A strategic, carefully planned organizational structure helps a business run effectively and efficiently. An ineffective structure can cause significant problems for a company, including lost profits, rapid employee turnover and loss in productivity.
Management experts use the six basic elements of organizational structure to devise the right plan for a specific company. These elements are: departmentalization, chain of command, span of control, centralization or decentralization, work specialization and the degree of formalization. Each of these elements affects how workers engage with each other, management and their jobs in order to achieve the employer’s goals.
The six basic elements of organizational structure are: departmentalization, chain of command, span of control, centralization or decentralization, work specialization and the degree of formalization.
Departmentalization refers to how the organizational structure groups the company's functions, offices and teams. Those individual groups are typically referred to as departments. Departments are usually sorted on the basis of the kinds of tasks the workers in each department perform, but this is not the only way to create a company’s departmental breakdown. You could also divide the business into groups based on product or brand lines, geographic locations or even customer needs.
Most organizations, from businesses to nonprofits to the military, utilize a chain of command. This helps eliminate inefficiencies by having each employee report to a single manager, instead of to several bosses. In the corporate context, this type of chain of command is reflected in the organizational structure and affects job descriptions as well as office hierarchies. Managers assign tasks, communicate expectations and deadlines to employees, and provide motivation on a one-to-many basis.
When employees encounter obstacles or problems, they report back to the appropriate manager. When necessary, the manager is then responsible for taking the concern or issue up the chain of command to the next level, and so forth. This chain of authority or command streamlines corporate operations and communications for a more efficient and productive business.
An organization’s span of control defines how many employees each manager is responsible for within the company. There is no single type of span of control that’s ideal for all companies or even for all businesses in a specific industry. The optimal span will depend on a number of factors, including the size of the workforce, how the company is divided into departments and even the company’s specific business goals and strategies.
Other factors to consider are the type of manager assigned to each specific department and the job descriptions of the employees reporting to that manager. Based on the manager’s individual style or approach, the span of control could range from three or four to 15 or more. Of course, managers who are placed higher up the chain of command typically have a tighter span of control, as they are directly responsible for middle-manager or team leaders.
Organizational structures also rest somewhere on a spectrum of centralization. Generally, more conservative corporate entities adopt a centralized structure. In this design, C-level managers make all the decisions, management designs a plan for execution and front-line employees carry out that plan. C-level officers are generally those at the uppermost level of the organizational chart, such as the chief executive officer, chief operating officer and chief marketing officer.
Centralizing authority in a business means that middle management typically is left with little to no input about the goals the company sets. This system is typical in larger corporate organizations, as well as at companies in more conservative industries. On the other hand, a company could adopt a more decentralized approach. A decentralized system allows all levels of management the opportunity to give input on big-vision goals and objectives. Larger, company-wide decisions are still generally reserved to C-level officers, but departmental managers enjoy a greater degree of latitude in how their teams operate.
In any business, employees at all levels typically are given a description of their duties and the expectations that come with their positions. In larger companies, job descriptions are generally formally adopted in writing. This approach helps ensure that the company’s specific workforce needs are met, without any unnecessary duplication of effort. Work specialization ensures that all employees have specific duties that they are expected to perform based on each employee's work experience, education and skills. This prevents an expectation that employees will perform tasks for which they have no previous experience or training and to keep them from performing beneath their capacities.
Finally, organizational structures implement some degree of formalization. This element outlines inter-organizational relationships. Formalization is the element that determines the company’s procedures, rules and guidelines as adopted by management. Formalization also determines company culture aspects, such as whether employees have to sign in and out upon arriving and exiting the office, how many breaks workers can take and how long those breaks can be, how and when employees can use company computers and how workers at all levels are expected to dress for work.