An organizational structure groups people together in some fashion that an owner hopes will best promote productivity. In an ideal world, employees will be able to communicate, share resources, coordinate activities and still be efficient. Perfection doesn’t exist, though, so a prudent owner must consider trade-offs. For instance, workers in highly specialized jobs may be productive, but innovation disappears. When considering which organizational structure to adopt, an owner should examine how each framework will impact productivity and why.


The functional structure is the most efficient and productive organizational structure. Grouping employees by work specialty, this structure features departments such as marketing, then classifies them still further, if necessary, into subgroups such as sales. Because specialists work together, communication and coordination increases. A strong management hierarchy ensures adherence to policies and procedures. This oversight and job specialization encourages standardization and mechanization. Together, these characteristics promote efficiency and, therefore, productivity. The functional structure isn’t for every small business. A couple downsides: The structure discourages creativity and market adaptability, while too much job specialization reduces morale and actually lowers productivity.


If a business has more than one product or service, work might be easier if each product got its own set of dedicated employees. This describes the divisional structure. Divisions operate like independent businesses, division heads reporting to the owner. Each division then organizes as if it were a functional organization, but with improved adaptability because the division dedicates itself to one product and its buyers alone. Unfortunately, divisions aren’t as productive as in the straight functional structure because some economies of scale are lost. The divisional structure can also be used for different market locations or clientele.


The team structure can’t compete with the functional structure in terms of productivity. In market responsiveness, flexibility, innovation and employee satisfaction, though, it beats the functional design hands down. The team structure achieves its advantages by pulling functional expert specialists together into teams that tackle projects, company goals or work processes. The owner forms teams according to need, and empowers these teams with decision-making authority. Some productivity is sacrificed to meetings -- teams must spend time communicating. For companies in unstable markets, though, the ability of the teams to react swiftly and creatively to market forces more than offsets disadvantages.


On an organizational chart, the virtual structure might not look like a structure at all. The small business owner using this framework only employs a small group, outsourcing work as the business needs it. An outside company might handle its books while another handles production and another sees to shipping. The virtue of this setup is that a small business can quickly expand through outsourcing or contract during slumps without worrying about taking on permanent employees, equipment or facilities. Productivity rests with the companies the small business owner hires. The virtual structure also goes by the terms network or modular structure.