Organizational structure – how to create or rebuild one

All
businesses, whether you realize it or not, have an organizational structure.

Yours
might have formed and evolved organically, but it’s important to be deliberate
and thoughtful about your organizational structure – particularly as headcounts
increase and the company grows increasingly complex.

What is an organizational structure, and why is it important?

An organizational structure is:

• An explanation of
  workflow and responsibilities
• A day-to-day
  guide governing employee tasks, interactions and reporting
• A quick means for
  employees to understand where they need to go for help or answers for specific
  issues

A well-designed organizational
structure should be an
integral part of your strategic planning. Done well, it can have significant impacts
on company operations and the customer experience.

No
matter where your business is in terms of size, growth or level of establishment,
you should either:

1. Create an
   organizational structure for the first time.
2. Periodically rethink
   and optimize your existing organizational structure.

Where do you begin?

3 factors that influence organizational structure

1. What is the long-term vision for your business?

What’s the purpose of your business, and what do you hope to accomplish in the future?

Your organizational structure is a blueprint
for how you will realize the vision – day-by-day.

2. What have you promised your customers?

Who’s your customer, and what are you
fundamentally promising them?

How do customers interact with your
business, and what do they expect in those interactions?

Your customer is the ultimate decision maker. Everything needs to be filtered through that lens.

How you decide to organize your
business must support the delivery of your customer promise.

3. Based on your marketplace presence (customer promise), what type of culture do you need to deliver on that promise better than your competition? 

In other words,
how do you need to be organized internally to be externally successful?

Consider how your company functions to achieve its goals.

To do so, ask yourself these
questions:

• What type of company culture best serves your customers?
• How can your employees and teams best work together to achieve those goals?
• How are decisions made now, and is there a better way?
• What level of authority is needed to make decisions?

The process for creating an
organizational structure

Once you’ve begun to understand how your business addresses
the factors above, you’re ready to begin building (or reshaping) your organizational
structure.

Here’s the general process:

1. Plan the future.

Ask yourself: Where is your company headed? What do you want to do that you haven’t done yet?

Plan out as far into the future as you can. For newer organizations, this covers the next three to five years. For more established organizations, aim for 10 or more years.

2. Consider the past.

In terms of how departments or teams work together, consider what has worked well and what hasn’t.

For example, are certain departments at odds with each other? Do certain teams compete because your reporting structure encourages unhelpful rivalries?

Think of it this way: If you have a one-story house with a crack in the foundation, the problem will only escalate when you add more floors onto your house.

3. Build your organizational structure.

Piece together an organizational
structure – without names.

At this stage, your focus should be
on establishing:

• The optimal, most efficient workflow
• Achieving business goals
• Serving customers well

There are many ways by which you
can organize your employees:

• By
  function (sales, marketing, accounting/finance, etc.)
• By
  region
• By
  product line

Your organization can be vertical, hierarchical,
flat or matrixed.

Consider using organization planning software to:

• Build data-driven organization charts.
• Gain a more dynamic, interactive view of your company.
• See the effects of your changes in real time.
• Make more informed decisions.

For each position, or box, list five to six bullet points describing job responsibilities.

4. Fill in the people.

If you’re an established
organization with existing employees, now add their names.

It’s both necessary and difficult
to objectively decide how an existing employee may or may not naturally be suited
to the re-defined role. As an employee may not fit a role as precisely as they
previously did you can identify new competencies needed.

A plan can be created and executed
to develop those competencies. Alternatively, perhaps the employee is now better
suited for another role in the company. 

Determine whether each employee
is a good fit going forward. Being a good fit means:

• The employee has the necessary skill level to
  perform well.
• The employee has the desire to take on the role.

If an employee’s skill level isn’t up to par, you’ll have to invest money and time for training.

Conversely, an employee may have
the skill set but doesn’t enjoy the work, or the new role brings a level of pressure
or attention that they don’t want.

The principle of weighing skill
versus desire also applies to recruits and new hires.

5. Balance authority and responsibility.

No matter where they fit within the organizational structure, give your employees equal measures of authority and responsibility.

Otherwise, they can feel hamstrung and become frustrated and disengaged.

6. Fill in employee data and metrics.

Include key metrics on your organization chart to give you a comprehensive picture of the person identified in each role. This will also reveal a much larger story about your company.

These metrics can include tenure and performance ratings. Doing this will help you:

• Uncover risk factors so you can plan ahead. For example, do you have an employee whose title or salary doesn’t align with their tenure? This person could be at risk of leaving your company.
• Identify the kind of contribution each employee makes: loyal, hard-working and supportive “middle of the pack,” destined for increased levels of responsibility and authority, etc.
• Engage in succession planning so you can find out which employees may be good candidates to take over a role in the event of another employee’s promotion or departure.

7. Practice robust performance management of employees.

Review
employees continually throughout the year to reduce the frequency of
updates to your structure.

This will also help to avoid the
risk of organizational bloat, which indicates a tolerance for underperformers
and complacency with status.

Bloated businesses can be fat and happy but are usually lacking in preparation for the future and in establishment of strategic goals. Over the long run, bloat never serves a business well.

8. Review your organizational structure annually.

This helps ensure relevancy and to plan for the next 12 months.

Your structure should have an
evolutionary life, not a static life:

• Does
  your structure still represent how you do business and what your workforce
  needs?
• Have
  any of your business goals changed, thus necessitating a change to your
  structure?
• Has
  the working relationship between any departments become dysfunctional?
• Do
  you need to add people? If so, where and why?
• Will
  this decision force you to adjust a department?
• Are
  you able to grow your organization without adding unnecessary layers?

The decision-making process

You and your senior leadership team should have ultimate decision-making
authority. However, you should crowdsource ideas and perspectives from all
levels of the company.

Start with encouraging
bottom-up ideas by soliciting suggestions from all employees. After all,
they’re heavily involved in your company’s daily work, and they have an
intimate knowledge of team dynamics and relationships. Don’t discount their
perspective on what works and what could be better.

Use that feedback to assess your company holistically. Then consider your
strategic vision for the future.

Senior leadership is uniquely positioned to take this view because they
have a more expansive, bird’s-eye view of the entire organization. You and your
team have information that lower-level personnel don’t.

For example:

• Impending
  market changes
• Shifts
  in strategies or priorities
• Financial
  issues
• Upcoming
  contracts and projects
• Potential
  mergers or acquisitions

Additionally, all teams impact each other directly and indirectly.
Lower-level personnel might lack the visibility to understand these
relationships and how certain changes could undermine harmonious workflow.

When business size impacts
organizational structure

You may be surprised to learn that the overall process of creating an organizational
structure is the same regardless of employee headcount. And there is no
definitive, black-and-white answer to the ideal organizational structure or the
number of layers according to your business size.

Instead, the optimal structure is about what will help deliver your customer promise most effectively.

Smaller companies and startups

Your employees’ desire and enthusiasm to take on a role is likely more important than skill.

At smaller, leaner companies, and especially startups, the focus tends to be less on strictly divvying up responsibilities according to job descriptions and more on simply getting done what needs to get done.

It’s about survival.

This is the phase of a business where “bubble gum and Band Sida solve
problems.” People wear all sorts of hats.

In these scenarios, vet employees heavily
for tolerance of ambiguity, stress and frustration. Ask the candidate whether they
feel nervous stretching beyond their skill set and trying new tasks.

Larger companies

Employee skill plays a more important role.

At larger companies, people are needed to accomplish specific, niche
tasks so quality isn’t diminished, and leadership is free to focus on moving
the business forward.

Here, employees need to get their individual jobs done as easily and
quickly as possible. Clearly defined roles, team formation and reporting
structure aid in this endeavor.

Summing it all up

Having an organizational structure that meets the needs of your business
goals and your customers is a crucial pillar of a successful company. However,
it can be difficult to set time aside to build and think through an ideal
structure.

Whether your business is brand new or well established, a professional employer organization (PEO) can help you build an effective organizational structure.

To learn more about the many ways that a PEO can benefit your business, download our free e-book HR outsourcing: A step-by-step guide to PEOs.