There are probably only a few people that think of businesses and companies (especially the large and successful ones) in terms of job interviews, onboarding,  or employee satisfaction.

Most times, what comes to mind first are the products sold or services provided by the company. But all this would either be difficult to achieve without a supportive and result-driven HR team or a manager operating in a well-fitting HR structure.

This goes to say that HR structures are as relevant as the quality of the team in place and we will be analyzing these structures here in this article.

What is HR structure?

HR structure refers both to the formal, and sometimes, informal arrangement of HR personnel or sub-departments within an organization, and to how tasks are shared with and by these parties.

The HR structure has a strong impact on factors such as employee-management relationships, communication chain, feedback time, and overall operational efficiency are impacted by the type of structure in place and by how well the company adopts such structures.

This is why the type of HR structure in place is one of many factors that determine if a startup succeeds or fails.

Types of HR Structures

Do you own a small, large, young, mature, modern, or traditional business or company? There’s an HR structure for you. Read on to see what they are.

Decentralized HR Structure:

If you are looking to build a modern type company and cut down on the number of processes in your HR activities, then you might find the decentralized HR structure to be an interesting option. The big deal about this type of structure is that there is no one major player.

It is more or less similar to the distributed ledger system of blockchain where there is no single, central player such as an apex bank positioned to verify and process transactions.

Instead,large numbers of participants which are referred to as nodes and constitute a “block” work together and refer to each other in verifying, processing, and storing transactional activities.

In the actual decentralized HR structure, the concerned organization can be thought of as the ledger block with each departmental HR being the node. Equal decision-making capability is shared with all the department HRs.

This means that each department has independent power, and the required knowledge or experience to successfully carry out hiring, onboarding, or management of staff.

The decentralized HR structure eliminates the need to pass information such as CVs and interview performance ratings of prospective employees up and down a long ladder of executives (perhaps to reach the company founder or CEO) during a hiring process.

Thereby chopping down on the time it takes to process and carry out internal operations.

Centralized HR Structure:

The centralized HR structure is an inversion of what we see in the decentralized structure. Following the example above, this will resemble the traditional financial system where the protocols or activities of every transaction are dictated and influenced by a single entity which is usually a bank or a central bank.

Business-wise, the centralized structure refers to an HR arrangement in which all commands and protocols are directed or influenced by a single HR manager who is in constant communication with top personnel like the company’s Chief Executive Officer (CEO), founder, or chairman of the Board of Directors.  

The workload on the HR manager in this setting is often enormous. However, the centralized structure makes it easy to coordinate company-level activities since all units within the organization are regulated from one point.

There is better consistency but there is usually a slower process since it will take time for one individual to single-handedly monitor, regulate, and act in employee-related activities across a typical company.

Matrix HR Structure:

A rather complicated HR structure is the matrix structure that features at least two layers of HR teams each having their area of responsibility and scope of regulation. To understand the matrix HR structure perfectly, you can picture each HR team as a layer of beef or cheese sandwiched into a hamburger.  

Our mental hamburger could have one layer of cheese (which represents one HR team) placed atop one layer of beef (which represents another HR team), with both layers lying between the top bread roll (which represents the company executives) and the bottom bread roll (which represents the company employees).

Another instance could have a slice of tomatoes (which would represent a third HR team) added to the two-layer hamburger we just thought about. Of course, this implies that there can be two, three, or more layers of HR teams in a matrix structure.

Furthermore, in a two-layered matrix HR structure, the top team is referred to as the “functional” team while the lower team is referred to as the “matrix organization”.

This functional team communicates with the company executives about very specific areas of operation which they oversee, whereas the matrix organization guides, coordinates, and supports all departments and their operations as well as the management of all staff and employees.

Companies that adopt the matrix HR structure have their eyes everywhere and hardly make an oversight. The reason is that HR managers in all available levels within the matrix have access to ongoing projects and so they can easily spot and correct oversights arising from each other’s actions.

Outsourced Structure:

Previously, businesses only outsourced part of their operations such as a service delivery or product manufacturing process. Nowadays, however, the trend has grown and some businesses go as far as outsourcing their entire HR operations.

Adopting an outsourced HR structure is a functional way to relieve the workload on department heads who typically double as HR managers in other settings.

Furthermore, small businesses may employ this HR structure as a way of cutting costs associated with searching, onboarding, and maintaining an in-house HR team.

The third-party team will need to be well-versed in managing HR positions and should have done so for several similar companies in the past.

They will be oriented on the company goals and values. Also, businesses must take time to scrutinize third-party HR teams to understand their methods, strategies, and their perspective of the company’s goals and values.

They could also go ahead to request contracted agencies to provide relevant suggestions and recommendations regarding HR best practices.

Pros and Cons of Each HR Structure

Decentralized HR Structure:

Pros:

Quick Hiring and Internal Operations:

A decentralized HR structure removes the long stack of higher-ups who need to confirm or give permission for hiring and operational activities to take place. This helps businesses enjoy quick and easier processes across all their internal operations.

More Focus on Employee:

Having department heads function as HR managers automatically places an HR team over each department as against having one team oversee all the company departments at the same time.

The benefit here is that compartmentalizing the entire organization reduces the number of employees under the supervision of the HR teams, making it easier to notice irregularities, receive feedback, and manage them.

Cons:

Difficult Company-level Coordination

A decentralized HR structure favors team-level coordination over company-level coordination in the sense that it groups employees into small units and the result from all these units has to be painstakingly put together to make company-level decisions.

Since the teams work independently, their inputs will be of different quality.  And there is the possibility that some teams might give unusable results or make inputs that do not align with what is required. This could become a huge hindrance in the decision-making process.

Centralized HR Structure:

Pros:

Coordinated Output:

The decisions and outputs coming from a centralized HR structure are more coordinated when compared to those of a decentralized system because all decisions are made by the same set of managers and so there is no need for adjustments or compensation.

Easy Troubleshooting and Error Tracing:

What happens when you act over and over again using the same set of steps? Simple. Backtracking and troubleshooting an issue becomes easy. The centralized HR structure offers this advantage since decision-making comes through one HR manager.

Cons:

Time-Consuming Processes:

A central HR structure puts one human resource team in charge of all the departments in a company - which could be a whole lot depending on the size of the company. Managing all of these departments from one point creates a long queue of activities and this often results in process and operational delays.

Limited Focus on Employees

We do not mean to say that it is impossible to properly manage every employee in your company. Rather, we are saying that it is difficult to properly manage employees from one single position as one or more employees could easily be left unchecked or unattended.

Matrix HR Structure:

Pros:

Efficient use of HR team skills:

HR teams tend to apply their skills in many different ways when working in a matrix structure. Also, team members in one HR level can function at a different HR level, therefore, increasing their versatility.

Resource Sharing:

The Matrix HR structure creates the need to share resources. Young companies can make the most of this to cut down on their business costs.

Increased Employee Engagement:

Cross-collaboration between different levels of staff helps to build engagement and morale, making workplaces fun and rewarding. With such an environment, there is a high chance that employees will work longer hours and stay onboard a team for many years.

Cons:

Can Create Confusion:

The complexity of the matrix HR structure could result in confusion among managers about their roles. Occurrences like this could significantly impact productivity and work relationships.

Outsourced Structure:

Pros:

Less Workload:

Outsourcing HR responsibilities to a third party means less work for the company itself. This might be a good option to try out, for example, when a startup is expanding into new markets and doesn’t have the time to take on lots of other activities.

Increased Dedication to Other Tasks

With less workload, employees can better dedicate their time to other activities, therefore, reducing their work stress and helping to improve the quality of their output.

Cons:

Misdirection:

The one major problem with outsourcing roles is that contractors sometimes fail to follow laid down guidelines and, even worse, they may end up delivering results far from what is expected.

In the case of an outsourced HR structure, a company might realize that its employee management goals are not being met. Even worse, contractors can introduce risks such as a hack through their negligence or incompetence.

How to know which HR Structure is best for your company

As a founder, you might be reading through all of this and asking yourself how to know the best HR structure for your company. Here it is:

Highlight what your HR goals are:

If your HR goal is to create an employee-centered culture, for example, your company might need to adopt the decentralized or Matrix HR structure that brings HR managers in close contact with employees since close and frequent contact or communication helps to put focus on employees.

Determine the size of your company:

Company size always plays a role in determining operational structure and it can even go as far as dictating the kind of culture that will work. Knowing this, is it important to consider the number of employees (both senior and junior levels) that have been onboarded, and whether any more hires will be made in the coming weeks or months.

Understand the general company direction:

From the start of your business or company, you may have decided to adopt a particular HR structure based on some well-thought-out reasons.

As you grow, you might want to try a new HR structure and it is possible to do this by reviewing the general company direction or goal, its market or area of operation, and even its partners or clients.

Conclusion

This article has effectively discussed the meaning of an HR structure and the pros and cons of each of the four types of HR structures. As a quick recap, here are the major points of each HR structure.

- A centralized HR Structure puts one HR team and one main manager over the entire set of employees.

- Decentralized HR Structure, on the other hand, has multiple HR teams, with each of them overseeing one department in the organization.

- Matrix HR Structure tends to combine the centralized and decentralized structure by creating two or more levels of HR with one level focusing on the employees and the second level reporting to top-level staff.

- Outsourced HR Structure simply involves contracting the work of the human resource department out to a third-party agency.

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