Organizational structure is about definition and clarity. Think of structure as the skeleton supporting the organization and giving it shape. Just as each bone in a skeleton has a function, so does each branch and level of the organizational chart. The various departments and job roles that make up an organizational structure are part of the plan to ensure the organization performs its vital tasks and goals.
Purpose
Organizational structures help everyone know who does what. To have an efficient and properly functioning business, you need to know that there are people to handle each kind of task. At the same time, you want to make sure that people aren’t running up against each other. Creating a structure with clearly defined roles, functions, scopes of authority and systems help make sure your people are working together to accomplish everything the business must do.
Function
To create a good structure, your business has to take inventory of its functions. You have to identify the tasks to be accomplished. From these, you can map out functions. Usually, you translate these functions into departments. For example, you have to receive and collect money from clients, pay bills and vendors, and account for your revenues and expenditures. These tasks are all financial and are usually organized into a finance or accounting department. Selling your products, advertising, and participating in industry trade shows are tasks that you can group under the umbrella of a marketing department. With differing ways to organize the tasks, you can always choose something less traditional. But in all cases, organizational structure brings order to the list of tasks.
Considerations
Employees do best when they know who to report to and who is responsible. Organizational structure creates and makes known hierarchies. This can include the chain of command within an organization. A good organizational chart will illustrate how many vice presidents report to a president or CEO and in turn, how many directors report to a vice president and how many employees report to a director. In this way, everyone knows who has say over what and where they are in the scope of decision-making and responsibility. Hierarchy can also include macro-level management. For example, one department may comprise several teams. Perhaps several departments form one division of a company, and that division has a vice president who oversees all the departments and teams within it.
Features
Organizational structure encompasses all the roles and types of jobs within an organization. A complete organizational chart will show each type of position and how many of these there are at present. When smaller organizations look at their organizational structures, they usually focus more on job roles than hierarchy. Small businesses, particularly growing ones, often change quickly — adding positions and shifting people’s responsibilities as they remain flexible enough to adapt as to go along. For these businesses, having known definitions of people’s roles can be useful, especially as things change.
Types
Organizations that are very hierarchical are usually referred to as having vertical organizational structures. Typically, these organizations want their employees having more limited scopes and performing their jobs in particular ways with little variation. Therefore, they have many layers of management to oversee that things are done correctly and uniformly. The banking industry is a good example. Money must be handled carefully and responsibility, there is significant risk involved, and rules and regulations dictate specific procedures. Small businesses, innovation-based companies and professional organizations tend to use horizontal structures. These involve fewer layers of management and more focus on peers and equality. The idea is that each person takes on more responsibility and has more freedom to perform her work as she sees fit. Group medical practices are a good example. Physicians don’t oversee physicians. There may be a managing partner who oversees the general operation, but otherwise, professionals are peers each practicing in their style — all contributing to the organization’s success.