A Strong Business Organization Structure is Paramount to Business Success
If you employ fewer than 15 people, you might not need to worry too much about your business organization structure. If you plan to hire more than 15, even if over a period of 1-2 years, having an organizational structure will benefit you, your managers, employees, investors, and lenders.
Just as a business plan acts as a blueprint for your business, planning your organization structure helps you determine the talent you’ll need to ‘build your business’.
In much the same way you strategize your marketing and sales efforts, you need to plan what kind of people you need to hire, how your employees will report and interact, and what control measures you will have in place to promote smooth operation.
You have a plan – now it’s time to implement it.
I’ve talked extensively about how to plan different aspects of your business throughout this site. But having a plan, even a good one, is only just a plan until you implement it. Creating a clear and well-designed business organization structure is a crucial step in employing competent people to implement all aspects of your business plan – from startup (if you are a new business), sales, marketing – to the kind of management team you’ll need to drive the entire operation.
As you know, many businesses fail because their owners planned poorly (or not at all). Yet, some entrepreneurs who do plan make the fatal error of having a poor implementation strategy. You might say…
A plan without a strategy is like a dream unfulfilled.
So it’s important to invest some time in studying and creating a business organization structure that will best serve your company.
Where do you begin?
First of all, thinking and rethinking your business organization structure is just as important for existing businesses as it is for new ones. Even if you already have a business with a working structure, there is always room to review and refine.
To create an effective business organization structure, you need to consider…
1. Your Competitors
Though you may not have direct access to your competitors’ plans and strategies, you can make an educated guess about their structure. Look at their reporting line structures, and procurement, production, marketing, and management systems.
If you have the financial capability, consider commissioning a market research agency to study the business organization structure of your main competitors. You can also visit your competitors’ websites to see if they have published their structures.
2. Your Industry
What is the standard in your industry, if any? Some types of businesses lend to certain business organization structures, while other types can be set up with more flexibility. For example, automobile manufacturers usually set up regionally. Their head office will have the responsibility of setting global goals and standards, but each regional unit operates as an independent entity. On the other hand, a department store or supermarket chain may also set up regionally, but they might also set up by department or by product.
3. Compliance or Legal Requirements
Some industries are regulated, and as such require certain elements to be incorporated into their business organization structure. In fact, even industries which aren’t regulated may need to comply if they employ a certain number of employees. And of course, every business needs to ensure salaries, wages and benefits are paid, and all remittances are made, such as withholding taxes, social insurance and 401K.
4. Your Goals
What goals do you have for your business, and what kind of leader do you intend to be? Your organization structure should enable you to achieve your business goals, and how each person within your structure plays an important role. In this respect, you should also make clear the reporting lines between each level.
5. Investors and Lending Sources
Having a business organization structure lets potential investors and funding institutions know how you will organize your business operations. But it also lets them know what obligations you, your shareholders or partners have and how each of you will interact.
An organizational structure also lets investors and lenders know what kind of talent you need to employ to effectively manage and operate the business, how soon you need them, and how you will find and attract them.
Your business plan should outline the key positions in your organization and detail the responsibilities and experience required for each. If you have already have prospects or have made commitments for any of these positions, you should also provide a brief profile for each.
Business Organization Structure Examples
The following examples are basic structures. Ultimately, you will need to choose and tailor a structure that best fits your business goals and needs – either adopting a basic model or combining different models.
Functional Organization Structure
Functional organizations are structured around job functions. This type of business structure is suitable for small to medium-sized businesses that do not have a wide range of products or production requirements.
Product Organization Structure
Product organization structures lend well to organizations such as department stores and supermarkets. When these organizations operate in multiple regions, a hybrid between geographical and product organization structures is suitable.
Matrix Organization Structure
Geographical structures are organized, as the name implies, by geographic area or region. Each region is its own complete entity; its goals tied to the overall goals of the business. There is usually a regional manager overseeing the entire operation, who will report to head office, but will otherwise have complete responsibility for the regional unit. The above chart gives an example of a North American geographical structure. The same can be applied internationally, where regions are split up by continents or subcontinents. Automobile manufacturers and multinational fast-food chains often follow this business organization structure. In some cases, products will remain the same across all regions, while in other cases, a product may be slightly modified or a new product introduced to meet local needs.
St Joseph University Online offers a masters degree program in Organizational Leadership, through which you can gain a deeper understanding of the mechanics and importance of various organization structures.
- Types of Organizational Structure
- Flat Organization Structure
- Formal Organizational Structure
- Functional Organization Structure
- Matrix Organization Structure
- Organizational Structure Culture