Are you thinking of starting a business? If so, you may want to take the time to consider what type of organizational structure is best. An organizational structure helps define how roles and responsibilities will be set up within your business while clarifying the lines of communication between departments and employees. Determining the ideal structure for your company now can help prevent you from wasting time and money restructuring later.

Flat vs. Hierarchical Organizational Structures

Many businesses utilize either a flat or hierarchical organizational structure. Describing a structure in which top executives interact directly with a group of lower-level employees, a flat organizational structure is most commonly found in a small business setting. Because of the absence of middle management, base-level employees in a flat system receive less supervision and are generally more involved in policymaking.

On the other hand, a hierarchical structure has multiple levels of responsibility, with a CEO or president at the top and several tiers of middle management; it is the most common structure found in large companies and corporations. In a hierarchical system, employees tend to perform more specialized tasks and have more opportunities to rise through the ranks. Determining the most effective structure for your business is essential to maximizing communication and efficiency within the company.

Pros and Cons of a Flat Structure

If you’re interested in cutting costs and enhancing communication within your company, a flat organizational structure may be the way to go. In a flat system, businesses can save money by eliminating middle-management salaries. While there can still be executives and managers in a flat system, the flow of communication is usually much freer than that of a hierarchical system, and managers are often more likely to entrust lower-level employees with important projects. Not only can this system speed up decision-making, but it may also help every worker feel like an important member of the team.

One of the best reasons to consider a flat organizational schematic is that it helps motivate and engage skilled employees at all levels. By rewarding your best workers with salary hikes, benefits and more challenging projects over time, you can ensure that your employees are truly masters of their respective fields. Keeping a lean organization allows you to pay back profits to the people doing the work.

Finally, a flat system allows businesses to focus on products and services instead of politics. By dispensing with bureaucracy and avoiding frequent departmental meetings, upper management has more time and opportunity available to discuss new ideas with employees. In this way, a flat system allows businesses to be more innovative and responsive to its workers.

Of course, no organizational structure is perfect, and a flat organizational system does come with a few drawbacks. In some cases, employees find a flat system to be confusing, as there is no single member of the team calling the shots.

Additionally, while employees may be given more responsibility, a lack of opportunity for managerial positions may cause them to lose motivation. Even if employees have the chance to be promoted within a flat structure, they might find that management positions offer less opportunity for leadership and delegation than they would in a hierarchical setting. In these cases, employees may eventually leave the company for one with more opportunity for high-level leadership.

Pros and Cons of a Hierarchical Structure

On the other hand, many companies still operate under a more traditional hierarchical system. One of the benefits of a hierarchical structure is that employees are more likely to know whom to turn to for help. Featuring a pyramid-like structure, hierarchies consist of multiple levels of supervision, ranging from the CEO all the way down to lower-level employees. When an employee has a question, he or she can turn to a direct manager for answers, thereby avoiding uncertainty. In fact, a recent study by the Stanford Graduate School of Business indicates that many employees prefer a hierarchical structure for this very reason.

Additionally, a hierarchical structure gives lower-level workers something to strive toward by offering potential promotional opportunities in middle and upper management. The promise of a new position, with a more impressive title as well as benefits, can motivate employees to work harder and enhance their knowledge and skills.

Finally, a hierarchical system can help companies move beyond small business status to reach the next level. Without optimized management strategies, many small businesses experience difficulty while trying to grow. When problems arise between employees or departments, a business without a strong organizational structure may not have policies in place to handle the issues quickly and efficiently. If a conflict arises between two workers, a clearer system for ranking seniority helps avoid tension due to drawn-out disagreements.

Naturally, a hierarchical organizational structure has some drawbacks as well, including a greater likelihood of competition between departments. Because of the multiple levels of management, it may be difficult for various departments to coordinate with one another. In some cases, rivalries form, as employees are more interested in the welfare of their specific department than the company as a whole.

Employees in lower-level positions also might not feel as appreciated as they would in a flat structure, and they may feel less important to the overall success of the company. In this case, it’s important that mid-level managers have excellent motivational skills and are good at making each member of the team feel needed.

Additionally, a hierarchical system can be more expensive to maintain, as upper management must pay out the higher salaries associated with middle-management workers. For this reason, it may be difficult or impossible for a brand-new business to function under a hierarchical system.

Choosing the Best System

There is no foolproof answer when it comes to choosing an organizational system. In general, if your product or service requires multiple employees or teams of people doing their part to accomplish a larger goal, a hierarchical system may be necessary to ensure everyone performs accordingly. On the other hand, companies that rely on employees working independently and demonstrating innovation may function best with a flat system that allows people to take more initiative. Take the time to determine the most effective organizational structure for your business, and ensure it’s a success from the start.