Guide to Albany

Why the Wrong Organizational Structure Could Be Dragging Your Small Business Down


by Braathe Enterprises intern Catherine Chang

Almost all small businesses begin with simple organizational structures, also known as "flat" organizational structures, because authority and management is often centralized in one person or very few people. Unlike bureaucracies, which have several layers of management, simple structures are less specialized and less hierarchical, often leading to higher employee satisfaction due to their smaller numbers.

Simple structures work well for small companies because they eliminate the need for formalized rules and regulations, specialization, and standardization, causing them to be faster and more flexible when making decisions. They also make accountability more apparent and are less expensive to operate.

However, as small businesses grow larger, simple structures become difficult to maintain. Here are a few reasons why:

Information Overload
While reduced bureaucracy initially gives small companies a faster decision making advantage, the high centralization of power and management in a few people creates information overload at the top, so managers may find themselves overwhelmed by the sheer amount of decisions they have to make. This creates inefficiency within the organization, because decision making becomes slower and slower as the company grows larger. The structure must be changed if the organization grows too large, or else it will stop making progress and lose momentum.

Slower Reaction Time
Business and strategic planning becomes more difficult when the single owner running the company has to manage a large number of employees and does not have sub-unit managers (i.e. Production, Marketing, Accounting) reporting to him. If the company is in need of innovation, the owner does not know the specific needs of each department and is therefore unable to launch any sort of initiative.

Communication Breakdown
Because of their small size, simple organizational structures are characterized for having great management to employee communication, but when a small business becomes too large, simple structures can cause a breakdown in communication. The sheer number of employees can overwhelm the single manager or few managers in the company,and communicating tasks to be done, deadlines to be met, etc. can become a stumbling block for businesses.

In summary, small businesses with simple organizational structures simply become too inefficient to continue functioning properly as their employee numbers grow.

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