Corporate Structure

Businesses require Structure to grow and be profitable. Designing an organization structure helps top management identify talent that needs to be added to the company. Planning the structure ensures there are enough human resources within the company to accomplish the goals set forth in the company’s annual plan. It is also important that responsibilities are clearly defined. Each person has a job description that outlines duties, and each job occupies its own position on the company organization chart.

Communication

The flow of information is essential to an organization’s success. The organization structure should be designed to ensure that individuals and departments that need to coordinate their efforts have lines of communication that are built into the structure. The financial planning and analysis department might report to the Chief Financial Officer and the Senior Vice President of Marketing, because both of these members of the top management team depend on information and reports provided by financial planning.

Businesses require structure to grow and be profitable. Designing an organization structure helps top management identify talent that needs to be added to the company. Planning the structure ensures there are enough human resources within the company to accomplish the goals set forth in the company’s annual plan. It is also important that responsibilities are clearly defined. Each person has a job description that outlines duties, and each job occupies its own position on the company organization chart.

Reporting Relationships

Reporting relationships must be clear so all members of the organization understand what their responsibilities are and know to whom they are accountable. These clear relationships make it easier for managers to supervise those in lower organization levels. Each employee benefits by knowing whom they can turn to for direction or help. In addition, managers are aware of who is outside the scope of their authority, so they do not overstep their bounds and interfere with another manager’s responsibilities.

Growth & Expansion

Companies that grow rapidly are those that make the best use of their resources, including management talent. A sound organization structure ensures that the company has the right people in the right positions. The structure may suggest weak spots or deficiencies in the company’s current management team. As the company grows, the organization structure must evolve with it. Many times more layers of management are created, when one department head has too many individuals reporting to him at one time to give each employee the attention and direction needed for the employee to succeed.

Task Completion

A well-designed organization structure facilitates the completion of projects. Project managers can better identify the human resources available to them if the scope of each department’s responsibility — and each team member’s capabilities–is clear. A project to develop a new product would require market research. The project manager needs to know who in the organization can provide this research, and whose permission must be obtained for the research to be done.

Fits Company’s Needs

Companies in different industries require different mixes of talent and a relatively greater emphasis on certain management functions. A software company often has a large development staff. Structuring the reporting relationships within the development team so creativity and productivity are maximized, and deadlines are met, is vital to that type of company’s success. Companies often have to go through a reorganization phase in which individual positions or even whole departments are repositioned on the organization chart in an effort to better utilize the company’s human resources and make the operation run more smoothly.

What Can Go Wrong

Poorly structured organizations find that critical deadlines are not met because there were not sufficient human resources in each department to accomplish all parts of a given task, or because it was not clear whose ultimate responsibility the project was. If individuals are not sure whom they report to, they may find they are given conflicting assignments by two or more managers above them.

There are a number of factors that differentiate small-business operations from large-business operations, one of which is the implementation of a formal organizational structure. Organizational structure is important for any growing company to provide guidance and clarity on specific human resources issues, such as managerial authority. Small-business owners should begin thinking about a formal structure early in the growth stage of their business.

Purpose

Organizational structure provides guidance to all employees by laying out the official reporting relationships that govern the workflow of the company. A formal outline of a company’s structure makes it easier to add new positions in the company, as well, providing a flexible and ready means for growth.

Significance

Without a formal organizational structure, employees may find it difficult to know who they officially report to in different situations, and it may become unclear exactly who has the final responsibility for what. Organizational structure improves operational efficiency by providing clarity to employees at all levels of a company. By paying mind to the organizational structure, departments can work more like well-oiled machines, focusing time and energy on productive tasks. A thoroughly outlined structure can also provide a roadmap for internal promotions, allowing companies to create solid employee advancement tracks for entry-level workers.

Flat Organizational Structure

There are relatively few layers of management in what is termed a flat organizational structure. In a flat structure, front-line employees are empowered to make a range of decisions on their own. Information flows from the top down and from the bottom up in a flat structure, meaning communication flows from top-level management to front-line employees and from front-line employees back to top management.

Tall Organizational Structure

There are numerous layers of management in a tall organizational structure, and often inefficient bureaucracies. In a tall structure, managers make most operational decisions, and authority must be gained from several layers up before taking action. Information flows are generally one-way in a tall structure – from the top down.

Considerations

It is common for small businesses to lack a solid organizational structure. All employees in startup companies can be required to perform a range of tasks outside of their official job descriptions, and a good number of employees in startups have generous leeway in making decisions. Aside from that, all employees in a startup generally know who they report to, since it is usually a single person or group — the owner or partners. It is very important to have a formal organizational structure in place before your company grows so large that your workforce becomes unwieldy.