A small business can use one of three primary organization structure options: functional, divisional or matrix. Essentially, the organizational structure creates a business hierarchy to increase the efficiency and effectiveness of the business operations. Different small businesses operate in different ways, so there is no one-size-fits-all solution every small business should choose for an organizational structure. You can, however, determine which of the most common structures works for your business.
Functional Organizational Structure
When you establish a functional organizational structure, you are building a hierarchy based on the job role of each employee. Functional organizational structure groups together employees who work toward a common goal.
For example, all of your marketing employees would be in the same group. Even if you only have two or three employees who fulfill the marketing role of your small business, you would structure it so one person is in charge, such as the vice president of marketing. His team would consist of a marketing manager and a public relations manager.
The functional structure provides focus to the employees, because they know they are working toward a common goal. In this example, the common goal is marketing and promoting the business.
Divisional Organizational Structure
Divisional organizational structures decentralize the functional organizational structure because the roles of the employees are divided by product or region, rather than function, within your business.
For example, you could divide the United States into four divisions: north, east, south and west. Each division would then have its own employees. This provides each region with specialist in each area for that region. If your business sells different products, you can also separate roles by the product under a divisional organizational structure.
Matrix Organizational Structure
Matrix organizational structures combine the characteristics of a functional and divisional organizational structure. The matrix organizational structure works more like a team. Instead of department heads, each team has a leader. Matrix organizational structures bring together employees who focus on a project, but fill different roles from across your business.
The matrix organizational structure has the most decentralization, which means it can confuse employees about who is in charge. The matrix organizational structure is appropriate if your business operates on an international level, or serves different geographic regions.
Changing Organizational Structures
Many small business owners start off by structuring the business by trial and error, or in a haphazard manner. You could start the business with just you and an assistant until you learn more about the roles employees must fill within the organization.
When your business starts small and then grows, it is not uncommon to start with one organizational structure and then transition to another structure. For example, if your business starts out by only serving the local city where the business operates, but eventually serves the state, you might start with one structure and change to another one to better fit the needs of your business and its customers.
FAQs
Function organizational structures are the most common type of org chart for small businesses and likely the one you're most familiar with. The structure is organized by departments or functional areas. They flow from the top down in a familiar pyramid structure.
What organizational structure would a small business have? ›
Functional
Function organizational structures are the most common type of org chart for small businesses and likely the one you're most familiar with. The structure is organized by departments or functional areas.
What is the organizational chart of a small business? ›
What Is a Small Business Organizational Chart? A small business organizational chart is a structured visual display of the people who fill the roles in a company and their working relationship with one another. It is a straightforward graphic that shows who reports to whom.
What are the 4 types of organizational structure? ›
Types of organizational structures include functional, divisional, flatarchy, and matrix structures. Senior leaders should consider a variety of factors including the business's goals, industry, and culture before deciding which type of organization is best for their businesses.
Which business structure is usually the best for a small business? ›
Sole Proprietorship
Easy to Form – Sole Proprietorships are the easiest, most common, and least expensive business structure. A person is essentially a walking, talking sole proprietorship in waiting. All you need to do is sell something—a product, a service, anything—and boom … suddenly you're a sole proprietor.
What is the simplest business structure? ›
Sole proprietorship: The most common and the simplest form of business is the sole proprietorship. In a sole proprietorship, a single individual engages in a business activity without necessity of formal organization.
What is an example of a small business organization? ›
Sole Proprietorship
There is no distinction between the business and the owner because the entity is incorporated. Small businesses such as local grocery stores are examples of sole proprietorships. A local grocery store is typically owned by one person who works as the manager and employee.
What does a business organizational chart look like? ›
The typical org chart looks like a pyramid, your C-level executives at the top with lines stretching down to middle management and finally staff-level employees. But not every company functions best with a hierarchical organizational structure.
What type of organizational chart do small organizations often use? ›
Flat Organizational Chart
This type of structure empowers self-management and greater decision making ability for every employee. It's most often employed by smaller businesses, but it's not unheard of it even at larger companies.
What is a simple organizational structure? ›
A simple structure is the most basic operating system that a business can use to centralize its activities. Also known as the flat structure, the simple organizational structure doesn't have multiple layers of management or formal departments.
Each of these five types of organizational structures have advantages and disadvantages, so it's important to consider which one may be right for your business.
- Functional reporting structure. ...
- Divisional or product reporting structure. ...
- Process-based structure. ...
- Matrix structure. ...
- Flat structure.
Types of Organizational Structure
- Functional Structure. Under this structure, employees are grouped into the same departments based on similarity in their skill sets, tasks, and accountabilities. ...
- Divisional Structure. ...
- Matrix Structure. ...
- Hybrid Structure.
A functional organizational structure is the easiest and the most natural solution for your small business. Although there are other structures like divisional structure or matrix structure, a functional structure is the easiest and the most natural organizational structure to start with for your small business.
What is an example of a poor organizational structure? ›
For example, multiple employees are responsible for the same project that only one person needs to complete; or a project team receives commands from different superiors etc. These may due to the overlap of management or department managers value the interests of their teams more than the company as a whole.
How to structure a company? ›
How to create an organizational structure for your business
- Create a plan for departmentalization. Organize the departments, roles and positions within your business. ...
- Develop a chain of command. ...
- Determine the span of control. ...
- Outline each department's work specialization. ...
- Formalize the structure with visuals.
The most basic type of business structure is a sole proprietorship4 (or "sole-prop"). A sole proprietor is someone who owns an unincorporated business by themself. There's no distinction between the organization and the owner in a sole proprietorship.
What kind of organizational structure is best suited for a smaller organization? ›
Traditional line organizational structures are simplistic but rigid. It can take a good deal of time for information to pass through the company, with each link reporting to ONE direct supervisor. Such a structure is best suited to smaller companies.
What is a flat organizational structure in a small business? ›
How does a flat organisational structure work? For a small business with a handful of employees, having a flat or horizontal structure is often the logical approach. The staff-level employees usually report directly to the business owner. There is typically no formal management structure.
