Start-ups are often small enough they don't have to worry about organizational structure. As they grow, though, they develop a structure by either design or by default. Design requires decisions, such as choosing a traditional organization vs contemporary organization. Traditional organizations tend to be formal hierarchies; contemporary organizational structure is more flexible.
For small start-ups, a traditional structure is often to have almost no structure. There's one manager, which is you, and one project team, which is everyone else. If one team member needs help from another, it's a matter of walking a few feet and knocking on someone's door.
Once that start-up grows beyond the initial team, it requires more structure. The traditional approach is to divide up employees by function, creating separate departments or branches. This leads to a hierarchy where each department has its manager, all of whom report to someone over them; if the company keeps growing, more branches and more layers of management result.
A traditional structure makes it easier to centralize power and keep control as your organization grows. It's also cumbersome, because information and decisions have to travel through layers of management. It's important to consider the pros and the cons when weighing traditional organization vs contemporary organization.
A contemporary organizational structure tries to make companies lighter on their feet than the old-school hierarchy. The difference between traditional and contemporary organization is that contemporary structures reduce management layers and share information, personnel and skills across departments.
The matrix organizational structure is a good example. A matrix organization still has departments, but it also has project teams that recruit members from across departments. A team may combine members of the engineering, marketing and software departments, sharing their skills to complete a project.
The matrix gives your company more flexibility, encourages cooperation between departmental staffs and makes the maximum use of your human resources. Having to report to both their department head and the team leader can be a problem for team members, though. The two managers may fight for power, and members may not be sure whose orders are the top priority.
Matrixes are common, but they're not the only contemporary organizational structure:
- Like a small start-up, a flat organization has no layers of management. Employees form teams as they choose, work on projects that interest them and have little supervision. This can work with experienced employees, but the larger the company gets, the more it's likely to need some sort of hierarchy.
- A project structure works similarly to a matrix. However, a matrix assigns employees to temporary teams; teams in a project structure are permanent. When they complete one project, the team moves on to another.
- Flatter organizations reduce the amount of management and increase employee flexibility without becoming completely flat.
- Some large organizations turn their branches or departments into autonomous units. Each unit operates as if it were an independent company. This frees them up to make decisions faster, but it makes it harder to cooperate.
What's most important in designing your organizational structure is what works best for you and your company:
- How much control and authority do you want to have? If you want all decisions to come from the top, a traditional organization might suit you best.
- How dynamic is your industry? Traditional hierarchies can cope with a stable business environment. If you exist in a dynamic changing market, a contemporary organizational structure has more flexibility and responds to challenges faster.
- How independent are your employees? If they can work on their own, they may thrive in a contemporary organizational structure such as a flat or flatter company. Less experienced employees may be better off in a tightly controlled traditional organization.