How to Determine the Best Organizational Structure

Determining the organizational hierarchy that best suits your company includes analyzing how your business operates. Use the output of your analysis to design your organizational structure. Enable your employees to accomplish their work most effectively. Small companies tend to require less structure than larger ones. So, make your decisions based your company size and task complexity. If you choose a formal structure, all people doing similar jobs tend to be in the same department. For example, all accountants should report to the Accounting Department. Less formal organizations do not use many controls and form an organizational structure based upon more flexible organization.

Things You'll Need

• Desktop publishing software

Instructions

1. Identify and document operational work procedures for your business.

2. Gather information about company job titles, descriptions and working relationships. Simple job descriptions and limited interaction between job roles typically results in a vertically oriented organizational structure with top-down management decision making. More complex job descriptions and a lot of interaction between employees in producing products and services typically result in organizations structured in a horizontal fashion, with few managers and more collaboration between workers.

3. Analyze your work procedures to determine the optimal work flow. Decide how to group your functions. Traditionally, forming separate departments (such as sales, marketing, human resources and accounting) that function fairly independently works well for larger companies in stable industries. If your business environment changes rapidly, choosing a more flexible adaptive structure typically makes more sense.

4. Analyze your work procedures to determine if there are any geographic, product, customer or market considerations for structuring your company. For example, sales and services practices in Europe differ significantly from those in Southeast Asia, so if your company has larger numbers of people working in both environments, it makes sense to structure the organization along geographic lines. However, significant function duplication (for example, in customer service support) can result, so your goal should be to balance your approach. Most companies centralize in regional headquarters, because it is more cost effective, and provide country-level support only when required.

5. Examine your work procedures to determine if a matrix structure (in which specialized staff divides their time between different functions) makes the best use of your available resources. Reporting to two different managers can lead to employee confusion but it also can foster innovation and creativity by providing guidance from more than one leader.

6. Establish strategic business units to facilitate the development of new programs, products and services as your company becomes larger.

7. Set a time frame for implementing the organizational structure and assess its value on an ongoing basis to fine tune your hierarchy and processes.

References

• "Designing Organizations: An Executive Guide to Strategy, Structure and Process;" Jay R. Galbraith; 2001
• "Organizational Strategy, Structure, and Process;" Raymond Miles and Charles Snow; 2003
• "Designing Your Organization: Using the STAR Model to Solve 5 Critical Design Challenges;" Amy Kates and Jay R. Galbraith; 2007