5 Importance of Organization Structure (with Elements explained) 

Regardless of the size and work environment of your company, you cannot undermine the importance of organizational structure. That’s because, through it, you can accomplish your company’s goals; since the responsibilities of every member of your team are defined. Either from top to bottom or vice versa. 

You’ll agree that organizations structure themselves differently. And you can always see that in the organizational chart and, of course, in the type of workplace environment they adopt.

What is the Importance of Organizational Structure?

Before learning about the importance of organizational structure, you must know what an organizational structure is. Essentially, the structure of an organization talks about a firm’s setup. In terms of the hierarchy of the management, as well as the company’s various divisions and product lines. 

With that said, the company’s organizational structure spells out how decisions are to be made; coupled with who makes them. However, in developing a strong and perfect organizational structure for your business, you must make some essential considerations. They include your business goal, size, and positioning. 

5 Importance of Organization Structure

#1. Makes Effective Communication easy

One of the benefits of structuring your company is that it makes employees within and across different departments communicate easily. That’s because the flow of communication is defined. And therefore, eliminating the confusion that could arise when staff doesn’t know who to report about a matter, and do that without breaking the company’s work ethics. 

In a company, for example, the sales team or unit reports its daily, weekly, or monthly turnover to the accounting unit. To help them keep a proper financial record of the company, even as they try to ascertain the company’s profitability and financial position. 

#2. Foster Business growth and expansion

You’ll agree that with the right organizational structure, a company has the right people in the right position at the right time and for the right projects. That way, people can work collectively with rancor toward realizing the company’s goals and objectives. By efficiently utilizing the organization’s resources, including physical, technological, and human assets. 

However, the need to tweak your company’s organizational structure to accommodate your business needs, evolving alongside its size and technology. In other words, that may warrant the creation of more layers to your management. Especially in the case where a particular head of a department has many people simultaneously to him at a given time. 

#3. Ensure efficiency in project execution

When a company is well-structured, the execution and completion of projects become easy. As you know, it takes a great team to carry out and complete a project successfully. But with the roles and capacities of everyone spelled out in a company’s organizational structure, a project manager can get the right human resources to get the job done. 

Also, he knows who to delegate a specific task to if he wants to achieve the most desired business results. For example, say, given the responsibility of handling a novel project in your company that will need a whole lot of expertise. From research and pitching to tech. With a structure, you can quickly know the most suitable guys who excellently handle these areas to achieve the projects. 

#4. Meets an organization’s business need

Every organization has its unique business needs, depending on its size, business nature, and industry. The organizational structure of a big company would be different from that of a small business with fewer than 20 employees. 

Similarly, the organizational structure of a big software company would be a different large manufacturing company that produces physical products. 

5. Helping in Organization Restructuring

There are moments in a company’s life or business cycle when there’ll be a need for restructuring. The causative factor could be positive or negative. An example of a positive event is an expansion of your business, which could lead to recruiting more hands to a company.

Tough financial times, on the other hand, are a negative antecedent. Yet it usually calls for downsizing of staff to save personnel costs, but essentially, to help the firm through this hard time. But for managers to identify these areas to cut can be somewhat overwhelming. Especially, without careful study of the existing organizational structure. 

Elements of Organizational Structure

Just like your body needs its different parts to function at peak, some things must be in place for a company’s structure to be complete—or say, justified. And these things or factors are called the element of organizational structure. 

7 Elements of Organizational Structure

 

#1. Chain of Command

A good organizational structure reflects a chain of command. And by that, we mean the channel through which instruction and reporting pass in an organization. An established chain of command establishes who to reach out to within or outside an organization when the need arises. 

#2. Departmentalization and Compartmentalization

If you walk into an organized company, you’ll observe that it has different departments to handle a specific type of work. That’s called departmentalization, which is one element of organizational structure.

 A group of people with the same expertise get compartmentalized to achieve success in the task core. And, of course, such a task is to the overall success of a company. Some examples are the sales department, marketing unit, human resources, IT, etc. 

#3. Work specialization

You’ll agree that for every job posting you come across online or in print, you’ll find outlined roles and job descriptions. While those terminologies may be familiar to you, they can also be seen as work specializations. 

In other words, every worker is responsible for the performance of some duties and responsibilities. And in the case where those roles are left unperformed, these individuals are held accountable. 

For example, in an organization, the front desk executive, based on her job description, knows that she’s the one to handle inbound and outbound calls to an organization.

#4. Formalization

This element of organizational structure emphasizes formality, or for a better word, professionalism. Simply put, the formalization of an organization captures its work cultures, business processes, policies, and standards governing its entire operations. 

Nevertheless, that would depend on the type of work environment a business organization decides to employ. 

#5. Span of Control

This has to do with the number of staff assigned to a particular supervisor. Usually, it depends on work specialization, departmentalization, and chain of command inherent in a company. 

For example, the number of employees that report directly to a specific manager or supervisor may lead to dividing the team into smaller units. 

However, it is important for the top management of a company, when spanning its staff, to consider the workplace size, experience level of employees, and the capacity of each head. 

#6. Centralization and Decentralization

This concept is yet an element of organizational structure that spells out how top managers exert control and authority over a company’s affairs and decision-making processes. Though serving as a single point, centralization and decentralization are two opposites.

Centralisation is the leadership style that a firm’s management adopts, which leaves the power of decision-making over management functions with upper-level leaders. They make the rules, while their subordinates follow the rules and not complain. 

On the other hand, a decentralized structure supports an agile workplace environment. And it allows decision-making at all levels, as employees apply their initiatives in the execution of their responsibilities to realize the firm’s common and business goals. 

#7. Authority and Responsibility

While this is one of the principles of management, it is also an element of organizational structure. Take authority and responsibility for a company structure, you may have handicapped its human resources.

I mean, what’s the point of hiring an employee when there are no roles or responsibilities he ought to perform in return for a salary? You get the point. Right? 

Every worker in a company has a role to perform. And to do that successfully, he must be armed with a corresponding authority to carry out his duties. 

A final thought: Importance of Organization Structure

You’ve learned that organizational structure is crucial for many reasons. Some of these have been outlined and explained in this blog post. But as your business grows, it is pertinent to reevaluate your company’s structure, taking your business priority and goals.