How to Develop an Organizational Structure

An organizational structure helps your business operate efficiently.

An organizational structure identifies roles in a business. It not only provides each employee with a clear definition of the chain of command, but clearly outlines who is responsible for each task. This eliminates duplication of activities in the company and gives employees the comfort of knowing that each job within the company has been detailed. Organizational chains may be important in realizing work flow improvements, compensation inconsistencies and customer care opportunities.

Instructions

1. 

   Identify what tasks need to be performed to create and service customers.

   Identify important business procedures inside your company. According to Michael Gerber, author of The E-Myth Revisited, these roles should revolve around tasks to service customers. Three foundation activities include: innovation (sales and marketing), quantification (finance) and orchestration (operations).

2. 

   Create a work flow chart.

   List work flow steps to create a product, sell and market the product, create and service the product, bill clients, track accounts payable and receivable and report results. Listing each business function allows the owner to find opportunities to create systems in each step. This allows the owner to hire people with low knowledge levels rather than expensive experts.

3. 

   Look for log jams in your business processes.

   Break apart these work flow steps among each of the key business areas. Creating and distributing marketing pieces may be a function of sales and marketing, while manufacturing widgets falls under operations. Look for log jams where business processes may stall. Divide these tasks further to speed up work flow and improve your organizational structure.

4. 

   Become profitable by serving clients reliably.

   Decide on the target profit level of the company. This profit goal should be referenced throughout the creation of the organizational chart. Gerber maintains that companies exist to make profits, not create revenues to be spent in creating and servicing customers.

5. 

   Place a price tag on each task performed by the operation.

   Determine costs to perform each task and maintain the operation. If the target profit amount cannot be maintained, re-examine the organizational chart to determine how profits may be created while still creating and satisfying customers.

6. 

   Create a clear list of tasks and chain of command for your operation.

   Divide tasks into defined roles with a clear chain of command for each role. Initially, the same person may fill more than one role until your company expands enough to hire a person for each position. Later, these positions will be divided as an increased work flow makes hiring additional staff necessary. By knowing the tasks that need to be reassigned, you will be able to better target potential employees when hiring.

7. 

   Create target compensation amounts for your organizational structure.

   Place compensation numbers on each position in the organizational structure based on income and profitability. Initially, these monetary goals may not be feasible because the business has not ramped up to its own target income level. However, these goals help the owner plan the operation, and may be used to give new employees hired into each role an idea of the income potential of each position within the firm. They may also be used for profit sharing and commission-based incentives, if desired.

8. 

   Closely look for bottlenecks in your workflow.

   Re-examine your organizational chart as the business operates. According to the AGI Goldratt Institute, your business speed and profitability are always slowed by bottlenecks in your process. Change your business process and organizational structure to remove these constraints. A good organizational structure based on process flow will allow you to determine the core constraint quickly.

References

• Maryland Small Business Development Center: The E-Myth Revisited Summary
• AGI Goldratt Institute: Theory of Constraints and its Thinking Processes