“A good system shortens the road to the goal.”
– Orison Swett Marden
This is a small section from my post about Building a Business Plan. In January, 2022, I decided to commit to building a company, and it was one component of the process. You can check out the full project here.
A business’ organizational structure is important because it determines how activities are directed, how information flows, and how a business achieves its goals.
Structure of the Organization
Are there executives? Is there a team? Are there different divisions?
Usually the organization of a business begins by defining the hierarchy — how does the hierarchy exist and spread information?
Centralized Versus Decentralized
Traditionally, organizations have been centralized in which a defined chain of command led the organization from the top-down. In a centralized organization, people have specific and clearly defined roles, but usually, those roles are monotonous.
Decentralized organizations have begun to rise in popularity with their presence in many startups. This type of structure allows companies to remain faster, more agile, and more adaptable since every employee has a large level of personal agency. Instead of having to wait for information and requests to waterfall down, the information is spread more quickly and acted upon more quickly. This, though, means that it is less controlled, not that there is no hierarchy in place. Even in decentralized organizations, some type of hierarchy must be in place.
Types of Org Structures
Functional Structure
- “Bureaucratic organizational structure” which breaks companies into different “departments.” This is about leaning into specialization.
- Circular Structure (a type of functional structure)
- Still relies on hierarchy, with a group of higher-level employees occupying the innermost rings and the lower-level employees occupying the outer-most rings
- Instead of information flowing down from the top, it flows outward from the center
Divisional or Multidivisional Structure
- Similar to the functional structure in that the company is broken up into specializing groups
- Difference is the type of specialization — Instead of specializing in a technique or type of work, this structure specializes in different products or projects.
- For example, if you take a company like Disney and break it into its different products – Disney Channel, theme parks, merchandise, Disney+ – and that’s how you separate the organization.
There are a few different types of divisional structures.
Product-Based – Each division dedicated to a particular product line
Market-Based – Each division is based around specific markets, industries, or customer types
Geographical Division – Each division is based on geography – can include territories, regions, or districts
Process-Based – Designed around the end-to-end flow of different processes (a specific process – R&D; Customer Acquisition; Order Fulfillment). It considers both the activities performed by individual employees and how different activities interact with one another.
Flatarchy Structure
- Used by many startups
- It flattens the hierarchy and gives employees autonomy which allows the company to increase its speed of implementation.
Matrix Structure
- The most complicated
- Combines elements of functional and divisional models to group people into functional departments (sales, operations, marketing, etc.), then separating them further into specific projects and products
- Works well for larger companies that have the people, products, and resources to implement this type of structure
- The extreme specificity of the different groups usually yields great results
- ID the people and clearly define roles
If you want to learn more about these hierarchies, you can visit these additional resources: Small Business Chronicle, Hubspot, and Investopedia.