Organizational Structure for Businesses

Chapter 5-3

Designing an Effective Business Organization

Many new business fail in the first two years

According to the Bureau of Labor Statistics:

“The data shows that, across sectors, 66 percent of new establishments were still in existence 2 years after their birth, and 44 percent were still in existence 4 years after. It is not surprising that most of the new establishments disappeared within the first 2 years after their birth, and then only a smaller percentage disappeared in the subsequent 2 years. These survival rates do not vary much by industry.”

Setting Direction Mission Statement – a short, specific written

statement of the reason a business exists and what it wants to achieve.

Goal – a precise statement of results the business expects to achieve. Goals are used to define what needs to be accomplished and to determine if the business is successful.

Policies vs. Procedures Policies are guidelines used in making consistent

decisions.

Example: Employees are reminded to promote the company just as they would represent their families. This means being friendly and courteous on the business property, while visiting our stores, driving our vehicles on roads and highways and in daily interactions

Procedures are descriptions of the way work is to be done.

Example: All receiving documents must be verified and signed by the warehouse manager and recorded in the daily log.

Principles of Effective Organization

Responsibility, Authority, and Accountability Responsibility is the obligation to

complete specific work Authority is the right to make

decisions about how responsibilities should be accomplished.

Accountability is taking responsibility for the results achieved

Unit of Command Unit of command means there is a clear

reporting relationship for all staff of a business

Span of Control is the number of employees who are assigned to a particular work task and manager.

*Organizations need to make sure that workers have a balance of supervision and freedom to do their

work*

Types of Organizational Structures

Organization Chart – a diagram that shows the structure of an organization

Functional organizational structure – work is arranged within main business functions such as production, operations, marketing, and human resources

Matrix organizational structure – arranged around specific projects, products, or customer groups.