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From a logistical perspective, it can be surprising to find that many small businesses and startups need a sound organizational structure. How one structures their team, company leadership and the flow of information and communication within their organization can spell the difference between a business scaling successfully or one whose growth is stunted or outright fails.
Organizational structures are crucial for any business. They outline who reports and is accountable to who, what each employee’s job is, the makeup of teams and help streamline the flow of information through the organization.
The types of organizational structures
Organizational structures are not all the same. Different types are applied for different purposes. Depending on the type and size of the business, one organizational structure may work better than the rest.
There are seven known structures a business has to choose from.
Hierarchical structure: This is the structure that most people likely picture when they hear the words “organizational structure.” This pyramid-shaped chart is the most common structure and follows a typical top-down chain of command.
Functional structure: This is similar to a hierarchical structure except employees are organized according to skill level rather than hierarchy.
Horizontal (flat) structure: When a company has few levels between employees, a flat structure may work well for their needs. This is a structure many startups use before they have enough employees to have a hierarchical structure.
Divisional structure: This structure separates employees into divisions, and each division operates independently. Each division may have its own teams, hierarchy and leadership levels. This structure usually works well for large companies.
Matrix structure: This structure is organized in a grid system. Cross-functional teams take on projects together, crossing over into other teams to apply their skills for the betterment of the company as a whole.
Team-based structure: As the name suggests, this structure groups employees into teams. This structure flies in the face of the traditional hierarchy, with a team-based focus on cooperative employee control.
Network structure: This structure works best for businesses that work with various vendors, subcontractors or freelancers. This structure leads to more flexibility and the ability of employees to make decisions for the business.
Related: Establishing The Structure For Organizational Growth
Starting small
When a startup is first gaining some traction, it may not have an established organizational structure. This lack of a formal structure is especially true if the startup team is very small or the venture is being run as a solo operation. The need for an organizational structure arises when the team grows. Strong and well-defined leadership becomes critical to steer the proverbial ship of the business as it scales.
Businesses must take steps to implement clear leadership roles and a well-communicated hierarchy. Employees who join the organization should be immediately aware of who they report to and who should be on the receiving end of any questions they may have.
Of course, the CEO is at the top of the hierarchy, but this may be someone other than the business owner as not every owner is capable of running a team. In these cases, there needs to be some personal reflection on the part of the business owner so they can properly delegate leadership roles. Owners and top executives need the room and time to think about the big picture for their business. If they were tasked with fielding questions from all levels of the organization, scaling would grind to a halt.
Related: 3 Signs the Best Move for Your Business Is to Hire Somebody Else to Run It
Creating the structure
Once the decision is made on that organizational structure best fits one’s business size and type, building that structure can be challenging — especially in a startup. As such, business owners should take a good look at their future goals for their company as they create their structure.
With the first step of choosing a structure complete, the next step will be building a visual representation of the chosen structure — or an organizational structure chart. Once completed, this should be available to everyone associated with the business, from the higher-ups to the entry-level employees. The chart should clarify team leaders, job titles and team members. It’s crucial that employees understand the organizational structure and where they fit within it.
Once an organizational structure chart is created, it should be maintained, consistently updated and evaluated at least yearly to ensure that the chosen structure is still the best fit for the business. It is possible, especially within startups, that an organizational structure may change as the business scales.
At the end of the day, organizational structures are all about striking a proper balance between authority and responsibility. Deciding on the right structure and creating a clear and malleable organizational chart often builds the foundation of the business itself.
Related: 3 Reasons Promoting From Within Is Better for Growing Your Business
As you grow
As the business scales, its organizational structure should be regularly reviewed. Performance reviews of managers and the employees they lead should reveal any issues with the current structure and ways the structure can be improved. If one area of the structure is not working well or as intended, issues should be addressed swiftly to avoid any toxic elements seeping into other departments.
Organizational structures are a must-have for any company, but especially for growing businesses. A robust structure helps owners and leaders properly scale to meet their business goals. Although the type of structure that is put into place may depend on your industry or the size of your business, the most crucial takeaway is that an organizational structure is key to business success and should be a priority for any organization seeking growth.