How Finance Impacts the Organizational Structure
For good or for ill, a company's financial condition has a strong effect on its organizational structure. Companies in the midst of a boom period may seek to expand their organizational structure by adding employees, managers and offices. Firms experiencing a downturn may look to consolidate their assets, lay off workers and gather their remaining forces into tighter groups.
In a company with strong leadership and a top-down management style, financial conditions can determine how the rank-and-file employees perceive those leaders. During expansion, a visionary leader can influence managers to expand the business, bring on new talent and create new departments. During a recession, these leaders can use their vision to call on managers to refocus their efforts and to find new opportunities. However, weak leaders in such a structure can miss these opportunities and lose the faith of their employees.
One group within the organizational structure that feels the impact of financial changes is middle management. Department heads, project leaders and group directors feel the pinch from the upper management above them in the chain of command, as well as from the employees below them. A strong financial outlook can lead to more employees, new projects and expanded capabilities, while financial losses or reduced profits can curtail these plans or eliminate their departments in their entirety.
The largest group within the organizational structure affected by financial changes is the individual employees. A company in strong financial shape can reward these employees with higher wages, improved benefits and more opportunities for advancement. Workers in a firm dealing with financial struggles may worry about pay cuts, reduced benefits and potential layoffs. Management may also call on these workers to put in more hours to make up for the company's shortfalls.
When financial conditions change for a business, whether due to economic conditions, industry innovations or internal conflicts, the companies that move with these changes and adapt their organizational structures to changing conditions are the ones that survive and thrive during those changes. Small businesses can learn to use their limited resources and simpler organizational structures to adapt to changing conditions. Larger companies, with their more complex structures and layers of administration, may take longer to adapt but have more resources to execute the necessary changes.