Structure plays a key role in how people work and the way communication and directions are set. The speed of an organization’s decision-making can be limited by the levels of hierarchy and the power relationships given to its leadership team.
There are silos in all structures, and these tend to be departments that are natural to group work in. For example, engineering work would be in the engineering department and production activities would be in the manufacturing department. There is no one size fits all and they all have some level of trade-offs. Let's look at the three most common types of structures and why they are designed this way.
Functional Structure
The most common type of structure is called the functional structure. It is called functional structure due to it following the function of how a product is developed and delivered. It is common for all sizes of companies but typical for smaller organizations. It is simple and directly follows the products/services that are provided by the company and its functions. As you can see there are positives and negatives to this structure.
Geographic Structure
Another common structure is called the geographic structure. This structure is popular when there are multiple locations (county, state, country, etc.). In each location, they will have their own functional structure but are managed by their territory.
Product or Customer/Industry Structure
This structure is related to the products or services that the division produces. It is a typical one that produces different products or services and they do not need a common structure to do it.
Hybrids can exist where there is a product/geographic structure, or geographic/functional structure.
For the geographic and product/service structures it is important to understand if they will have a “centralized or decentralized” management system at the parent company.
A centralized management system is simply stated as the parent company manages the policies and practices that the divisions must follow. Examples can include HR, Finance, Planning/Buying, etc. which are functions handled by the parent company.
A decentralized management system is where the division can set and manage the direction on their own without the parent company managing it for them. For the most part, this is for larger companies or can be smaller ones that are owned by larger entities.
Steps to Optimize Your Organization’s Structure
Not All companies need to restructure their operating model, but they need to understand what could optimize their company to achieve its strategic objectives.
Steps:
1. Define how effective your structure is today.
- What is working well?
- What is not working well?
- Will this structure enable the company’s future success?
2. Look at the future requirements of the company and look to enhance the current structure so it can grow with the organization’s needs.
- Determine what the optimized structure should be. Functional, Product Based, or Geographic?
- What division/departments should exist?
- How many direct reports should each position have?
- How many leadership positions should be aligned to each division?
3. Now it is time to test the future structure.
- Do the reporting structures have simple flow and escalation paths for single managers?
- Does each department have clear reporting of teams and their functions?
- Does the structure have good communication processes?
- Does the structure need cross-functional teams to review things such as quality issues, safety, on-time delivery, or even employee morale?
4. Implementation
- Who will be impacted?
- Who are the stakeholders that need to be informed of the change?
- How will this all be communicated?
- What is the timing?
This is not a sprint, but a marathon and it will only be won when the last person finishes it.
Be cautious, be prepared, and drive a positive change and not a negative one. As we all know, change is hard. The most important part of the change is making sure the leadership team is fully aligned with the change and prepared to deliver it and transition the organization to the new structure.
Need help creating an organizational structure that makes sense for your business? We have proven processes that can help. Schedule a call with us to learn how we can help you clearly define roles needed or send us an email at info@vereoimpact.com.
