The organizational structure of a company defines its reporting hierarchy, management control and lines of communication. Structures can be defined by processes, geography, business strategy or work requirements. Successful organizational design helps increase management efficiency, worker productivity, communications and product quality.
Size of Company
Company size directly correlates to the type of organizational structure needed. Small companies with few employees have little need for a complex managerial line. Many small companies use a flat hierarchical structure with most employees reporting to one or two owners or top managers. Large companies with many employees need a more formally defined operational structure to support decision-making and to help divide the labour needs of the company.
Industrial requirements, quality control needs and the type of work being performed changes the amount of managerial oversight necessary. Companies that need a high level of quality or use untrained labour sources may need more managers to ensure work is performed satisfactorily. Professional organisations that employ a highly trained workforce may require fewer layers of management. Control levels and the span of control per manager link to the structural needs of the business.
The environment in which a business operates may dictate the type of organizational structure needed. Political instability, rapid economic shifts or legislative changes can affect the type of organizational structure that benefits the company. Companies may need divisions based on geographic differences, production requirements, quality control needs or government-dictated requirements. Markets with rapidly shifting customer demands or frequent product changes may benefit from a more flexible business structure that helps improve company response times.
Business Development Stage
Early stages of a business' development are generally marked by few employees, quick decision-making and a race to profitability. Taking time to formally dictate an organizational structure is generally not high on the priority list as it would likely change soon after it was completed. As a company matures and grows, natural lines of control and business functions emerge. The need for an organisation structure that defines employee roles and management is essential once the company expands beyond a single layer of control.
Building products or delivering services can vary drastically by industry and business. Companies that use a highly automated production line have different organizational needs than a business that creates goods by hand. Likewise, a professional business that offers tax preparation needs a different structure than a business offering cleaning services. Employee functions, production or service methods and technology use help define organizational structure needs.