The organizational structure describes how employees are organized to do the work. If you’re a solopreneur, this is easy — it’s just you. If anyone else is involved, they need to know how they fit in. The organizational structure may change as a business grows, and it’s also possible to combine the structures below.
Here are some example organizational structures:
- Solo. The company has only one person (you). All work that you don’t do directly is outsourced to freelancers or service businesses.
- Flat. There’s one boss (you) and everyone reports to you directly. This is an easy structure to adopt for a small business or a new business. There’s a limit on how much your business can grow this way, and that limit is how well you’re able to manage everyone directly. You need to be mindful of this and make a plan on how to notice when there are too many people for you to manage directly and select another structure to transition to when it’s time.
- Departments. A department is a group of employees who do similar work or who share a common purpose or area of responsibility. Each business function can be a department such as personnel, marketing, sales, product development, accounting, etc. Department leaders report to the president or CEO. This structure works well for small and large organizations and can be combined with teams, divisions, or hierarchical.
- Teams. Employees are organized into functional teams and each team is responsible for achieving a result. A team has a mix of employees with different knowledge and skills and experience, and they work together to achieve their team goals. In contrast to departments, where the accounting department has all the accountants and the marketing department has all the marketers, a product team might have an accountant, engineer, marketer, product designer, and researcher working together to figure out what to build and how to take it to market.
- Product divisions. The business will be organized around products and product lines. It might start with just one, but when you add another product it will be developed and managed by a different team of people, and each division will be responsible for the success of their product line. The division leaders will then coordinate among themselves and with the executives for any efforts that would affect more than one product line or the entire company. If business is good, the product divisions might need to grow, for example hiring more sales and support staff. New product divisions are only organized for new product lines that don’t fit in existing divisions. Each product division is like a company within a company and has all the people it needs for all of its business functions.
- Operational divisions. The business will be organized around groups of people who carry out the business mission. For example, a construction company might have multiple construction crews. Each crew takes on jobs and the leadership such as foreman and superintendent are responsible for the success or their crew. Each operational division has a similar structure, and if business is good the business can organize additional divisions to take on more work. Operational divisions might not include people for all business functions, so they rely on “headquarters” to provide administrative support such as accounting and hiring.
- Hierarchical. There are multiple levels of management. Large organizations tend to have this structure, but it’s also more expensive to maintain than the others. Unless you already have a few busloads of people ready to work when you start your business, don’t start with hierarchical.
- Matrix. In a matrix structure, people may report to two or more supervisors for different aspects of their job or if the person has additional duties. For example, a person might be responsible for both sales and customer service duties and report to different managers for these, or a person might be a software developer and part of the technical support team and report to different managers for these. The matrix structure takes more effort to manage and some people find it difficult to understand. Don’t use a matrix structure unless you’ve tried everything else.
The organizational structures are a tool to help everyone understand their own role and how to find the right collaborators within the company. You can combine some of the structures together to achieve your goals. Here are some examples:
- Flat departments. This is a combination of flat and department. Everyone reports to you directly, but where there are multiple employees with a similar role, they work together and you pick one of them to have some extra leadership duties, like a department leader. This kind of person is sometimes called a “peer plus” because they are not “above” anyone on the organizational chart but they have some extra leadership or decision-making duties. This combination can be useful when there are only a few people with similar roles.
- Departments with teams. Employees are organized into departments and then you form teams as needed. A team can be temporary to achieve a one-time result or a team can be permanent to continue setting and achieving more goals over time. When a team member isn’t working on their team goals they work on department-related jobs.
- Product divisions with shared supporting departments. This is a combination of product divisions and departments, where the company is organized into product divisions but also has a “headquarters” organized into departments that support all of the product divisions. For example, one accounting department might serve all the product divisions, or one personnel department hires and support employees for all divisions. This combination can save money. For example, instead of three divisions each employing their own accountant who might not be completely busy, the company can employ two accountants to support three divisions, thus avoiding the cost of a third full-time employee and also providing a more reliable accounting function because if one is out of the office for any reason the other one can cover all the duties temporarily so it’s less of a disruption to the supported divisions than if their single accountant is out of the office.
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