Organizational structures can help small businesses implement its strategy. By formalizing the company's chain of command, decision-making processes, areas of responsibility and accountability, the organizational structure can help enhance a company's operating performance. The simple structure, functional structure and product structure are typically used by small businesses.

Simple Organizational Structure

The simple organizational structure is a flat structure consisting of two levels: the workers and the owner-manager. The business owner-manager is typically a general supervisor who plays an active role in each function of the business, from sales to accounting. The owner's wide span of control reflects a centralized authority whereby the owner makes the majority of the business decisions.

In turn, the owner relies on the company's informal relationships, rather than formal communications or policies or procedures, to communicate his decisions to employees. As manager, the owner also takes actions that directly support his business decisions. For example, the owner-manager motivates the staff, works with employees to improve their performance and promotes or demotes individuals. The simple structure requires that informal business relationships and individual business scenarios — rather than formal policies or procedures — govern the actions of employees.

Functional Organizational Structure

Company growth often makes it necessary for an owner-manager to delegate some business responsibilities to others. As a result, a functional organizational structure might evolve, which reflects the authority granted to individual managers to oversee particular business functions. For example, the functional structure might organize a business according to the production, marketing and finance functions.

With the addition of a management level to the organization's structure, the owner-manager begins to decentralize decision-making to managers of individual functional areas, each of whom reports directly to the owner or corporate staff. The individual employees, who perform function-specific activities, report to the functional managers.

Because of the functional orientation, employees and leadership become functional specialists. In turn, the delegation of authority allows the owner-manager to limit his direct involvement in business functions and to focus his energies on customer and supplier relationships and the development and implementation of a formal business strategy. Policies and procedures are developed to facilitate communication and methodically govern employee's actions.

Product Organizational Structure

The product organizational structure is an alternative to the functional structure for the owner-manager who wishes to delegate authority and responsibilities. The product structure allows the owner-manager to assign decision-making responsibilities to product managers. In this case, a product manager directs the employees who perform the functions and activities required to produce and sell a particular product or product line. As a result, the manager develops an expertise in the business functions that support a particular product line, such as resource acquisition, production and marketing.

Using Organization Charts

The organization chart illustrates the organizational structure adopted by a company. For example, a functional chart arranges an organization according to the roles of individual leaders, such as general manager, marketing manager and production manager. In turn, a product chart assembles the organization by product line, such as application, database or middleware software. The lines that connect each of the chart elements indicate who reports to whom and what leader is responsible for what functional area or product line.