How to Plan Organizational Structure


The organizational structure shows how the organization is put together. It depicts how jobs or departments are arranged. Structure also reflects the way interactions take place in and across departments. For instance, organizations can be formal and centralized or they can encourage loose and flexible interactions. The organizational structure provides some consistency in the way the organization deals with people.

Formulate your business plan. Your business plan should show the direction of your business, including type of customers to serve and how. For example, you may decide to produce custom products in a low volume labor intensive production environment.

Determine objectives in line with your business plan. Objectives should focus on results not activities, be measurable, attainable and time bound. Example: sell 200 units of a specific product in the first quarter of the year.

Delineate the activities required to achieve the objectives. Typical activities of a business enterprise include production, sales and finance.

Departmentalize: group similar activities into departments and units. It can be done based on functions (marketing and sales), process (pattern design and painting), product (Lincoln, Mercury and Ford) or similar criteria.

Staff departments and units. Give employees authority to carry out required activities and hold them responsible for performance.

Tips & Warnings

  • According to the "exception principle" only exceptionally complex problems should be referred to the management, and routine matters are resolved by lower level executives. To retain flexibility, avoid complicated procedures and unnecessary control. The chain of command should be clear and subordinates should know who to refer to with issues beyond their authority. Arrange the enterprise to provide for continuity of the business; hence there should be provisions for executive development or training.

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