A company never stumbles its way to the top of the mountain. It gets there by setting goals and creating a pathway for realizing those goals. While the talent of the employees involved with achieving those outcomes is important, of equal importance is how the involved parties interact and work with one another in pursuit of the common goal. This is dependent on the organizational structure of the company.
From Apple and Google to startups, companies of all shapes and sizes rely on a robust organizational structure as the foundation of their success. It’s the system that essentially outlines how the company works, including the chain of command, who makes decisions and how, and how separate departments interact with one another. Think of it as the invisible conductor that pushes the orchestra, the workforce, to perform at their highest level.
There are different organizational structure types, and not all companies use one, but for most, they’re an essential ingredient that contributes toward better decision-making and goal achievement
At the heart of organizational structure development/restructuring is the human resources department. This blog will run through some key information regarding organizational structure, including benefits, the development process, and how HR can be a driving force behind long-lasting, company-boosting organizational change.
- Why is organizational structure important?
- What are the consequences of bad organizational structure?
- What factors influence organizational structure?
- The importance of organizational agility
- Different structure types
- HR’s role in determining organizational structure
A bird can’t fly with clipped-wings. Good organizational structure functions as a business’ “unclipping,” which, developed correctly, will put the company on the path towards success. So what are the benefits of a well-thought-out organizational structure?
Sets Clear Functions
With a clear organizational structure, employees clearly understand their role and function within the company. It defines his or her job in absolute terms, which helps eliminate confusion, and connects their position to the overall system, which creates a sense of belonging.
Establishes Chain of Command
Employees of all levels understand to whom they report and who reports to them, simplifying communication, speeding up the decision-making process, and reducing frustration.
A forward-thinking organizational structure maximizes productivity by enhancing coordination between departments, eliminating work duplication, and encouraging initiative behaviors and creative thinking.
Having an inadequate structure — or none at all — will lead to reduced productivity, high employee turnover, and clipped growth, all of which will impact a company’s competitiveness.
Communication suffers in companies with bad organization because employees don’t know where to turn with problems or what information they need to share with others. The employee may also have several bosses who may give conflicting instructions.
Misuse of Talent
Without a clear chain of command, low-level employees may step up to perform tasks they are not qualified to do. Senior employees may step down to perform tasks for which they are overqualified.
For businesses to be profitable tomorrow, they have to plan today. Without an organizational structure that routinely brings together various departments, no strategic planning (that’s valuable at least) can take place
Hire Employee Turnover
The confusion, chaos, and frustration of working for a disorganized company can reduce employee engagement, impacting employee retention and performance.
As you’ll see further on down the page, there are plenty of different structures to choose from, so how can you select the one that’s right for your business? Consider the following factors.
The number of people within the company determines the kind of organization needed. Are you running a sole proprietorship business of which you are the only employee? Have whatever structure you like. Just jumped from five employees to thirty? You’ll need to think about the best way to organize and structure your blossoming team.
Some organizational structures are better suited to some industries than others. Cutting edge, rapidly changing industries will require highly-adaptive systems; more stable industries (such as, say, domestic cleaning products) may prefer more traditional structures (on the basis of “if it ain’t broke, don’t fix it”).
The Company Culture
A company’s organizational structure influences company culture. What do you want from your employees? Or perhaps the better question is: how do you want them to feel when they arrive at work? If you value their autonomy and want to encourage innovation and organizational agility, then a flat organizational structure would work better than a hierarchical structure.
Things never stay still for too long in the business world. Indeed, change is about the only thing that business leaders can be sure of; it is always there, especially in fast-moving industries such as finance, manufacturing, and IT. So how can businesses ensure their organizational structure ensures they remain competitive when the market, customer expectations, or employees’ needs change? It’s all about incorporating dynamism into the structure
But first: why is agility important? Because it drives a company towards continued success. It’s the attribute that allows an organization to change quickly to meet new demands, to adapt and renew itself, a flexible attitude that permits the company to shift when circumstances call for it. It’s also bold and aspirational and full of confidence — a company will not fear the changing winds if they can simply adapt their sails.
However, while most business leaders want organizational agility (and especially the benefits it can bring), most companies are not agile. A Gallup poll found that 59% of US workers viewed their company as “Not Agile,” while a further 24% said their employer is only “partly agile.” So what’s the issue? It might be partly down to the leadership mindset, but more likely, it’s down to a static and outdated organizational structure model. Anything other than a shift to a structure that can more readily adapt to changes could prove fatal to a business, especially today, when the speed of change is accelerating. The organizational structure you install today should exist for as long as it serves its purpose; once it no longer does that, the system should adapt to meet new demands.
Hierarchical is the “classic” organizational structure. There’s a chain command that runs from the top (CEO) to the bottom (entry-level employees). Every employee has a supervisor or manager.
A functional organizational structure is similar to a hierarchical structure, only divided into separate departments, such as marketing, sales, and customer service.
The divisional organizational structure is suitable for larger companies with multiple divisions (such as Sony, which has electronics, entertainment, and financial services sectors). Each division is autonomous of the other and runs as a de facto individual company.
Flat organizational structure is the antithesis of hierarchical organization and lends itself to organizational agility. There are few (if any) chains of command, with minimal supervision of employees, who are encouraged to work independently
More complex than other structures and generally suitable for engineering, manufacturing, and construction businesses, Matrix organizational structure deploys an employee’s skills across the organization, wherever it’s needed. An engineering employee may have two or more managers, one in the engineering department and a special assignment “project manager.”
The human resources department will play a significant role in determining the right organizational structure for a business.
During the development stage, the HR team should produce HR reports and analytic insights, providing an assessment of the current employees’ skills, experience, and productivity. They may also conduct surveys relating to staff performance from employees and supervisors. Insights from HR can help determine the best way to structure the business moving forward. With tools like an organizational chart, HR teams can visually represent how changes will affect the company.
The organizational restructuring may alter existing positions, such as increasing or reducing work assignments and work hours. In this instance, the HR team will be responsible for increasing/decreasing pay (if required) and analyzing any change in the employee’s legal status (for example, if it affects their exempt/non-exempt employee status).
Finally, the HR department will guide the employees through any company changes brought about by the new structure. Corporate changes can be an unsettling time, but a company can ensure it’s a smooth process by involving the HR team. HR is a vital part of change management and can help employees excel in challenging new environments.
Developing your company’s organizational structure is not an easy process, but it is a worthwhile one. It pushes you to rethink your existing practices and ask: how can we do things better? Get it right, and your company can soar.