What Are the Functions of Organizational Structure?

Businesses function most efficiently when all employees understand their jobs and proper company procedures. Setting up an organizational structure helps employees understand what their roles are within the company and who to address when decisions must be made. A strong organizational structure keeps your business running smoothly with a clear plan for overcoming obstacles.

The basic function of an organizational structure is to provide a clear chain of command and define which employees report to which managers.

Many companies use multiple levels of management, where an associate reports to a manager who then reports to a director. The directors often report directly to the owners.

The structure also shows who conducts performance evaluations for which employee: managers for associates and directors for managers, for example.

Creating an organizational structure usually helps define teams who work closely together. These teams can be organized by department type, such as accounting or marketing, or by geographic region, such as all sales and administrative staff serving the Southeast. A team can also include all staff working on a specific project or product.

The structure sets the teams, which typically report to the same manager or director. This helps ensure that all the staff members on the team are working toward the same goal, that they have well-defined job duties and that they can get to know each other to help balance each others' strengths and weaknesses.

Employees understand they must take important decisions to their managers, who might escalate them up the ladder if necessary.

A structure helps define exactly who is the correct decision maker for each employee, although some businesses allow employees more decision-making responsitility than others. In retail businesses, employees might make customer service decisions within certain parameters, such as refunds up to $100.

In a marketing department, the staff can order collateral pieces up to the project's budget without management approval, for example. However, the organizational structure helps clearly define which decisions need management approval and who to go to for those decisions. Also, it shows who that manager reports to when decision appeals are necessary.

Employees are often motivated by the opportunity to advance within the company for more responsibility and higher pay. An organizational structure provides that advancement opportunity with higher-level positions and a clear understanding of what those positions are responsible for.

A successful structure assigns job duties to positions instead of people. As the people advance or change positions, the new person filling the vacancy takes on the same duties as the previous employee. This allows people who advance to know what duties will be expected in their new positions and to train the people who take over their old positions.