In 2001, the IT company Cisco radically restructured from a traditional corporate hierarchy to a team-based system. Responding to the rapid developments of the IT sector, Cisco set up cross-functional teams to improve company-wide collaboration and foster creativity, according to tech firm Cascade. Cisco’s decision met with resounding success: It has since risen to the top of the communications technology and smart IT hardware industries.

Team-based structures forgo a strict top-down approach — a chain of command from CEO to managers to rank-and-file employees — for one in which decision-making is distributed among different groups. Stakeholders with a variety of skill sets hold a degree of authority and work together. Countless companies are adopting the same route as Cisco and opting for team structure to boost agility and break down departmental silos.

Team structure is what encourages cross-departmental collaboration by emphasizing relationships between teams and colleagues, rather than separating departments under a single authority. Teams, sometimes without internal hierarchy of their own, work together toward the company’s common goal. Teams should be composed of members who complement one another’s knowledge and abilities.

Team structure relies on an atmosphere of openness, trust and collegiality. As Best Practice Institute CEO Louis Carter said in an interview with Dropbox, “Structure ... helps create culture, and when the culture is such that people love being together in the workplace, incredible things happen.” Though lack of traditional hierarchy may go some way toward creating a culture of collegiality, team leaders and executives should cultivate this quality to ensure effective collaboration.

For more information on team structure, the following resources explore the different types of organization and their advantages and disadvantages.

• The American Society for Quality defines three types of teams — process improvement teams, work groups/natural teams and self-managed teams — and discusses the advantage of team structure. It further brings up the potential pitfalls of using team structure, such as insufficient training and lack of organizational support.
• Indeed examines four different types of team structures in business: functional, divisional, “flatarchy” and matrix.
• Whatfix not only explores seven types of organizational structures but also defines terms and addresses the question of how to transition between structures or design an organization from scratch.
• The Society for Human Resource Management offers advice on driving excellent team performance, the phases of team development, factors behind the increase in use of teams, common types of teams and HR’s part in facilitating teams.
• The consulting firm McKinsey & Company provides advice on motivating team members through psychological and material incentives. It counsels companies to encourage team involvement in setting KPIs (key performance indicators) and OKRs (objectives and key results), rather than imposing a “carrot and stick” approach.
• The professional services network Deloitte addresses why teams have been so effective in responding to the disruptions of the COVID-19 crisis, including their potential for agile decision-making at a local level and their propensity for experimentation.

The fundamentals of team structure vary in their exact organization, but they all involve multidirectional communication among teams and workgroup members. This results in more reactive, more agile companies that can share expertise and ideas in response to changes in today’s increasingly complex industries.

Team-based companies don’t necessarily eschew hierarchy. A completely “flat” structure may defeat its own purpose by giving rise to informal gradations of authority, sometimes even resulting in cliquishness. However, “flattened” structures — in which management remains, but communication channels are accessible to all employees and teams prioritize employee engagement — allow team members the flexibility they want while retaining clarity in the decision-making process.

In today’s workplaces, which rely heavily on dispersed and remote workforces and virtual communications, team-based companies simply make more sense: They keep the flow of information open in all directions, avoid redundant work and benefit fully from team members’ capabilities.

Team structures place a high value on human resources. Teams keep workers more interested in their tasks, which means more ideas and better engagement.

Why are team-based organization structures so much more effective than traditional hierarchy in today’s business environments? Team structures maximize efficiency in several ways:

• They foster communication between people with complementary skills and experience. Thoughtfully chosen teams allow for a high degree of communication between people with different strengths and expertise.
• They are quicker to respond to changes in the environment. As the Feld Group Institute observes, we are no longer in the industrial age, when a slower, top-down decision-making model made more sense; now, “market cycles are measured now in weeks to months.” Contemporary companies need agile teams to detect and respond to problems in real time, without having to relay information up and down chains of command.
• They are more social. By creating space for group cooperation, team-based companies inculcate a friendlier culture. A more convivial workplace enhances quality of life for workers. In a culture where young professionals typically spend less than three years in their job (according to Recruiter.com), creating a satisfying and fun workplace is essential for retaining talent and reducing turnover costs.

Team-based structures in business vary widely. While they have varying degrees of centralized decision-making, flexibility and formality, the following companies have all benefited from adopting a team-based structure.

Under Steve Jobs, Apple Inc. followed a traditional hierarchical model. Jobs’ successor, Tim Cook, introduced some changes. Panmore Institute found that Apple now has a “spoke-and-wheel” structure in which its vice presidents enjoy a degree of independence. Its departments, divided into product-based sections, have more lateral communication than under Jobs. Apple Inc.’s transformation has enabled it to rival major competitors like Amazon, Microsoft, Google, Samsung and other consumer electronics giants.

Apple’s success is no secret: It has grown its revenue to almost $366 billion in 2021, as reported on Statista.

Nokia Bell Labs, a subsidiary of the Finnish multinational telecommunications company Nokia, maintains its competitive edge by forming teams of top engineers and scientists, reports Cascade. By encouraging experimentation and scientific daring, Nokia keeps advancing in the fields of AI, robotics, networking and the Internet of Things.

Nokia remains one of the biggest players in telecommunications. Its revenue in 2021 was nearly $26 billion, according to a Yahoo Finance report.

Northwestern Mutual Life, an American financial services company, values cross-departmental collaboration. According to Cascade, every team now includes a non-stakeholder who brings a fresh outside point of view to the development and improvement of financial products.

The online clothing and shoe retailer Zappos, a subsidiary of Amazon, until recently employed a structure known as a “holacracy” — according to HolacracyOne, a system in which employees take on roles in ad hoc teams for the duration of a project.

Former CEO Tony Hsieh began modifying its holacratic structure to more resemble a marketplace of “internal small businesses,” as reported in Yahoo Finance in 2020. Zappos’ teams “earn” their project budgets by pitching to internal and external customers and “selling” their skills and services to their colleagues. This way, Zappos keeps its culture of innovation while maintaining its stakeholders’ independence and making its projects profitable.

The fully remote software company Zapier is divided into small independent teams of no more than eight people. These teams keep each other apprised of their projects’ status and share knowledge. According to Process St., Zapier implemented a semi-hierarchical yet team-based structure early in its history but has not revealed exactly how it’s organized. Still, the company’s approach seems to be working: It has continued to expand throughout the turbulent years of the COVID-19 pandemic.

Process St. also provides insight into the software company Basecamp, which has maintained profitability by entrusting small groups with projects. During six-week project sprints, team members don’t have to track hours; they’re only accountable for getting their projects done and must spend their time as they see fit. All communications are accessible to the entire company, so every team remains informed of every project’s status.

These real-world examples give some idea of the variety of forms team-based structures can take. Team communication strategies can also be codified to help company leaders choose structures that work for them.

• Hierarchical. This is the traditional structure that emerged during the industrial era, with top management making decisions and delegating down the chain of command. It may not be ideal for today’s dynamic global marketplaces.
• Functional. In this structure, teams are organized within departments according to their skill sets. Managers in these departments are responsible for final decisions, so there is some degree of hierarchy. As an article from the workflow software Asana notes, this organizational style “allow[s] for specialized skills and ... organizational growth.”
• Matrix. Team members in a matrix-style team-based structure are accountable to several managers who have different responsibilities. This ensures that authority is distributed among different stakeholders and that communication remains open across departments.
• Process-based. For companies that are more process-focused than project-focused, a process-based structure has managers organize teams around internal processes. This type of structure considers how different processes affect one another, intending to streamline and adapt to changes in the environment, according to HubSpot.
• Circular. A type of hierarchical structure, this organizational form preserves the chain of command but emphasizes communication channels connecting all team members.
• Flat. A flat structure is the opposite of a hierarchy — at least in theory. Team members are all responsible for making decisions, with no central authority.
• Network. Network organizational structure involves workflows connecting different physical locations, whether these are divisions of the same company or contractors to whom a company outsources, according to HubSpot.
• Product- or market-focused. With this type of structure, teams are grouped around different products and product lines, market segments or customers.

Team-based organizational structures, in all their diversity, can be powerful tools for boosting performance. They make companies more flexible, more experimental and more satisfying for employees. When well-run, team-based firms can retain valuable employees and use their talents effectively by giving them more ownership of the company’s goals and successes. As companies such as Cisco and Apple have shown, team-based structures can be highly profitable forms of organization for today’s dynamic global marketplaces.

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