Organizational structure refers to how a business organizes itself to accomplish its goals. It establishes how tasks are assigned, who reports to whom, and decisions are made. Organizational structures play a vital role in any successful enterprise of any size.

 

Small businesses often struggle with organizing themselves effectively. With one person often taking on many roles ranging from CEO to receptionist, small business owners may lack both the time and expertise required to craft an efficient organizational structure. In this blog post, we’ll look at nine organizational structures small businesses should consider as well as their potential advantages and disadvantages.

 

1. Functional Structure

Functional structures are one of the most widespread organizational structures. Employees in this structure are divided according to their marketing, sales, and operations functions – ideal for small businesses specializing in one product or service.

 

Benefits

1. Efficient Use of Resources: Functional Structure allows for specialization in expertise to optimize the use of resources more effectively, leading to streamlined utilization.

2. Clear Lines of Communication: Functional Structure enables employees within one function to communicate clearly with each other.

3. Easy Implementation and Management: This structure is relatively straightforward to create and administer.

 

Disadvantages

1. Limited communication across functions: Our Functional Structure can cause poor communication among functions resulting in ineffective coordination among them.

2. Difficulties Adapting to Change: Functional structures may be inflexible and slow in adapting to changes in the business environment.

3. Silos: Silos can form when employees become too focused on their functions rather than keeping an eye on the bigger picture.

 

2. Divisional Structure

A divisional structure is ideal for small businesses that provide multiple products or services with distinct requirements and setbacks. Employees in this structure are organized based on which products or services they specialize in. With this method, all employees who work on those particular offerings are assigned as group leaders for that project or service. It offers several advantages for this form of organization. Among them:

 

Benefits

1. Focus on products or services: The divisional structure allows for a more targeted and focused consideration of each product or service offered.

2 . Flexibility: This structure is more adaptable and flexible than its functional counterpart.

3. Quick decision-making: Decisions can be made more efficiently since each division can make its own decisions independently.

 

Disadvantages

1. Duplication of resources: Each division may require its own set of resources, leading to duplication and increased costs.

2. Communication across Divisions: Communications between divisions may be limited and coordination hindered, leading to internal conflicts as divisions compete for resources or have different priorities.

 

3. Matrix Structure

A matrix structure combines functional and divisional structures. Employees in this arrangement are organized based on their functions while reporting to project managers who oversee specific projects. It offers several advantages over these two alternatives. For example:

 

Benefits

1. Efficient use of resources: The matrix structure facilitates specialization, leading to more efficient use of resources.

2. Flexibility: This structure is more adaptable and flexible than functional structures.

3. Reducing communication barriers: The matrix structure promotes greater communication and collaboration across various functions.

 

Disadvantages

1. Complexity: The matrix structure may be complex and difficult to manage.

2. Conflicts: Functional managers and project managers with differing priorities could have disputes.

3. Increased Management Costs: Matrix structures demand higher management costs for operations management and administration purposes.

 

4. Flat Structure

This structure is ideal for small businesses that focus on innovation and creativity since there are few or no levels of management between the CEO and employees.

 

Benefits

1. Effective Communication: Communication is more efficient with fewer layers of management.

2. Flexibility and Adaptability: This structure is more adaptable and flexible than others.

3. Employee Empowerment: Employees feel empowered as they have greater responsibilities and decision-making power.

 

Disadvantages

1. Lack of Hierarchy: Without clear rules, roles, and responsibilities, confusion and miscommunication could occur within the organization.

2. Overworked Executives: Within an unstructured structure, executives could become overburdened and incapable of efficiently overseeing all aspects of business activities.

3. Lack of Specializing Expertise: There are no specialized departments or functions within a flat structure, so it may lack specific expertise.

 

5. Network Structure

A network structure is ideal for small businesses that form strategic alliances with other organizations. Within this structure, your business serves as the focal point for all other firms involved – acting as an administrative hub that coordinates and collaborates with them all. With such a setup in place, many advantages arise for your operation, including cost savings.

 

Benefits

1. Cost-effective: The network structure allows for cost-effective collaboration with other companies.

2. Flexible Adaptable Structure: This structure offers greater adaptability than other structures.

3. Access to specialized expertise: The network structure allows for access to specialized expertise from other companies

 

Disadvantages

1. Dependence on other companies: Network structures rely heavily on other firms for support and reliability; should those firms prove unreliable or complex structures become too much to manage, the network structure could prove challenging to navigate and manage effectively.

2. Lack of Control: Network structures may lead to a loss of control over business operations.

 

6. Team Structure

A team structure is best suited for businesses that focus on projects or short-term objectives, with employees organized according to the projects they work on. In this setup, employees are divided up into teams that correspond with those working on them.

 

Benefits

1. Efficient Use of Resources: The team structure allows for more effective use of resources through specialization, making this structure more cost-efficient than others.

2. Flexibility and Adaptability: This structure can easily adapt and change in response to various environments, and collaboration and teamwork thrive under this structure.

 

Disadvantages

1. Conflicts: Multiple teams that have conflicting priorities or goals may cause clashes.

2. Difficulties associated with managing multiple teams: It can be time-consuming and challenging to oversee multiple teams simultaneously.

3. Duplication of Resources: Each team might require its own set of resources, which could result in duplicative use and an increase in costs.

 

7. Holacracy Structure

Holacracy structures are relatively new organizational structures based on self-management. Here there are no managers or bosses – instead, employees are empowered to make their own decisions independently. With this structure comes many advantages compared to more traditional forms. These include:

 

Benefits

1. Employee Empowerment: Increased responsibility and decision-making power make employees feel more empowered.

2. Efficient Communication: Communication between staff is more direct since there are no layers of management to go through.

3. Flexibility and Adaptability: This structure offers more adaptability and flexibility than other structures.

 

Disadvantages

1. Lack of Hierarchy: Lack of hierarchy may create confusion regarding roles and responsibilities, creating disorganization within teams.

2. Difficulties associated with Multiple Teams Management: Coordinating multiple teams is both time-consuming and taxing on your resources.

3. Limited Specialized Expertise: As there are no specialized functions or departments within a holacracy structure, no experts may possess specialized expertise.

 

8. Circular Structure

Similar to holacracy structures, circular structures also omit managers or bosses and organize employees into circles with defined responsibilities and benefits for themselves and one another.

 

Benefits

1. Effective communication: With no levels of management to negotiate through, communication becomes more efficient.

2. Employee empowerment: Workers feel empowered as their decisions and responsibility become greater.

3. Collaboration: The circular structure fosters teamwork.

 

Disadvantages

1. Lack of Hierarchy: Without clear roles and responsibilities, confusion and difficulty managing multiple circles are likely to result. This task can be both time-consuming and complicated.

2. Limited Specialized Expertise: Given its circular structure, there may not be many specialists for each function or department in a circular structure.

 

9. Hierarchical Structure

A hierarchical structure is a traditional organizational structure where employees are organized according to their level of authority, with clear management and supervision levels for all levels. This model may offer several advantages over its rival structures:

 

Benefits

1. Clear Lines of Authority and Accountability: The hierarchical structure allows for clear lines of authority and accountability, which facilitate faster, more efficient decision-making processes.

2. Efficient Decision-Making: Decision-making becomes quicker and more efficient with clear lines of authority present.

 

Disadvantages

1. Lack of Flexibility and Adaptability: Hierarchical structures may not be as flexible and adaptable as other structures.

2. Limit Employee Empowerment: Employees may feel less empowered as most decision-making power lies with those at the top.

3. Communication Barriers: Internal communication may become less effective as information passes through multiple levels of management.