Successful Organizational Structure

Designing a successful organizational structure for your small business involves analyzing the work that needs to be done and setting up a hierarchy that ensures work flows smoothly from one process to the next. An effective organizational structure allows you to control business processes, assign accountability, enable rapid responses to opportunities and threats, deliver on promises, empower employees to make decisions and beat out the competition.

Guidelines

When you have a complex business, create an organizational structure divided into multiple departments or functions. If your industry requires a great deal of formality, design your organization with a clear hierarchy. If your employees have extensive experience, enable them to participate in influencing decisions. To establish successful communication, allow personnel at every level to flow information through the organization. Create a functional, divisional or other reporting structure based on your type of environment.

Functional Structure

In a functional structure, each separate department is led by an executive who reports to the chief executive officer. If you operate in a stable business environment that won't change quickly, this model works well. Additionally, if your company produces a small number of similar products, this division makes work more efficient. To be most successful, leaders in this type of structure need to balance the needs of each function. Otherwise, one function may dominate the other functions, causing tension and conflict.

Divisional Structure

Companies using a divisional organization consist of multiple divisions, each led by a manager who reports to the chief executive officer. Each division is accountable for its own performance. Within each division, business is structured into functional units. This may result in redundant departments and result in inefficiency. For example, each division may have its own training function and conduct the same professional skills classes. Small businesses may start with a simple structure but adopt a divisional structure to be more successful when the business grows too large for the CEO to make all the decisions.

Reporting Alternatives

In a matrix structure, employees report to more than one manager. This combines both functional and divisional structures. This promotes efficient sharing of resources but is often difficult to manage and maintain. Matrix management tends to work successfully in collaborative and cooperative companies that require flexibility in responding to customer demands. In a network structure, a central core leader operates the main strategic business and outsources the functional work, such as manufacturing, marketing and distribution. This decreases control but typically increases cost effectiveness. Use these alternative reporting structures if they meet your company's needs.

References

• MindTools: Organizational Design
• Harvard Business Review: The Importance of Organizational Design and Structure

Resources

• Designing Organizations: An Executive Guide to Strategy, Structure, and Process Revised; Jay R. Galbraith