What is the right organisational structure for your business?

In our role as management consultants servicing mid-market and emerging businesses, we inevitably spend a lot of time focusing on organisational structure – a critical question that CEOs and business owners often ask when they start talking about their business. Given what we do for a living, structure always comes up, with the communication starting with ‘this is how we are structured’ and evolving to ‘do you reckon that structure sounds right?’

The reality of course is that the right structure will depend on a number of factors (and primarily your business strategy), but the core underlying functions of virtually every businesses are effectively the same.

How to choose the right organisational structure to achieve your business goals.

Understanding the key functions and where there are gaps and/or duplication points will help you prepare to choose the right organisational structure to achieve your strategy.  A key to achieving this is an understanding of the key differences between potential organisational structures together with the pros and cons of each.

Another critical piece to note is that as businesses grow and evolve, there remains a need to revisit your organisations structure to ensure it remains relevant to your strategy and provides an ongoing growth platform as opposed to a handbrake preventing successful growth.

Using the Business Value Chain model to assess organisational structure and capacity.

Our business value chain model (below) provides an overview of the typical core functions found within most organisations (across every sector), together with the common management support functions required in any growing business:

Figure 1: Checkside’s Business Value Chain for assessing organisational structure and capacity

What are the most common organisational structures?

The 4 primary organisational models include FUNCTIONAL, DIVISIONAL, HYBRID or MATRIX structures.

A FUNCTIONAL structure typically has functions (i.e. Sales, Marketing, Operations, Finance, IT, and Human Resources) reporting into the CEO or MD.  Each function is responsible for delivering on their functional area of expertise under the direction and strategic guidance of the CEO.

A DIVISIONAL structure typically sees the business structured along product or market lines. A division may be set up to focus on a particular customer segment or around different products.

A HYBRID structure contains a combination of functional and divisional elements. In this case you may structure your organisation with particular divisions based on products or customer segments however have some form of shared services across the business.

A MATRIX structure involves having a pool of resources that are drawn on to complete a finite number of projects. This involves having the core functions and a number of projects.

A key risk for many mid-market and emerging companies is that their structures evolve around the talent, capability and capacity that currently exists in the business rather than being designed around what the business actually needs moving forward to achieve its strategic objectives.  The exercise of assessing the most appropriate structure for your business is critical as it goes directly to the ability to execute your strategy and drive performance.

It typically requires some expert help to not only assess the most appropriate structure that is best suited for your business right now but determine your key capacity ratios to guide resourcing changes and a workforce plan for your future growth.