Does your current structure or business model make sense? Are there small changes you can make that won’t disrupt the current flow? If you’re asking yourself these questions and more, you have come to the right place!

In this week’s Self-Made Is A Myth podcast, guest Jason Lippert, a third-generation leader at LCI Industries, discussed strategies to address key challenges in personnel selection, organic growth, innovation, culture development, and adaptability in the business landscape. You can listen to the entire podcast in the video provided, but in today’s blog, we want to break down culture development and the importance of building the proper organizational structure or making changes to your current model for the benefit of your business!

 

In the ever-changing world of business, crafting the perfect organizational structure is setting the stage for success. A recent LinkedIn study sheds light on the stark reality that more than 50% of companies grapple with this challenge, while only a mere 20% truly excel in the art of work design (Enderes, 2022). If you’re looking to start your own business, join a franchise, or simply make a change in your current business – you should highly consider the foundation. Does your current structure or business model make sense? Are there small changes you can make that won’t disrupt the current flow? If you’re asking yourself these questions and more, you have come to the right place!

Today, we delve into a comprehensive exploration of various organizational structures for your business. Whether you are stepping into the startup realm or reshaping your established enterprise, you will gain insight into the diverse world of organizational structures, and which is most effective with your unique goals and vision.

 

Key Organizational Structure Elements

Interest:  The fact is that every company needs an organizational structure. It outlines the way a company assigns roles, responsibilities, and decision-making authority to its members. According to a KPMG Global Transformation Study, 96% of companies say they’re in the middle of a business transformation (Baker, 2022).  There are many aspects to consider when thinking about the structure of your company. Before determining which structure aligns best with your unique needs, it’s essential to gain a deep understanding of the seven fundamental elements that underpin a successful organizational structure:

 

  1. Work Specialization: Allocating job responsibilities based on job descriptions, and dividing projects into manageable tasks assigned to individual employees. Incorrect work specialization may lead to employee burnout.
  2. Departmentalization: Groups of professionals based on factors like job description, skills, or location. Choosing departmentalization criteria is a key challenge. Small businesses often use matrix departmentalization, combining different approaches for flexibility, such as functional and geographical departmentalization to serve clients in various locations.
  3. Chain of Command: A system for instruction and reporting in organizations. Ideally, it empowers employees, promotes knowledge sharing, and ensures accountability. Traditional chains can hinder decision-making and lack flexibility. Modern approaches prioritize employee autonomy and minimize micromanagement.
  4. Span of Control: Defines the number of direct reports overseen by a single supervisor, guided by elements within the organizational structure. To pinpoint the optimal span, consider the proficiency of your leaders, the size of your workplace, and the experience level of your employees.
  5. Centralization vs. Decentralization: Determines the extent of input from managers and employees in shaping company goals and strategies. Centralization gives leaders full control over decision-making, while decentralization empowers employees to influence business decisions. We’ll explore centralized and decentralized organizational structures in the next section.
  6. Formalization: Measures how standardized business processes, policies, and job descriptions are, impacting communication, workplace culture, and operational procedures.
  7. Boundary Spanning: Initiatives undertaken by an organization to foster and strengthen connections, both internally and externally.

 

Among these crucial components, the interplay between “centralization vs. decentralization” is paramount. Centralization, following tradition, involves decision-making authority primarily resting with top-tier leadership, often centralized around a singular leader or a core leadership team. Nevertheless, in the fast-paced landscape of industries like technology, agility and adaptability have taken precedence, leading to the prominence of decentralized structures, which encourage a more flexible approach to organizational dynamics. This shift aligns with the evolving demands of our ever-changing business world.

 

How Each Organizational Structure Type May Benefit Your Company

Now that we have discussed the elements of a successful structure, we will go through some of the most widely used organizational structures and why they work.

  • Functional Structure: Groups employees by their specific roles, with each department led by an experienced leader. It often follows a top-down approach, where department managers report to upper management. Team leaders communicate, but lower-level employees may not be well-informed about other department activities.
  • Divisional Structure: Arranging employees by products or locations. For example, companies like McDonald’s and Disney use this structure to adapt to different markets. These smaller groups have some freedom and often use a decentralized approach. However, department leaders usually follow centralized corporate management, which sets the company culture, while each division can make its operational decisions.
  • Hierarchical Structure: The most common organizational structure is hierarchical or line organization. In this setup, authority flows from the board of directors to the CEO and then down through the entire company. This structure is centralized, and it often involves a staff director overseeing all departments and reporting directly to the CEO, making it suitable for businesses in any industry.
  • Flat Structure: characterized by decentralization, grants nearly all employees equal authority, with executives holding slightly more power, if any. It’s a favored choice for startups, particularly in the tech industry, where flexible work arrangements and modern work approaches are prevalent due to the smaller employee count.
  • Matrix Structure: A flexible adaptation of the conventional hierarchy. It permits employees to shift between departments when necessary, and it’s commonly seen in industries with uniquely skilled employees who may be the sole experts in their respective fields within the company.

 

Do you need guidance on how to effectively align your business framework for a successful transition? Choosing the right organizational structure for your business depends on factors like employee empowerment, innovation space, company size, and employee interaction preferences. Your business framework acts as the guiding blueprint, harmonizing tasks, roles, relationships, responsibilities, and rules, all working together to steer your endeavors toward the realization of your business goals. If you’d like help working through these questions, book a free consultation with one of our business coaches.

 

Book your free consultation today using this link and let’s create or reevaluate your organizational structure: