The One Year, Thirty Minute Challenge :: Week 40 :: Governance :: Organizational Structure

There aren’t very many things in the course of growing a business that a business owner “falls” into – and there shouldn’t be. Each move should be calculated and deliberate. But if there’s one thing that happens, almost automatically, it’s the organizational structure.

If an electrician starts a new business, the first hire is most likely another electrician. But as the business grows, there might be an accountant, then a customer service rep, a procurement person, an IT person – you get the idea. Each of these people become the de facto head of a department and, “Viola” you have a traditional Functional Organizational Structure.

Most of the small businesses I know have this structure and most of the time it works well. And, I’m guessing the boss spends very little spare thought time considering another option.

This week’s One Year, Thirty Minute Challenge isn’t an exhortation to change your organization’s current structure, but instead an encouragement to ponder the pluses and minuses inherent in that structure and to consider whether another structure might make it easier to execute your mission and push you closer to achieving your vision.

The Functional Organization Structure is easy and intuitive. There are three primary advantages to the functional structure –

  • Focus – The finance folks direct their attention to finance, the IT folks to IT, the production folks to production, etc. Unlike the solo practitioner who is salesperson, accountant, service provider and janitor, people who work in a functional structure can train all their attention to a single discipline. This, theoretically, produces superior work, allows for narrow specialization, and lessens the probability for dropping the ball in that discipline.
  • Collaboration – Having the software developers, or salespeople, or accountants together allows them to bounce ideas off one another, work in tandem on projects, and encourages mentorship.
  • Redundancy – Having multiple people working in the same discipline allows for cross training and for one person to have a working knowledge of the responsibilities of a co-worker. This mitigates the risk of a “single point of failure.” If one person gets hit by the proverbial “bus”, the work of the company goes on, uninterrupted.

However, the functional structure has a couple of built-in challenges –

  • Hand Offs – Every organization I work with struggles with hand offs. How does the new customer order flow seamlessly from sales to production to accounting to customer service? How do we make sure that nothing falls through the cracks? How do we make sure the customer service rep has complete visibility into all the information they need to service the customer just as soon as the order is taken? As the boss, if you want your functional structure to work, focus your attention on hand offs.
  • Alignment – As the organization grows, functional areas can sometimes take on a life of their own – especially if a particular discipline is preeminent in the value creation activities of the company. A software company might elevate the importance of brilliant software developers or a company in a very competitive commoditized industry might elevate the importance of a few star salespeople who can land large, lucrative clients and gain market share. These are good things. Excellent performers should be recognized. But the difficulties begin when some functional areas begin to wag the dog – when production becomes the enemy of the salespeople who procured the killer order that now must be fulfilled or advertising becomes the enemy of editorial who claim that taking advertising from a particular business will compromise the journalistic integrity of the enterprise. As the boss, it’s your job to keep every functional area on the same side of the equation.
  • Kingdom building – A possible ugly symptom of failed alignment – a bad apple in the management ranks can begin to kingdom build. Amassing an outsized staff or exercising undue influence in the organization is unhealthy. It’s your responsibility to build an idea meritocracy where the best ideas rule the day, not the overgrown influence of a single person or department. Kingdom builders have ceased to look out for the good of the organization and are focused on their own enrichment.

I want to look at two other organizational structure options for small and medium sized enterprises.

The Matrix Structure has the components of a functional structure, but project or product teams cut laterally across the functions. The idea is to eliminate handoff problems by creating a multi-discipline team that focuses on a project or product with representatives who act as the authority and proxy for the discipline they represent.

The first thing you probably noticed is the very thing that makes this structure challenging. People have two bosses – a straight line to a functional boss and a dotted line to a project or product manager. So who do they listen to when priorities are conflicting? Typically, employees give more allegiance to the boss that has the greatest ability to make their life better (does their performance review, gives them raises, affects their upward mobility in the company). This structure can work, but the mechanics of the dual reporting must be crystal clear to the functional boss, the project manager, and the employee.

The Product Team Structure works to remove the dual reporting problem.

In this structure, the employee truly reports to the product or project manager but keeps a dotted line relationship back to the functional area they represent. This dotted line relationship attaches them to resources for collaboration with others in the same discipline and maybe even provides some redundancy for their work, but they are tied to the project/product team. The project manager is their boss (does their review, gives them raises, affects their upward mobility in the company). Representatives of each discipline (depending on the size and complexity of the project, there might be multiple people representing each discipline) are true cross-discipline collaborators since their fortunes are more strongly tied to the success of the project than they are to the functional area they represent.

I’ve laid these out a bit more cut and dried than they have to be. Certainly, companies can morph them to work for their particular situation (for example, in either the matrix or product team structures, functional and project bosses could collaborate on employee reviews instead of an either/or situation).

So finally, let’s jump into this week’s exercise. For this one, I’d suggest you get your leadership team together and step through each of the structures and associated pros and cons. If you think changing structures makes sense, discuss what it would look like to make the change. Ask why? Do you want to change because you’re doing a sub-par job managing in the current structure? If so, why will a new structure make the managing better? If you’re convinced a new structure is desirable, explore the changes necessary to make the transition. How will the responsibilities of managers and supervisors change? How will the responsibilities of employees change? How will career paths change? How will processes change? How will the customer experience change? Will these changes build the company culture you’re trying to install/maintain? Will these changes make it easier to execute your mission? Are any technology changes necessary to support the new structure?

If in the comparison, you feel like you’ve got the optimal structure now, evaluate how well you’re capitalizing on the strengths of that structure and how well you’re dealing with the weaknesses. Identify corrective action items for anything that you need to fix or exploit and assign them to someone. Get it on your calendar to check back in a couple of weeks to track progress.

Since you’re a reader of the One Year, Thirty Minute Challenge, it’s unlikely you’re the CEO of global enterprise. That was never the target audience. So the chances that you need an organizational structure that spans multiple business units or multiple large geographies are slim. But, if you need to examine organizational structures that are more complex, hit me up at and we can explore some additional options.


Leave a comment

Your email address will not be published. Required fields are marked *