As your company grows, you may need to reconsider how you operate and organize your staff. Each business requires a different organizational chart, but the following examples can help you choose the right structure for your business.
Many small business owners today don't adopt the traditional tree-like organizational structure (hierarchical reporting) in their companies. Instead, their company's organizational chart often resembles a wheel axle or spokes. This means that the entire decision-making process is centralized, important communications are conducted directly with the business owner, and there is no standardization of tasks within the company.
As your business expands, it often comes with a more cumbersome organizational structure and a stricter hierarchical system because you can't oversee everything alone. With this type of organization, the tasks of each department need to be clearly defined, and each function should be specifically documented.
This structure has advantages, but internal company politics and personal relationships can play a significant role. This is also when corporate culture will form without the control of the business owner. This type of organizational chart will have tightly knit management and individual levels. Management will work directly with the business owner, and as the company expands, each decision will pass through multiple layers of management.
This organizational structure is suitable for businesses that need quick management guidance and decisions. However, it will create more employees than leaders because all strategic decisions are made at the top. But after a while, such a rigid structure will hinder innovation and creativity in a constantly changing market. Therefore, the key to creating a strong hierarchical organization is to assign each manager departmental goals that align with the company's overall goals. Managers will work with you to define the tasks to be completed, but they are ultimately responsible for how they are executed. As such, they will be allocated their own budgets and have the authority to hire staff for their teams.
To implement an effective leadership hierarchy, each leader named in the key chart should be evaluated quarterly on their impact in achieving specific goals and their contribution to the company as a whole. Underperforming members can negatively impact a department, team, or the entire company. In efficient businesses, incompetent individuals will have no place and will eventually be phased out. Team members should receive cross-training and coaching to replace underperforming employees. Furthermore, systematic problem-solving approaches should be implemented and followed.
1. CHOOSING THE APPROPRIATE ORGANIZATIONAL STRUCTURE
No single organizational structure can suit every business. Therefore, choosing a structure that aligns with your company's strategy, business environment, and allows your business to operate optimally is crucial.
If your business is producing low-cost products in large quantities, using a traditional tiered pricing structure can be very successful. But if your company relies on continuous innovation in a volatile market, this structure will no longer be effective.
For a small business, having too many specialized departments can lead to bottlenecks. If your company has more than 15 people, you'll save costs by maintaining specialized departments capable of making independent decisions. If your business operates in a highly regulated sector such as healthcare, insurance, or finance, you need an organizational structure with extremely tight management and control.
2. CHANGES IN CORPORATE CULTURE
Businesses also undergo structural changes based on their culture, including:
Matrix management: In this organizational structure, members from different departments (research/development, production, sales, and finance) work together on a project or product and report to a single manager. This is completely different from the traditional hierarchical structure, where all employees with similar tasks are grouped together and managed in a single tier.
Reason for use: This structure breaks down the departmental system and can enhance information exchange between different departments, allowing members to better understand the challenges faced by other teams. Additionally, this management style helps members develop various skills. However, this can be confusing for many due to the large number of superiors and differing work priorities.
Profit center management: This structure is based on the collective ability of the group to achieve the goal. For example, in a supermarket chain, each location would have an independent profit center with approximately 10 self-managing teams. The team leaders of these teams would also function as separate teams within the company.
Reason for use: This method often works well in autonomous or franchised business areas. Each group can be evaluated based on the amount they contribute to net profit, and successful models can be replicated.
Network management: This approach is often effective when company employees work with numerous external contacts, with each person managing a group of relationships. This method provided a form of vertical integration for a retailer that didn't own any factories but, by outsourcing, was able to produce clothing for its 800 suppliers.
Reason for use: This organizational structure is suitable for small business owners who often work with multiple external suppliers responsible for critical aspects of their business, including development, manufacturing, sales, or service.
Virtual management: This method is very popular with small businesses that employ many freelancers or temporary workers to complete a project. Although it is not a formal organizational structure, it can operate through a network of internet-connected electronic devices and allows small businesses to operate in larger markets.
Reason for use: This organizational structure is often used by small businesses that want to maintain a low number of employees and hire external workers to complete a project according to client requirements. When the project is finished, the collaboration with the external workers also ends.
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