Small companies usually use one of two types of organizational structure: Functional and product. Functional areas such as marketing and engineering report to the president or CEO in a functional organizational structure. Product structures are used when a company sells numerous products or brands. It is important for companies to find the organizational structure that best fits their needs.
1. Decision Making
Organizational structure is particularly important for decision making. Most companies either have a tall or flat organizational structure. Small companies usually use a flat organizational structure. For example, a manager can report directly to the president instead of a director, and her assistants are only two levels below the president. Flat structures enable small companies to make quicker decisions, as they are often growing rapidly with new products and need this flexibility. The Business Plan, an online reference website, says small companies should not even worry about organizational structure, unless they have at least 15 employees. The reason is that employees in extremely small organizations have numerous responsibilities, some of which can include multiple functions. For example, a product manager also might be responsible for marketing research and advertising. Large organizations often have many tiers or echelons of management. As a smaller organization grows, it can decide to add more management levels. Roles become more defined. Therefore, it is important to know which people oversee certain functions.
The importance of organizational structure is particularly crucial for communication. Organizational structure enables the distribution of authority. When a person starts a job, he knows from day one to whom he will report. Most companies funnel their communication through department leaders. For example, marketing employees will discuss various issues with their director. The director, in turn, will discuss these issues with the vice president or upper management.
3. Evaluating Employee Performance
Organizational structure is important for evaluating employee performance. The linear structure of functional and product organizational structures allow supervisors to better evaluate the work of their subordinates. Supervisors can evaluate the skills employees demonstrate, how they get along with other workers, and the timeliness in which they complete their work. Consequently,
supervisors can more readily complete semiannual or annual performance appraisals, which are usually mandatory in most companies.
4. Achieving Goals
Organizational structure is particularly important in achieving goals and results. Organizational structure allows for the chain of command. Department leaders are in charge of delegating tasks and projects to subordinates so the department can meet project deadlines. In essence, organizational structure fosters teamwork, where everyone in the department works toward a common goal.
Organizational structure enables companies to better manage change in the marketplace, including consumer needs, government regulation and new technology. Department heads and managers can meet, outline various problem areas, and come up with a solution as a group. Change can be expected in any industry. Company leaders always should strive to find the best organizational structure to meet those changes.
6. Growth and 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.
7. 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.
8. 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