Imagine a car so poorly designed that pressing the accelerator sometimes feeds gasoline to the engine, sometimes feeds it onto the tires, and sometimes feeds it into the trunk. The car would always stink and only sometimes drive. Seems silly, right? No one would try to drive a car like that! And yet many companies suffer from basically the same problem as this unreliable car.
Companies need fuel to move forward just as cars do. The fuel for companies is information. Decisions must be made based on what’s happening inside and outside the company. If information isn’t getting to where it needs to go, then those decisions cannot be made or made well. Solutions can’t be proposed and tested if problems aren’t brought to the right party’s attention. And often one department can’t do its job if it’s unaware of what’s happening in another department. The right hand should always know what the left hand is doing and be operating with the same information!
Unfortunately, it doesn’t suffice to tell everyone to talk to each other and share information. Structural groundwork must be laid to establish clear channels of communication. Fortunately, you don’t need to reinvent the wheel. There are several effective company structures that, when implemented correctly, will help information flow from department to department or person to person. The trick is determining which one would work best for your company.
The functional structure is the most common of the bunch. In this hierarchical structure, the head of each functional area reports directly to the CEO. Picture a pyramid or family tree. As its name implies, this arrangement groups employees and operations into functional units (sales, marketing, HR, etc.). With its clear, vertical lines of communication, the functional structure keeps the CEO apprised of problems and developments in each department, enabling centralized decision-making.
Horizontal communication (department-to-department) isn’t stressed as much in this structure, so it’s important for companies that use this arrangement to establish effective ways for functional areas to communicate with one another and be aware of what everyone is doing. The CEO can help with this endeavor by providing everyone with regular summaries of what’s happening in each department.
The functional structure will not work well for every company. Businesses with separate product lines or distinct sets of customers may want a product-based structure instead. In this arrangement, the company is divided into separate product lines, each with its own functional divisions. The division has information flow up and down through each product line, but not so much among them.
There are other divisional structures to consider. Larger companies with operations in different regions, countries, markets, or industries will often use a geographical or other decentralized structure based on whichever divisions make the most sense. The various divisions each report to the CEO, but the depth and breadth of operations makes it necessary for VPs or other leaders to make major decisions for their division.
No matter what structure you use, it helps to chart the reporting channels so everyone can see how information flows throughout the company. Our guide titled “Company Organizational Chart Sample” is an example of one such chart, but there isn’t an absolute set way to create one. The key is to keep it simple. The purpose of the chart is to give everyone a bird’s-eye view of the place each unit has in the company so they can easily and clearly see the paths of communication and lines of reporting. To see our Company Organizational Chart Sample, go to the Support Center, click on the Documents tab, select Guides, and look under HR Administration.
A chart, however, is only a means to an end. The important thing is to have an organizational structure that makes sense for the type of company you have – one that effectively and efficiently gets information where it needs to go.