Business owners usually decide on an organisational structure when writing their business plans. The owner will typically start hiring executives first, then add employees as his organisation grows. Some components of organisational structure include span of authority and control. The span of authority refers to the number of people in which a person is in charge. Control pertains to resources and decision making writhing a person’s bailiwick.
Companies can have flat, mid-size or high organisational structures. Most small companies have flat structures. The depth has not been built into the organisation. Contrarily, large and well established companies contain many tiers or echelons. The reason is that work eventually has to be delegated downward as an organisation grows. Measures have to be taken to maintain control of organisational functions and projects, and foster inter-departmental communication.
Organisational structure takes the form of boxes, horizontal and vertical lines. The boxes represent employees and their specific titles. Boxes along the same horizontal lines represent people on the same level or pay grade. Those who fall below other individuals along vertical lines are subordinates. For example, a vice president of marketing will usually have directors or managers directly beneath him.
Two main types of organisational structure are functional and product organisation structures, according to Reference for Business website. Companies that use functional organisational structure arrange their companies by specific functional areas, such as finance, marketing and accounting. Hence, departments usually consist of financial vice presidents and managers, or marketing managers and their coordinators. A product organisation structure is cantered on specific products. For example, most department stores divide corporate departments into specific product areas, such as housewares or sporting goods.
The main benefit of a functional organisational structure is that it groups employees by skills, knowledge and resources. Therefore, the functional organisational structure is highly efficient for coordinating and completing department projects. Product organisational structures make high use of product specialisation, grouping engineers and other employees by product category. Product specialisation is particularly important for maintaining high-quality products.
One downside of the functional organisational structure is the challenge of coordinating inter-departmental activities or tasks. For example, the marketing department may not know what the finance department is working on, and vice versa. A disadvantage of a product organisational structure is duplication of resources. For example, a company may require a marketing and finance person in each product division, where duplication of responsibilities can become an issue.