May Topic: Organizational Structures
- Jun 18
- 3 min read
Overview
This Topic of the Month emphasizes the importance of an organizational structure, as it informs
the present condition of the business and prepares it for changes in the future. A specific
organizational structure that is able to grow with your business is key to long-term success and
longevity. In establishing a structure, you decide how information will be communicated across
different areas of the business. This topic discusses:
1. The Role of Organizational Structures
2. Different Organizational Structure Types
The Role of Organizational Structures
An organizational structure is how a company plans to organize itself to meet its goals.1 Having a
structure in place is important because it informs the flow of information both internally between
teams and externally with customers. Without an organizational structure, different parts of a
business are unsure of where to find information outside of their expertise and customers
experience delays and/or inconsistencies in service. Organizational structures should be formatted
for the company’s current needs, yet able to be expanded as the company grows.
The best way to physically map out a vision for growth is through an organizational chart. An
organizational chart is a visual representation of how you plan to structure your organization to
meet its goals and maintain effective communication across different parts of the company. Create
a current organizational chart and make sure every employee understands it.
This will show a path upward for employees who want to grow in the company. Design future
organizational charts based on the growth you want to see in 2 years and 5 years. Evaluate the
positions that the company will need to fill and consider how employees will need to grow in
technical and management capacity to fill these positions. It is often less risky and less expensive
to develop from within. An organizational structure can also help in determining the payroll costs
associated with expansion; as you plan for necessary positions to be added in the future, consider
the appropriate pay ranges that should be assigned to those roles.
Different Organizational Structure Types
Your organization has unique needs that dictate the structure you should use. Begin by considering
whether a centralized or decentralized structure works best with your goals.
Centralized: superiors are the ones with the final say in decision making
Decentralized: employees have the flexibility to make decisions; not based on hierarchy
Next consider these four main types of organizational structures and identify which one best aligns
with how your organization is already structured or would respond best to:
Functional: the organization is organized based on the functions of employees, such as the
finance department, the human resources department, etc.
Divisional: the organization is organized based on the various focuses it has, which can
be based on different geographies, products, markets, etc.
Flat: the organization has a minimal number of superiors, which all employees report to
Matrix: the organization assigns employees to work in different functions or divisions as
needed, creating a wider range of superiors they must report to
Summary
Organization structures support a business in the long term by providing employees with clarity
on where to access information that help them serve customers, but also financially as future plans
for growth are made. Deciding on how to organize a company is dependent upon the unique needs
of the business. An organization can either be centralized or decentralized. There are also four
main organization types. Once an organization type is selected, providing everyone with a clear
organization chart helps manage expectations and keeps everyone on the same page.
Don't hesitate to reach out to us for copies of prior editions from our extensive Monthly Topic archive. Other May Product Mix Monthly Topics include: Workforce Stabilization, Career Paths, Retating Employees, & Managing Employees
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