How to Determine the Best Organizational Structure
The best organizational structure for a business arranges jobs in a way that helps a company accomplish its strategic goals. The right arrangement allows for the best use of resources and establishes fruitful working relationships throughout a company. Some structures are more mechanistic in nature, with hierarchical management levels and top-down leadership. Others tend to be more organic. These have fewer rules, less centralized authority and less bureaucracy. To determine which is appropriate, management must consider several factors.
Review the company strategy. A company focusing on quality control, for instance, might be more likely to favor a more mechanistic approach since it allows for greater oversight. Structure must always follow from a company's strategy.
Consider how dynamic, flexible and agile the company needs to be to compete. Next, determine the stability of the market and industry. A rapidly changing environment will favor the organic structure because it tends to be more adaptable to change. An organization operating in a stable environment, meanwhile, can benefit from a mechanized structure.
Consider the organization’s size and age. Small, young organizations require less of a management hierarchy than do larger, older organizations.
Consider different organizational structures. The functional structure typically departmentalizes jobs based on work classifications such as marketing or production. At the other end is the agile team structure, which decentralizes authority in favor of employee empowerment. In between are the matrix structure, which combines the team and functional approaches; and the divisional structure, which departmentalizes according to geography, product niche or customer.
Review your analysis from the previous steps to determine whether the company is better served with a mechanistic or organic approach to structure, or something in between.
Create an organizational chart of the structure or structures the company is considering. Graphically representing the company this way will clarify issues such as who reports to whom, where responsibility will fall, the need to add or cut employees or management levels, and changes that might have to be made in procedures.