Suggested Organizational Structures for Your Business Plan
How your business is organized is a crucial element of your business plan. You should use whichever structure is best suited for your type of business and the people running it. Following are four examples of organizational structures used by varying companies. You can try one or more of these or develop your own.
Business organization type 1: The pack
In this structure, one person holds the top position, and everyone else in the company is an equal member of the pack. This organizational style works well in small companies — no more than 20 people — where everyone on staff has the training and the expertise to do almost any job required of them.
Advantages: A simple, flexible organizational structure that allows the entire team to work together and to adjust quickly to changing business conditions.
Disadvantages: A company can grow to the point that the top dog can’t keep track of and manage the whole pack. Also, people may end up doing jobs they’ve never done, which can compromise both quality and efficiency.
Business organization type 2: Form follows function
In this type of organization, you divide people into groups depending on what functions they perform. For example, a company may have an engineering department, a marketing department, a production department, and a finance department. Each department has its own manager, and a general manager or Chief Executive Officer typically takes on the role of coordinating the activities of the various functional groups.
Advantages: You assign people to do the tasks that they do best, and each person knows his or her responsibility. If your business is medium sized and markets only one type of product or service, this structure is probably the one for you.
Disadvantages: Without good communication and oversight, functional hierarchies can break down into separate groups that work well on their own but aren’t very good at working with other departments or carrying out the company’s larger strategies and goals.
Business organization type 3: Divide and conquer
Companies that provide more than one product line or that operate in more than one business area often choose to organize around separate divisions. A firm that sells, installs, and services computer networks, for example, may separate those functions into independent divisions.
In this organizational model, each of a company’s divisions may be responsible for a particular product, service, market, or geographical area, and all the divisions may have to justify themselves as independent profit centers. In some of the largest companies, each division consists of a strategic business unit (SBU) — almost a company inside a company.
Advantages: Companies that organize into divisions encourage each separate part of the company to focus on its aspect of the business — selling computers, servicing them, or installing them, for example. Division managers can zero in on their own sets of customers, competitors, and strategic issues.
Disadvantages: Divisions may find themselves competing for the same customers. The company’s divisions may unnecessarily duplicate overhead costs, and the company may end up becoming less efficient.
Business organization type 4: The matrix
In a matrix organization, people with similar skills are grouped together and assigned as needed to various projects and project managers. For example, an engineer may be assigned to several projects and to more than one manager at a time. Likewise, a web designer may be assigned to develop new content for the company web site while also working with the marketing team on special projects designed to bring in new business.
Advantages: This structure fosters flexibility by allowing different parts of a company to share talent, expertise, and experience. It also fosters collaboration between individuals with similar skills. Companies using a matrix structure are often able to respond quickly to changing business conditions.
Disadvantages: Managing employees can be tricky when each person wears several hats. Plus, employees can feel a tense tug of war as they try to respond to the demands of several bosses. This structure can also lead to confusion about business priorities unless a strong general manager sees that the company stays on track.