An organizational structure is the pattern or arrangement of jobs and groups of jobs within an organization. This pattern pertains to both reporting and operational relationships, provided they have some degree of permanence. The individual elements of an organization structure typically include a variety of components that Portable MBA in Management contributors Phyllis and Leonard Schlesinger termed organizational "building blocks": 1) departments or divisions; 2) management hierarchy; 3) rules, procedures, and goals; and 4) temporary building blocks such as task forces or committees.

Ideally, organizational structures should be shaped and implemented for the primary purpose of facilitating the achievement of organizational goals in an efficient manner. Indeed, having a suitable organizational structure in place—one that recognizes and addresses the various human and business realities of the company in question—is a prerequisite for longterm success. But as Gibson, Ivancevich, and Donnelly noted in Organizations: Behavior, Structure, Processes, "It is entirely reasonable to acknowledge that in many instances, organization structures do not contribute positively to organizational performance because managers are unable by training or intellect to design a structure that guides the behavior of individuals and groups to achieve high levels of production, efficiency, satisfaction, quality, flexibility, and development." Small business owners seeking to establish a beneficial organizational structure for their enterprise, then, need to recognize that the process is a complex one that requires considerable planning and research.


All sorts of different organizational structures have been proven effective in contributing to business success. Some firms choose highly centralized, rigidly maintained structures, while others—perhaps even in the same industry sector—develop decentralized, loose arrangements. Both of these organizational types can survive and even thrive. "There is no one best way to design an organization," stated Phyllis and Leonard Schlesinger in The Portable MBA in Management. "Organizational research has shown that the more we know about particular types of organizations, the less we can generalize about the optimal design for an effective organization. Generally, organizational theorists believe that no one structure, set of systems, or method of staffing is appropriate for every organization. Organizations operate in different environments with different products, strategies, constraints, and opportunities."

But despite the wide variety of organizational structures that can be found in the business world, the successful ones tend to share certain characteristics. Indeed, business experts cite a number of characteristics that separate effective organizational structures from ineffective designs. Recognition of these factors is especially important for entrepreneurs and established small business owners, since these individuals play such a pivotal role in determining the final organizational structure of their enterprises.

As small business owners weigh their various options in this realm, they should make sure that the following factors are taken into consideration:

* Relative strengths and weaknesses of various organizational forms.
* Legal advantages and disadvantages of organizational structure options.
* Advantages and drawbacks of departmentalization options.
* Likely growth patterns of the company.
* Reporting relationships that are currently in place.
* Reporting and authority relationships that you hope will be implemented in the future.
* Optimum ratios of supervisors/managers to subordinates.
* Suitable level of autonomy/empowerment to be granted to employees at various levels of the organization (while still recognizing individual capacities for independent work).
* Structures that will produce greatest worker satisfaction.
* Structures that will produce optimum operational efficiency.

Once all these factors have been objectively examined and blended into an effective organizational structure, the small business owner will then be in a position to pursue his/her business goals with a far greater likelihood of success.

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