Poor organizational structure can cause chaos in your startup, and it may even stifle your growth.
While structuring your company can be lengthy process, it doesn’t have to be stressful.
A well-organized company is essential for sustaining growth, so, in this blog, I’m going to explain everything you need to know about the process.
Here’s what we’ll cover:
- Why startups need organizational structure
- How do you know when it’s time to restructure?
- The different types of organizational structure
- A process for designing organizational structure
Why startups need organizational structure
As your company moves from startup to scaleup, you’re faced with a host of new issues.
In the early days, you didn’t have time to define roles and processes. Instead, you focussed on validating your idea, finding product-market fit and making a profit.
Founders and employees probably wore many hats, doing whatever was high priority at the time.
However, as you scale, you need to think about the best way to distribute, coordinate and supervise work.
Another challenge is that many first-time founders don't want to delegate decision-making and management, but as the team grows it's necessary.
When you create organizational structure, you’re trying to define:
- Who does what?
- Who do they report to?
- How do you coordinate the work?
Good organizational structure simplifies processes, fostering communication and transparency. It should provide the infrastructure for growth and be flexible to accommodate change.
How do you know when it’s time to restructure?
In general, the sooner you can establish organizational structure, the better. If you recognise any of these signs, it's time to design your organizational structure.
Employees aren’t happy
Employees are a company’s most valuable asset, and having a high turnover of staff is costly. There are many possible reasons for low morale among your employees:
- They feel burned out because of a heavy workload.
- Their work is subject to a complex approval process.
- You don’t trust them to make decisions and take ownership of projects.
- Their skills don't match their role.
Redesigning your organizational structure can help fix these problems.
Performance is dropping
Everything was going well, but lately you’ve noticed issues like frustrated customers, churn and missed leads.
As you try to figure out the problem, ask yourself the following questions:
- Is there a lack of leadership, or a confusing chain of command?
- Is the training and onboarding process comprehensive enough?
- Do people have access to the tools and technology they need?
- Are you missing key team members, or should you promote someone to a leadership role?
It could be that poor structure is stopping you from showing up for your customers. Smooth organizational structure boosts performance, and holds people accountable for their actions.
There is inefficiency across the company
If it’s taking too long to make decisions and get things done, maybe the company operations are too slow and inefficient.
Inefficient operations can slow everything down so that growth stagnates.
Then, you might hire more employees to compensate, but this doesn’t address the root cause. Putting a more effective structure in place will help reduce inefficiency.
Bottlenecks and silos
If closely aligned teams don't collaborate, they could be duplicating work.
Communication between related teams is crucial. Which teams should work together depends on the nature of your business.
As you evaluate your company structure, think about which teams need to work together.
Bottlenecks are another operations problem which stifle growth. If the founders have to approve every decision, they can become overburdened. To speed up progress, you may need to decentralize control, and share it between department leaders and managers.
The different types of organizational structure
Ok, so you’ve decided it’s time to restructure, but where do you begin?
First, let’s take a look at the different types of structure that exist. We can divide organizational structure into 2 main categories: mechanic, and organic. You can think of these as opposite ends of a spectrum, with specific structures falling somewhere along the scale.
Both of these structures have their advantages and disadvantages.
The following characteristics are typical of mechanic structure:
- More traditional and hierarchical
- Power is centralized at the top
- People have narrow roles, and specialization is encouraged
- More formality, which means more rules and procedures are in place. Job roles are standardized and separate from the individuals who do them.
Mechanic structures are useful for a growing team. They're easier to understand and standardize processes, and hold teams accountable. However, they can hinder creativity, and prevent the agility needed to keep up with a changing market.
Here’s some characteristics of organic structure:
- More flexible
- Loose departmentalization - meaning lots of crossover and collaboration between teams
- Spans of control are wider, meaning that multiple teams may answer to one leader. Teams have a wide range of tasks which fall within their responsibility.
- Decentralized, so decisions are often made by team or department leaders.
- Lower specialization, people are expected to be more generalist
- Less formal, more ad-hoc approach to assigning tasks
Organic structures are harder to understand. They can be chaotic and cause confusion about the division of labour. However, they allow employees to evolve, grow and learn and help companies discover new opportunities.
Some common types of organizational structure
- Functional. Departments are divided by function, such as marketing, sales, or finance.
- Product-based. The company is divided into smaller, functional structures based on product lines.
- Market-based. The company is divided into smaller functional structures based on different market segments that they cater to.
- Geographical. The organization is divided by location. Autonomous teams exist in and/or serve different countries or regions.
- Process-based. The company is divided into processes, like research and development, customer acquisition or order fulfillment. This is like functional structure, but it focuses on how different activities interact.
- Circular. This is a different way to organize a hierarchy. The leaders and executives are at the centre of a circle, spreading their vision outwards.
- Flat: In a flat structure, there are very few levels of management. All employees are only a few steps from top level management.
Hubspot’s Illustrated Guide to Organizational Structure has lots of useful templates. Check out the diagrams and download their templates.
A process for designing organizational structure:
Now you’re familiar with the organizational structures that exist. The next step is finding the one that fits your company. This process involves a lot of experimentation, and trial and error. Don't feel that you have to limit yourself to the structures discussed above. Take what works from those examples to design the structure of your organization. Here’s a guide to the process of creating organizational structure.
Assess the state of the company
First you need to find your why. What’s the reason for restructuring? Which problems and roadblocks are you currently facing? Maybe you’ve spotted the issues mentioned above, or other problems that result from a messy structure. Identifying the problems that exist will help you understand where to make changes.
Map out how you’re currently operating
Even if you’ve never created an organizational structure, you’ve probably got a system in place. Map it out, and evaluate the strengths and weaknesses of your system. Don’t forget to listen to your employees. Gather their feedback through a meeting or anonymous surve, and involve them in the process. Take their opinions into consideration, as well as their skills and experience.
Assess and experiment
This may take a few brainstorming sessions. It's important to consider the pros and cons of different options, and how well they suit your company. Plan a workshop with key players, and use an interactive tool like Miro to map out the new org chart. Try out various versions, and customize the structure to fit your company.
Identify chains of command
As you map out the organizational structure, identify vertical and horizontal lines of authority. It’s important to get a clear picture of who makes formal decisions and who has control over departments. Check how many steps there are from the top to bottom of the company.
Communicate the changes
The end goal should be a structure that has clearly defined roles, and relationships between them. It should make processes more efficient, standardized and simple. When you are happy with the result, you can communicate the changes to the rest of the team. Be clear and transparent, making sure you are open to questions and feedback. Make sure everyone understands their place in the structure, and where any new hires will fit in.
Remember to keep the structure flexible, so that it can be adjusted in response to external changes. They key is communication and not leaving people in the dark.
Do you need help restructuring your company?
Drop me an email, or get in touch through video on my website. I can help you understand the problem with your company structure, and work with you to find a solution.