What is the Purpose of Organizational Structure?

Business organizations change their structure to stay competitive in a fluctuating market. What happens sometimes, however, is that the old structure stays hidden in the new organizational structure. This can be difficult for employees who worked in the company before and after the change. Business owners must understand the purpose of their business structure so they can explain it to their employees and lead them through changes in organizational structure, when needed; it doesn't matter whether they are in a start-up phase or just operating the business.

An organizational structure is not something you can see unless you're looking at an organizational chart, which requires frequent updates in many companies. A structure directs a group of people to fulfill defined roles so their combined actions will help the business achieve its objectives. The way that people's roles align in relationship to one another dictates their functions as individual employees.

The concept of alignment of resources is crucial to understanding business structure. Each year, a business owner aligns resources, such as money and people, to priorities. The old way was to make allocations by department; for example, a sales department needs four sales personnel of equal rank and one manager. Nowadays, this may still occur, but business owners may create a structure according to market conditions, product or service lines or the arrangements of competitors.

Employees who understand their reporting relationships in an organizational structure will build business processes, or work routines, around them. However, the structure itself can lead to problems, such as communication. For example, a sales department and a customer retention department should share information to understand what customers want and what needs are not being met. In a small business, the owner has a chance to personally facilitate communication and other kinds of collaboration between employees with different functions and make changes to the structure if needed.

Organizational structure has more importance to understanding relationships among employees and organizational units in organizations with lots of separation between business functions. Structure has less importance in organizations with a more flexible approach to defining roles. A business owner decides early on whether the way employee roles are assigned will be formal to fit a complex structure, or if it will be organic, with much latitude given to which responsibilities employees perform.