The reporting structure of a business acts as its chain of command. It’s hierarchical, with an employee answering to a supervisor above, that supervisor reporting to a manager, and so on up the hierarchy, ending with the top manager or executive. Organizing the reporting structure also sets other aspects of the company, including communication and decision channels.
A company’s reporting structure can be laid out in an organizational chart. Lines on the chart link supervisor and subordinate, revealing the reporting relationships. Following the lines up from subordinate to supervisor to the top of the organization traces the chain of command. Communication flows up and down the chain, with subordinates making requests, providing information and asking for feedback. Decisions and communication moves down the chain, with managers providing guidance, feedback and official information.
When a business pushes down decisions from the top, it is decentralized. Decentralized organizations tend to have flat organizational structures. With subordinates making more decisions, a many-layered reporting hierarchy isn’t needed. On the other hand, centralized companies keep control as high up in the company as possible. The oversight these companies desire requires more management layers, so centralized businesses tend to be tall. Small and new businesses also tend to be flat. Before companies grow large enough, a simple reporting structure is all that’s needed -- a row of employees answering to the owner.
Small businesses usually begin without a formal organizational structure. The structure grows organically, evolving as the company’s fortunes demand. Too often owners continue to allow this organic growth, failing to build a formal structure that can further the company’s goals, according to the Inc. website. How people are arranged on the company chart changes how they work together. Depending on the chosen structure, employees might, for example, enjoy great latitude, report to a supervisor who shares expertise or end up with two bosses.
When owners group employees into functional departments, departmental managers share a specialty with their subordinates. Employees report to managers who speak the same jargon and can increase employees’ expertise. It’s an efficient structure. When a company builds a divisional structure, everyone in the division works on behalf of a shared location, client or product. This common cause lets the reporting structure support an accountability of results. The matrix structure uses a dual-reporting structure, with each employee reporting to two bosses, perhaps assigned to both a functional department and a divisional project. This reporting structure can create problems for employees.