In What Size Business Is the Simple Structure of Management Used?

Some companies have such complex organizational structures that you wish you had a decoder ring handy when you first look at their organizational charts. At the other extreme is the simple structure -- a flat structure dominated by employees with their leader at the top. It’s a structure only a small business can use because a single person who manages all of a company’s employees can only go it alone up to a certain point.

Entrepreneurs begin with the simple structure, which arises and functions naturally. In the prebureaucratic stage, employees follow no written rules and perform no specialized tasks. Employees and owner pitch in according to need. Each one is a jack-of-all-trades. As the business moves into its youth stage, it retains a simple structure. Employees observe some rules, along with some agreed-upon procedures.

The simple organizational structure is minimalistic. Employees sit at the bottom of the organizational chart, forming a wide row. In the simplest organizations, there is only one other row, which the owner -- as manager -- occupies. As the company grows, it may add one or two more rows of managers to its organizational chart between the owner and the employees. The simple structure starts with no departments. Employees’ duties overlap and the owner deploys whoever is available to tasks.

In a simple structure, power is centralized and everyone reports to the owner. Controlling many employees -- which is known as a wide span of control -- means the owner not only makes all the decisions about employee activities, but also spends lot of time communicating those decisions. As long as the business stays small, the owner can shoulder the demands. Depending on the complexity of jobs, though, by the time the business hires 50 to 100 employees, the owner cannot effectively run the business and manage the employees at the same time.

The simple structure works for small businesses because it grows naturally, taking whatever shape the owner needs it to be for the demands of the time. It’s flexible; employees move where they’re needed. Because there are no formal roles, the employees are versatile and tuned in to the company’s bigger picture -- a picture the owner alone paints. There is no confusion about goals; they are what the owner says they are. When the company’s environment is stable, the company can move forward.

In an unstable environment, the simple structure doesn't function well. Although the structure is flexible enough for employees to react quickly, the owner’s centralized control prevents employees from contributing the knowledge and creativity needed in dynamic situations. The owner as sole decision-maker also ties the company’s health to his. Meanwhile, the simple structure cannot grow beyond a certain size. After the business adds enough employees or expands, it must choose a more formal structure to organize operations.