Creating an Organizational Structure for your Small Business

Many small businesses lack a well-defined organizational structure.  After all, when you employ a few people, and everyone seems to wear multiple “hats”, it feels authoritarian to have a hierarchy in place. However, having a strategic business configuration is critical in supporting good communication – resulting in efficient and effective work process flow. It would be nice if there were a “one-size-fits-all” structure small businesses could follow, but each business operates somewhat uniquely, calling for different organizational strategies. Having said that, the following three are the most common structures for small business effectiveness:

1. Functional:Many small businesses find it best to create a “functional” organizational chart by identifying the key roles that are important to your business. Key functions to be determined include operations, production, marketing, sales, HR, customer service, etc. Start by writing them  down with a description for each functional area. Then ask yourself who will be responsible for what? Followed by “Who reports to whom?”  You likely don’t have enough people to fill each box on your chart, but what’s important is that you include the box and define the role, and make it is clear who has the ultimate authority. Functional structures generally have very few layers of management—which means employees are more likely to know what is expected of them.
2. Regional/Divisional: If your company begins to grow outside of its original geographic area, you may want to split the company structure into divisions—or regional segments. With this kind of structure, your customer’s demands in different markets will be met in a localized fashion. In other words, each regional office is a mini-duplication of your “home” office, with experts in operations, sales and other key functions in each location. For example, you could divide the United States into four divisions: north, east, south and west. Each division would then have its own employees. This structure works well when the divisions have lots of autonomy, but can create problems by compartmentalizing areas that aren’t compatible as a whole (like using different customer relationship management software (CRM) in different regions, thereby leaving you in the lurch when attempting to combine your entire customer base).
3. Matrix: The matrix structure combines bits of both the functional and the divisional structures. As companies grow, they often incorporate a matrix structure to bring together employees and managers from different functional areas to work together to accomplish a certain goal or task (like launching a new product or service). A matrixed organization can often bring departments closer together and open up lines of communication leading to more efficient problem solving; but can also be a source of confusion about who’s in responsible for what.

The biggest mistake you can make is having no structure at all. Your staff may be small, but is your customer base? According to Tammy Beil, SVP Marketing for Alarm Capital Alliance, “having an organizational structure in place makes things easier for your external audience as well as your employees. It’s an important tool in creating a high-value business. While each type of organizational structure can work well, it’s up to you to figure out which is the best fit for your company. Just remember, the reason for having an organizational structure in the first place is to increase communication and improve efficiency and productivity.” To learn additional strategies for creating a high-value business, download Transforming Your Company into a High-Value Business.

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