An organizational structure is a framework that describes how work is divided in order to achieve an organization’s objectives. Defining an organizational structure includes things like forming rules, dividing roles, and assigning responsibilities.
Organizational structures are used extensively by businesses of all kinds and sizes. Within an organization, they define a certain hierarchy as well as each employee’s task and how it fits into the wider system are defined by an effective organizational structure. Simply put, the organizational structure establishes who does what so that the corporation may achieve its goals.
At a certain size, small businesses will run into problems without a defined structure in place. Employees, for example, may be unsure of whom they should report to with a chain of command missing. This might lead to confusion about who is responsible for what in the company.
The flow of information between levels inside the corporation is also determined by the organizational structure. In a centralized structure, for example, decisions are made from the top down, but in a decentralized structure, decision-making power is distributed throughout the organization. Companies can stay efficient and focused if they have an organizational structure in place. You can read more about the right organizational structure for your business here.
Specific Challenges for Small Businesses
The type of structure that an organization employs is a key factor in its success. The number of layers of administration and how departments interact are determined by organizational structure. Poor organizational structure can lead to a slew of issues, including bloated management and ineffective communication.
In small businesses, we often see that there are no formulated organizational structures and job descriptions at all. They are working on any project that is available. This could lead to improper staffing, where people are working on projects where they have no expertise in. This can also lead to problems where employees do not understand the scope of their own responsibilities. Business owners have no clarity on what role they need to hire for in their organization.
Another issue of having no set organizational structure is that there is poor communication and lower collaboration within the team members. Also, since there is no specific plan for growth and the hiring associated with it, it becomes difficult for a company to work in such a structure. Such improper resource management leads to loss in productivity.
From our experience of working with our clients, we know that small businesses usually start off with an owner-centric structure (also sometimes called “simple structure”, which is typical for startups. In such a system, each employee reports to the owner and there are no organizational structures in place. Also, the span of control for the business owner is high. But, due to the fact that a single person can only manage a limited number of employees at a time, these kinds of structures start causing improper communication between the team members.
A functional organizational structure is the easiest and the most natural solution for your small business. Although there are other structures like divisional structure or matrix structure, a functional structure is the easiest and the most natural organizational structure to start with for your small business. A functional organizational structure is one in which your talent is organized according to the functional areas you have. That implies you’ll need to put together a marketing, sales, engineering, human resources, and finance team (or whatever other functions you have).
They are one of the most popular organizational charts, and the benefit of a functional structure is that it allows you to develop and use subject-matter expertise across multiple teams. Teams can easily achieve high levels of team cohesion and role identification and have good communication. You have the option of designating a team as a sales or operations team, each having their own functional manager and a specific area of responsibility.
Another benefit of a functional organizational structure is that you have an easier time hiring new employees. With specific roles and job descriptions in place, you do not have to find the right job for your new employee. A clear reporting structure helps ease the communication gaps and improves the workflow.
How does your small business build an organizational structure?
EVALUATE THE VALUE CHAIN AND YOUR STRATEGY
As a small business owner, your first step is to decide what is the purpose of your business and what do you aim to achieve from it. Your organizational structure is a roadmap for how you’ll achieve your vision on a daily basis. You can read more about this in our another blog post here.
FORMULATE THE TYPE OF ORGANIZATIONAL STRUCTURE
Have a deep dive into the strategy which you have in place for your business and your plans for the future growth of your business. You should always consider the growth of your organization and plan your structure that you envision your business to look like in the future. Make sure that the things that are important in your strategic outlook are reflected in your org structure of choice.
PREPARE AN ORGANIZATIONAL CHART
You should prepare an organizational chart and hand it over to your employees or alternatively make it visible to all team members. It should include the roles you have created and assigned to your employees. It should be visible to everyone which ensures that each employee knows their department and their reporting levels and has their contact information. If you have roles that are unassigned at the time of creating the organizational chart, keep them blank or you put your own name or someone else’s depending on who takes care of it today.
FORM ROLES WITHIN THE DEPARTMENT
Once you have your organizational chart in place, you should fill up the teams which have been formulated in the organizational structure. This should be done in consultation with your current employees and each employee should be given an individual and independent role within the team. All team members should sign off on their role.
ASSIGN LEADS TO EACH DEPARTMENT
The next logical step after forming different roles within your organization is to allocate leads to the different teams. This ensures that there is a direct supervisor for all employees working in a particular department. This step should be carried out carefully and you should not base your decisions based on the fact that an employee has been with you right since the formation of your business, but rather it should be transparent and allocation should be done according to merit or previous experience.
If there are no employees currently available who can act as leaders of their department, it is better that you assign that responsibility to the most experienced employee in that department, till the time you are able to hire a new lead for that department.
This helps you give your company structure and eases the decision making process. You can also have an effective work process flow within your organization. There are a lot of advantages of having a set organizational structure like:
EASE OF DECISION MAKING
When your company’s different teams are able to communicate more effectively, it will have a favorable impact on overall communication. As a result, decisions will be made more quickly. To put it another way, the flow of information combined with an organizational structure can help to speed up decision-making.
EASY REPEATABILITY
If you’re a business owner, an organizational structure can assist you in ensuring that all of your sites operate in the same way and follow the same rules. Because owners cannot be present at all times, an organized framework can give you some peace of mind. This is especially true as your firm grows in size.
HIGHER OPERATIONAL EFFICIENCY
Organizational structures help to ensure that all tasks and responsibilities unique to certain divisions are met more readily since they divide organizations into distinct teams or branches. Employees can work faster and more efficiently when they know what they should be working on. In essence, a well-organized structure results in a more efficient and streamlined system, which helps to improve overall corporate operations.
ACCOUNTABILITY
A formal structure for your organization helps you have transparency in the decision making process. You can directly hold people accountable for their tasks as you have proper division of tasks across departments and within the teams as well.
EASE OF HIRING
With specific roles / job descriptions in place, it becomes easier for you as a small business owner to hire new employees. You know what kind of a person you need and what are the skill sets required for that particular position. Also, since you have defined the job role systematically, it would also attract a larger applicant pool, which in turn increases the chances of hiring a great team member.
IMPROVED COMMUNICATION
The ability of an organizational structure to facilitate healthy communication between different divisions and teams is a plus. Others in the company will know who to turn to for specific issues once responsibilities have been delegated to distinct teams and individuals.
If you’re on a team with only one boss, for example, you’ll know who to contact if problems emerge. Similarly, if someone in marketing has a question regarding the project’s design, they know to ask the designing department.
Creating an organizational chart for your business can be a rather straightforward and uncomplicated process, as you see. If you’re just getting started or don’t have a dedicated staff or department to work on this organizational structure, you might be thinking if you actually need one. In the end, the choice is yours—but it’s worth noting some of the advantages of using one of these diagrams and why they may be so beneficial to your small business.
Do you have experiences where having an organizational structure for your small business helped you in improving performance or developing your operations? Let us know in the comments section below.