What is the Right Organizational Structure for your Small Business?

Wednesday, October 17, 2018, 6:00 AM | Leave Comment

Irrespective of its size, every business needs to have a strong organizational structure to keep it on track. It improves your employees’ overall productivity, improves their collaboration, and encourages an uninterrupted flow of information. Otherwise, your performance in the highly competitive business world will suffer.

Unfortunately, there is no one-size-fits-all approach you may take when choosing the right organizational structure for your business. Your decision depends on multiple factors, including your business’ goals, industry, size, and products.

Precisely because of that, we’ve made a list of the most common types of organizational structures you need to keep in mind.

What is the Right Organizational Structure for your Small Business?
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  • A Functional Organizational Structure

    A functional organizational structure is one of the most common organizational structures small businesses use. Simply put, this is a top-down flowchart, with the company executive at the top.

    All company’s departments (human resources, accounting, marketing, sales, customer services, etc.) operate independently and are managed separately by the department heads, all answering to the CEO.

    The greatest benefit of the functional organizational structure lies in the fact that it is highly scalable and easy to execute. However, it doesn’t prove effective if the company has multiple products or target markets.

  • A Product-Based Organizational Structure

    The product-based organizational structure is usually implemented by large corporations, where different products are divided into separate departments.

    For example, a food product company may separate its products into frozen fruit and vegetables, ice cream, dairy products, and beverages. Each of these branches would have its own manager that operates independently, as well as separate sales, marketing, and customer support teams.

    The major advantage of this form of organization is that it’s easy to formulate, as it minimizes the product development process. On the other hand, it is difficult to scale when the business starts expanding and may result in massive confusion.

  • A Customer-Based Organizational Structure

    If you’re running a service-based organization, then the customer centric organizational structure may be the right option for you.

    In layman’s terms, the purpose of this structure is to ensure that your customers’ expectations are met by a highly targeted service approach.

    The right example of a customer-based business structure could be an organization offering disability employment services.

    There are two major groups of people you need to cater to- persons with special needs looking for a job and employers looking to hire a disabled person. A customer-based approach will, in this case, specialize in the needs of a certain group of people and focus on providing them with highly personalized services.

  • A Geographical Organizational Structure

    If your company starts growing and expanding over time, you will have to break its structure (yep, you guessed it) into geographical segments. These divisions usually include different territories, regions, and districts.

    For example, if you’re re expanding your business to another continent, you should build a separate department out there, with an independent regional manager. This tactic will help you localize your marketing efforts and meet the dements of that particular market effectively.

    Using the same pricing strategy across multiple markets never turns out to be a good idea.

  • A Matrix Organizational Structure

    There is one thing all the organization structures mentioned above have in common- they’re organized according to the old-school hierarchical model. With the matrix business management, it’s not the case. Namely, the main aim of this structure is to ensure that each team gets the data needed to move forward with a certain task. Precisely because of that, all departments work as teams to produce the shared, final goal and have multiple roles.

    For example, each department will need to work with both marketing, sales, and services team and send them regular reports to boost the overall company’s productivity. This way of business organization if highly flexible and results in faster decision-making. Its only drawback lies in the fact that it may be too complex to understand for your employees.

  • Over to You

    One of the major mistakes small businesses make is not building an organizational structure at all. Even if your team is small, the right form of management structure will boost their productivity and communication. Now, each of the above mentioned structures can work well, if implemented strategically.

    You just need to choose the one that aligns with your business goals and your staff’s demands. Most importantly, keep your initial organizational structure simple and then update it as your business grows and your teams and responsibilities change.

What organizational structure did you choose for your business? We’d like to hear from you!

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