HR people. As one colleague recently put it: “An OD (Organizational Design) person can do HR, but an HR person can’t necessarily do OD.”
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