In general, most of startups have adopted flat organizational structure in the early years which turns out to be a good result. They expand three to four times faster than their competitors with complex layers of management. But when the young company grows to matured organization, the org chart still keeps the same. The owner of the company fails to update the org chart because he mistakenly considers the management system as an inhibitor to creativity and flexibility. This wrong decision finally pulls the rapid growing to a stop and ends the prosperity of the entire company. So what’s the right org chart starup should adopt to keep the success sustainable? It will be illustrated based on two stages that a company stays. In each stage, the company needs different org chart.
Org Chart with Informal Structure
Org chart with informal structure will be the best option the firm can have till the number of employee is less than 50. During that time, usually the funder or the CEO can handle multiple tasks and oversee every aspects of the operation and demand all the subordinates report to him so as to pursue great efficiency. Using a flatter organization allows staff to make decisions based on their expertise, experience, and the strength of their ideas, not their hierarchical position.
Hence great flexibility is needed at this stage. So the org chart should be like:
Org Chart with Formal Structure
The org chart with formal structure should be taken when startup has grown to be a firm more than 50 people. The increasing in personnel indicates the expansion of business range. The founders or the CEO cannot handle all the work activities and manage all the staff due to the limitation of specialization and energy. They have to be devoted to company’s strategy and development. Naturally, formal structure would be more suitable for the long-term development and flourishment. More layers of management are required and the layout of the entire company can be more complex.
However this management style might lead to creation of bureaucratic procedures that deter coordination and collaboration. In avoidance of this bad hierarchical rank, you should describe individual authority, roles, and responsibilities clearly and let this layer of management less than 4.
The org chart with formal structure:
Organizational chart is a kind of diagram used to show the layout of personnel in a company, which tells us all the links between anyone in the organization. With this awesome chart, you can check for useful information as quickly as possible. It’s convenient for stuff to cooperate with each other. There are 5 key elements you have to keep in mind when drawing an organizational chart.
1. Work Specialization
Work specialization means the specific degree the employee has acquired. This element is often used to measure how task in an organization has been assigned to each person for most of the time the entire job can not be done by one individual. Work specialization plays a important role in the direction of assignment distribution. That’s why specialization is called one of the most significant elements in organizational chart structure design.
2. Division of Department
Division of department is the common state how workers are connected together. Every company has its unique way of categorizing work activities. Division of department can affect working efficiency and company development. So selection of the most suitable model of compartmentalization really means a lot.
3. Chain of Command
It shows the line of power drawn from the upper level to the lower level. It is the full layout of authority and it function as guidance that who questions who. There are 3 key concepts in this element:
Authority: refers to the rights the upper level owns to instruct people to do the work well.
Responsibility:the obligation and duty that the lower level has to take.
Unified command: a principle lies in the management that each person should only report to no more than one manager in order to avoid confusion and disorder.
4. Span of Control
This element is really important because it determines how many person each manager can manage and how many circle of management an organization can be divided into. It even can shape the whole organizational structure.
This refers to the rule how work is standardized and the guidance how workers should behave.
In the functional structure, functions are separated in different groups, resulting in some defects. Here are the major disadvantages you must consider:
- It will lead to poor communication and coordination across function units.
- There will be lack of understanding across departments.
- They focus more on their own goals and neglect the overall company objectives.
- Communication in organizations with functional organizational structures can be rigid.
- Slow to react in response to environmental changes.
- It stifles innovation when problem occurs or environment changes.
- The autonomy within units might increase when company grows, which cause difficulties in management.
- The specialization will lead to narrow viewpoint and lack of overall perspective.
Functional organization structure is optimal for small businesses or companies producing standardized goods or services. Here are the main advantages:
- It offers a high level of specialization.
- Employees are possible to become experts.
- Staff working skills can be effectively improved.
- It could enhance the work efficiency and productivity due to the specialized skills and technology.
- Employees are highly motivated as they see clearly their career path within the functional units.
- Functional specialization can minimize the cost of operation.
- It leads to high quality technical problem solving.
1. Basic Introducton
Under functional organizational structure, employees are grouped based on their roles and functions, resulting in functional units such as marketing, HR, finance, etc. Generally, the heads of these specialized units will report to the top management of the company. According to the company’s size, the functional units might be further divided into smaller units. This kind of organizational structure is one of the most common organizational structures that many companies have applied.
2. What are the advantages of functional organizational structure?
To make a stronger framework, it is important to understand the advantages of functional organizational structure. A major advantage is that it offers a high level of specialization. This allows employees to develop their individual skills rapidly within the functional units, and there will be more specialists in the company. The continuing development of employees’ skills will increase their working speed and efficiency, thus improve the productivity. What’s more, employees will be strongly motivated to advance their careers from as they move up within the hierarchy in the function unit.
3. What are the disadvantages of the functional organizational structure?
One of the main disadvantages is that it will lead to poor communication and coordination across functions. As functional units are not accountable to each other, they may have difficulties in cooperation. The viewpoints are narrow and they only concern about their own duties and tasks, and neglect the outside area. Moreover, due to the standardized ways of operation, the organization might be rigid, and not flexible and adaptable enough to fit for dynamic environment.
4. What kind of organization is suitable for functional structure?
- It’s suitable for smaller companies that focus on single product or service.
- It works better in a stable environment where your business doesn’t need much change or update.
Organizational structure is the framework of a company through which individual work can be effectively coordinated and managed. A good organizational structure should be developed based on the following principles:
- Strategy oriented. The ultimate goal of organization design is to achieve the strategic objectives. Therefore, the design should aim on serving to reach the goals. It should be designed with the optimal position arrangement that make the most benefits for the final goals.
- Position oriented. Make sure that you design the organizational structure around positions, not people. The organizational structure is composed of functional positions that contribute to the business aims. These positions are basic units of the organizational structure. Find suitable people to fill the positions and make optimum effects. Although some people play important roles in the business, you could not organize your business around their needs, since it might overemphasize the function of people and make the company structure disorganized.
- Stable and flexible. First, the corporation structure must provide a solid and stable working environment for everyone. This is the prerequisite to run a company. Avoid frequent changes because it will bring chaos. Second, the corporation structure must also be flexible enough to adapt to the internal and external environment changes.
- Strengthen accountability. A good organization design will promote accountability. It should make the supervisors assess their subordinates’ performance easily, so as to conduct adequate guide and control. Every point person must be clearly identified per unit of the organization, so that there is less confusion as to whom should be responsible for which part, and on whom should be coordinating the efforts. Make sure the hierarchy is reasonable and smooth, and the information flows rapidly and clearly from the executive committee to business units, functions, and departments.
What’s organization and what’s organizing?
Organization: Organization is a group of people who work and cooperate together in order to achieve a particular aim.
Organizing: Organizing contains the following aspects:
- Identify all business processes involved and make classification.
- Divide key processes into groups.
- Authorize leaders to supervise each group.
- Make necessary rules and regulations.
What to prepare before making an organizational structure?
- To clarify the company objectives.
- To set up policies and plans for reaching the objectives.
- To define what processes are needed.
- Divide the processes into groups according to the purposes and resources.
Some Premise factors for the organizing work:
- The organizational structure must reflect the objectives and plans.
- The organizational structure must reflect the power of the organization in business management.
- The organizational structure should be a great platform for all employees to play their best abilities and contribute to the organization.
What is a Verticle Organizational Structure
The vertical organizational structure is a strict hierarchical structure with power emanating from the top to the bottom. With chain of command well defined, decisions usually move from top down through layer by layer, and people at the bottom have the least autonomy. In the structure, each person is supervised by the one directly above him. Employees can clearly recoganize their roles and responsiblities.
Vertical structured organizations have clear lines of authority, with quicker decision making and better designation of tasks to employees. Staffs in a vertical structure have well-defined roles and responsibilities, which reduces duty ambiguity and encourages high production efficiency. For employees who are seeking for job promotion, there is a clear path of career planning. Employees are motivated to work hard to achieve a higher level.
Vertical organizational structure also has lots of disadvantages. Due to the lack of autonomy, employees from the bottom may have lots of limitations to share their constructive ideas or creative proposals. Vertical structure is likely to be rigid, which might hamper the company from accepting innovative concepts and trap a company in outdated techniques. What’s more, because of multiple layers of powers, it will take more time to respond a problem or implementing decisions.
What is Horizontal Organizational Structure
Unlike vertical and matrix organizational structures, a horizontal organizational structure has fewer layers, normally two or three. It doesn’t have much chain of command. The top position of the structure is the owner of the business. The second layer contains managers or team leaders who report to the business owner. The third layers are team members supervised by the managers or team leaders in the second layer. The horizontal org chart has eliminate many middle management levels, thus can be considered as an employee-centered with emphasis on teamwork and collaboration. Without going through complicated hierarchies, employees have more contact with managers and even business owner.
Due to the simplified structure, many organizations choose to implement the horizontal organizational model, especially some small firms who start up in their early stage.
Firstly, the horizontal organizational structure is an employee-centered approach that employees have a big part to play. They get more satisfaction due to the greater freedom and autonomy. Secondly, the cross-functional structure makes optimum utilization of resources across different teams. Thirdly, it’s cost-saving since they can save a great amount of money from hiring the middle management. Last but not least, the structure is quite flexible; business managers could easily adjust the priorities based on different tasks.
There may be contradictory between departments due to the responsibilities are interdependent, which can hinder productivity. It can also lead to a feel that every single employee who works in a small, flat organization lacks professional skill in his or her career path, because their effort is diluted. Everyone is becoming a “jack of all trades, master of none”. It dose not promote innovation and creativity, because of the breaking up of specialized lines of business.
Matrix Org Chart
Matrix organizational chart is composed of functional departments and the project teams for completing some temporary tasks. It’s a double tunnel command system. People have different roles and report to multiple managers. For example, when a project team wants to develop a new product, they will need to use personnel from the functional departments, such as engineering, research, and marketing. The personnel are under command of both the project team and their own departments.
It’s easy to allocate resources between functional units and projects. Functional units focus on managing employees in their field, while project teams can focus on achieving the goals of a specific project.
Employees in functional departments are very skilled in their specialized fields. All experts from various functional areas are ready to be in position whenever project teams need supports.
Since the matrix combines two communities together, employees have opportunities to learn from each other and grown their career. It allows employees to create a more cooperative working environment, so as to make the organization more integrated. Therefore, the project team can better handle difficult issues and complex challenges.
Unfixed location of the members may lead to temporary weak responsibility.
Employees are supervised under both functional units and project team, which may cause conflict.
Employee may have high workload because additional project work will be added in addition to their regular work.
As they use mutual resources, it’s easy to cause conflict when the resource is in shortage. They need to define the priorities in advance.
There will be large overhead cost due to the excessive paper work and information collection.