Organizational structure determines the assignment and coordination of roles, power, and responsibilities within a business. It also defines how information flows between the different levels of management.
Every business, from a sole trader to the largest company, is organized in a particular way. You can organize a business by function, geographical area, product, or project. You can also organize a business in a hierarchical or a flat structure, or even a matrix structure. Introducing a formal organizational structure can help put your business in a better position to achieve its objectives.
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 resource issues, such as managerial authority. Small-business owners should begin thinking about a formal structure early in the growth stage of their business.
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.
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 unstructured workforce becomes unwieldy.