Skip ahead
Why Does Organizational Structure Matter?
Your organizational structure directly influences how your company makes decisions, which business functions it prioritizes, and how employees interact to deliver value. It’s more than just an org chart; it significantly impacts how your company operates.
Most importantly, your org structure should reflect your company’s business strategy. Here are some questions that I recommend you ask when evaluating your org structure for strategic alignment:
- What are the organization’s primary strategic goals, and does the current or proposed structure enable us to achieve them effectively?
- What are our core business functions, and how do they connect to value creation, customer needs, or competitive differentiation?
- Which functions or roles need proximity to the Founder or CEO to maintain agility and focus on strategic direction?
- Are there overlapping roles, bottlenecks, or unclear accountabilities in the current structure that impede performance or alignment?
- How will the redesigned structure accelerate decision-making, strengthen collaboration, and promote accountability across the organization?
The answers to these questions will help you to ensure:
- Strategic Alignment → The org structure is a reflection of the company’s strategy and will enable you to achieve your goals.
- Focus on Business Drivers → Identify the functions that drive value to your business and help deliver on strategic priorities. These functions will be elevated in the org structure and will most likely report to the Founder or CEO.
Span of Control
A common question is, “How many people should a single person manage?”
The answer: it depends.
For knowledge-based workers, the sweet spot is between 4 to 6 direct reports. As companies mature, spans of control grow because operations and processes become more robust, requiring less managerial oversight.
Layers of Management
Early-stage startups tend to have a flat structure. As startups scale, they add layers for a few reasons:
- Increasing Span of Control → Additional layers accommodate the growing headcount.
- Job Role Transformation → Roles evolve from generalist to more specialized as the breadth, depth, and volume of work increases.
- Functional Expansion → Departments evolve and expand. For example, HR might add recruiters and a Talent Acquisition Manager as hiring needs grow.
Organization Structure and Job Roles
Avoid creating narrow job roles early in your startup’s growth, as these may not have enough work for a full-time employee, leading to a bad investment.
Org Structures are Not Static
Org structures change over time. Leaders should evaluate whether their structure is fit for purpose, especially when problems like slow decision-making and misalignment of core functions arise.
The Role of Processes
Process design must follow org design. Changes in business priorities and decision-making criteria require corresponding changes to processes. Without these changes, the org structure will cause confusion due to inconsistencies between reporting lines and process-based decisions.
Key Takeaways
- Revolve Your Org Structure Around Business Drivers: These functions drive value and have the biggest impact on your strategic goals.
- Org Structures Evolve: Proactively evaluate if your org structure is fit for purpose, especially in a hyper-growth environment. If your company is growing headcount by more than 20% year-over-year, evaluate your org structure annually.
- Don’t Force a Flat Structure: If a manager’s span of control nears 6 employees, consider adding a new job level. Be careful not to create very narrow roles early on to avoid premature headcount bloat.
- Don’t Forget Processes: Process design must follow org design to avoid confusion between reporting lines and process-based decisions.
Additional Resources
For more on the basics of org structures, check out The Business of People newsletter by Melissa Theiss.
Final Thoughts
A startup’s organizational structure is a core building block that enables it to deliver on its strategic goals. A great business strategy with a lousy org structure might not cause failure, but it’ll make success much harder!
If you have any questions or need help evaluating your startup’s org structure, reach out on LinkedIn or reply to this email.
Nahed Khairallah