What is Organizational Structure?
Organizational structure helps a company assign a hierarchy that defines roles, responsibility, and supervision. It’s the plan that outlines who reports to whom and who is responsible for what. It’s usually recorded and shared as an organizational chart that includes job titles and the reporting structure.
Organizational structures typically use one of two approaches:
- A centralized structure gives most of the authority and decision-making power to the team at the top.
- A decentralized structure distributes authority and decision-making power at lower levels, which might include departments, groups, or business units.
A company can be organized in a number of ways. It might be built around divisions, functions, geography, or with a matrix approach:
- A divisional structure is organized around divisions or business units that are self-contained entities with their own functional departments such as human resources, marketing, and so on.
- A functional structure is based on job functions often labeled as departments – finance, purchasing, etc.
- A geographical structure is often used when a company has multiple locations. Each location operates independently.
- With a matrix structure, the company is organized around teams assembled for specific tasks. Team members usually report to more than one person – the team leader, and the supervisor for the team member’s functional area.
The organizational structure of a small business is most likely functional – one based on job duties. While small businesses are often casual with their hierarchy, some type of organizational structure is required so that employees know who is supervising their work and can help with problem-solving and other issues. That structure also helps them understand growth potential in their jobs. In addition, an expanding business can minimize growing pains when it has an organizational structure or hierarchy in place to build on during growth periods.