The Importance of a Good Organization Structure

Businesses require structure to grow and be profitable. Designing an organization structure helps top management identify talent that needs to be added to the company. Planning the structure ensures there are enough human resources within the company to accomplish the goals set forth in the company’s annual plan. It is also important that responsibilities are clearly defined. Each person has a job description that outlines duties, and each job occupies its own position on the company organization chart.

Communication

The flow of information is essential to an organization’s success. The organization structure should be designed to ensure that individuals and departments that need to coordinate their efforts have lines of communication that are built into the structure. The financial planning and analysis department might report to the Chief Financial Officer and the Senior Vice President of Marketing, because both of these members of the top management team depend on information and reports provided by financial planning.

Reporting Relationships

Reporting relationships must be clear so all members of the organization understand what their responsibilities are and know to whom they are accountable. These clear relationships make it easier for managers to supervise those in lower organization levels. Each employee benefits by knowing whom they can turn to for direction or help. In addition, managers are aware of who is outside the scope of their authority, so they do not overstep their bounds and interfere with another manager’s responsibilities.

Growth And Expansion

Companies that grow rapidly are those that make the best use of their resources, including management talent. A sound organization structure ensures that the company has the right people in the right positions. The structure may suggest weak spots or deficiencies in the company’s current management team. As the company grows, the organization structure must evolve with it. Many times more layers of management are created, when one department head has too many individuals reporting to him at one time to give each employee the attention and direction needed for the employee to succeed.

Task Completion

A well-designed organization structure facilitates the completion of projects. Project managers can better identify the human resources available to them if the scope of each department’s responsibility -- and each team member’s capabilities--are clear. A project to develop a new product would require market research. The project manager needs to know who in the organization can provide this research, and whose permission must be obtained for the research to be done.
Fits Company’s Needs
Companies in different industries require different mixes of talent and a relatively greater emphasis on certain management functions. A software company often has a large development staff. Structuring the reporting relationships within the development team so creativity and productivity are maximized, and deadlines are met, is vital to that type of company’s success. Companies often have to go through a reorganization phase in which individual positions or even whole departments are repositioned on the organization chart in an effort to better utilize the company’s human resources and make the operation run more smoothly.

What Can Go Wrong

Poorly structured organizations find that critical deadlines are not met because there were not sufficient human resources in each department to accomplish all parts of a given task, or because it was not clear whose ultimate responsibility the project was. If individuals are not sure whom they report to, they may find they are given conflicting assignments by two or more managers above them.