How to Set Up an Organizational Structure

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The structure around which you organize your business affects how well it performs. An organizational structure influences communication patterns, decision-making practices and overall productivity. These direct relationships make setting up your company’s organizational structure as important as creating a good business plan.

Evaluate Your Business

Although small businesses with few employees generally find less need to set up a formal hierarchy, it’s important to understand there is no single structure that works for every business. Whether you decide to set up an informal, organic structure, a more formal hierarchy or a blend of the two depends on the results of a thorough evaluation.

Consider your industry, size, organizational model, number of employees and their level of experience. Decide whether it’s important to encourage initiative and involve employees in business decision-making or whether you want to maintain more control.

Link Analysis Results to Decision Best Practices

In general, it’s best to keep an organizational structure as simple as possible, regardless of the size of your business. For one thing, minimizing the number of management levels, simplifying reporting relationships and maintaining an open-door policy often increases employee motivation.

For another, it’s easier to adapt a less complex structure as your business grows or to respond to changing business conditions. Consider starting out by setting up a simple, blended organizational structure that includes only two or three management levels and encourages both management and rank-and-file employees to work as one large team.

Describe and Document

Make sure both managers and your employees understand the framework you’ve chosen for running the business via documentation and good communication. Although an organizational chart is a good visual aid, it’s also important to provide clear documentation.

For example, clearly identify communication patterns, document who reports to whom, establish behavioral expectations and outline your approach to initiative by specifying situations where employees are allowed to make on-the-fly, ad hoc decisions. The more detailed your documentation is, the less potential for confusion within the organization.

Change Management Considerations

Just as your business grows and evolves over time, so should your organizational structure. While the simplified structure you choose might work well today, it’s vital to conduct an annual review to make sure it continues to accurately reflect business goals in the future. As your business grows, it’s common – and often necessary – for an organizational structure to become more hierarchical. Despite this, it’s important to continue applying best practices to make sure its complexity aligns with your business.