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.
Function
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.
Communication
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.
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.
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.
Prevention/Solution
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.