Why and how you should review your organisational structure every year
Every business needs a structure, whether it’s a five-minute-old start-up or a company that’s got decades of experience under its belt.
How your firm is organised is just as important to its success as the sales and marketing plan underpinning it, and the employees at its helm.
It’s also crucial that you review your organisational structure every year.
Why? Because the market your business operates in, the people working with you and your clients will change – whether – let’s be honest, you’d like them to or not.
Annual organisational reviews help enterprises and their management teams remain responsive and efficient. This is because they ensure the people you have are in the right place and team members at every level are communicating effectively.
Creating an effective internal structure boosts a business’ ability to grow.
What is an organisational structure?
At de Jong Phillips, we know two companies aren’t the same, even if they operate in similar fields. Their organisational design may be like chalk and cheese, but they all serve the same purpose: maximising communication.
During the Industrial Revolution, individuals were organised along an assembly line, their responsibility consisted of adding parts to a product as it moved past them, optimising the work of each individual for maximum efficiency.
With start-up companies, for example, it can be common for there to be very little structure around processes. A lack of resources means it’s more of an all-hands-on-deck approach to responsibility until the business is established and grown.
These days, companies’ organisational structures usually break down into three types:
This creates a hierarchy based on task or job function, with distinct units such as accounting, human resources, production, marketing and/or sales. The business owner is responsible for management decisions, which means there’s no separate layer of management to deal with this.
As the name suggests, in this form of a structured approach, employees and Managers are separated by departments or business units. Each has their own processes and functions, as well as HR, finance, and marketing divisions attached to them. They are all generally overseen by Executives or Senior Managers – the C suite.
This usually comprises the Chief Executive Officer, Chief Operating Officer, and Chief Financial Officer.
This combines the two. This can be beneficial as it can offer more flexibility as a strategy. However, it can be confusing and contradictory, depending on your position within it and how well communication flows within the organisational structure.
Defining your organisational structure
Chances are, your business started off with you in charge, with several people taking on roles of varying seniority at the same level or below you, with no formal plans to change that in the short to mid-term. For example, some companies may not have changed their setup in years (potentially holding back development) while for other companies, the playing field has become a bit more level.
A McKinsey survey found almost 60% of respondents had reshuffled their organisational structure within the past two years, while a quarter did so over the past few years.
Compare this to generations ago, when companies would have undergone such structural reorganisations perhaps once or twice in a decade!
Knowing your business needs
The trick to determining which of the organisational structures are best for you is understanding what will work best for your business and your customers (we can help with this too). That means considering several things when putting in place your organisational structure:
What does your company do?
First and foremost, ask yourself the very basic question: are you a service or product-based company?
The answer will be crucial to developing an organisational design and strategy that combines the need for a degree of autonomy with high levels of consistency among units, giving senior staff the ability to manage units and processes effectively.
The flow of information around a business is crucial to its success, but how that data moves and between whom is equally as important.
Is yours a top-down firm, where communication comes from ‘up high’ and is disseminated as a task to everyone in the hierarchy below?
Or are the channels more flexible: does even the newest intern have access to the CEO? Do your units talk to each other on a need-to-know basis or is there a constant flow of exchanges?
Freedom and creativity
The amount of freedom employees have within your organisation will also be defined by what your company does.
For example, production lines aren’t generally hotbeds of creativity and freedom, but marketing agencies are positively bursting at the seams with them.
The structure of your business will be reflected by what staff members in separate units or collective groups have the freedom to do as part of their work.
Your market share objectives should also determine the structure of your company and its processes: do you want to achieve product stability and support long-term continuity of performance? Or do you want to be able to move fast and break things?
Why carry out an organisational structure review?
It’s a good question but the reasons can be many and varied – and not all of them negative! A change in circumstances is often the main reason, either because of a merger or acquisition or to reach more customers.
There may be more subtle reasons behind the shake-up: for example, maybe lines of day-to-day communication between self-contained business units or team members aren’t effective enough.
Consider the following:
- Are there bottlenecks in certain teams or units?
- Is there a lack of support for particular functions or processes?
- Are certain teams missing out on obvious opportunities?
- Are Managers letting fresh talent be snapped up elsewhere?
There are many reasons to have an organisational shake-up, but there are also several considerations that businesses should be aware of before they embark on any changes.
Determine your long-term goals
It’s all very well shaking up a company’s organisational design to address performance issues or the root causes of any problems hindering growth. But, it’s also crucial to have one eye on the mid to long-term plan in the process.
Fixing objectives such as “becoming more customer-focused” can be nebulous and hard to achieve. Instead, aim to provide accountable, market segment–targeted managerial goals.
Do your homework (and don’t rush it!)
McKinsey’s survey revealed 60% of Managers admitted they don’t take enough time to profoundly understand the state of a firm before any redesign which, considering the importance of any shake-up, is a staggering figure.
Here at de Jong Phillips, we can’t emphasise enough the importance of understanding the root and branch of an organisation. No matter how big or small and no matter how many strengths or weaknesses.
You (and your Managers) should have a deep insight into your firm’s latest data, as well as the human capital of a business: where the talent is, how best it can be deployed and where it is perhaps being under-used.
Instinct vs Information
Many entrepreneurs work on “gut feelings” when it comes to their companies, and create a structure, with roles and responsibilities based on them.
Don’t get us wrong, sometimes this can be incredibly successful and if it ain’t broke, don’t fix it, right?
But to grow, a business needs to evolve and change, and flying by the seat of your pants with an organisational structure review can backfire.
Instead, a tailored but methodical, informed approach, with a close examination of redesign criteria and challenge biases, along with the barest minimum of political agendas, works best.
Thinking outside the box
It’s a phrase that might make some entrepreneurs wince, but when it comes to getting your organisational structure right this means going beyond the norm and thinking a little more broadly. That means factoring in the wider structure, process, and people elements that make up a redesign.
Use talent wisely in your organisational structure
Changes to the organisation of companies usually focuses on roles, rather than people. If you have departments or Managers competing for the same talented staff, it can affect the operations and function of the organisation.
Instead, as part of the restructuring, if a recruitment drive or human resources can’t bridge the skills gap, then create a way for experienced employees to be used across several departments, sharing responsibilities. Not only will it ensure transparency and fairness in operations, but it will also enhance each department head’s ability to manage their employees, projects, and performance targets.
Get everyone on the same page for the organisational review process
There can be differences of opinion among employees and Managers in even the smallest business, so it’s important to ensure everyone understands the reasons for the organisational review, even if they’re not 100% behind them.
Any irrational or negative reactions to a shake-up could cause problems in the long term, so it’s worth laying out – in plain English – the reasons for any changes and the benefits they aim to bring.
Remember your metrics
An unfortunate number of companies roll out organisational changes with great fanfare, without really thinking about how they’re going to measure their success. A crucial part of any organisational design is having metrics that will support growth, monitor changes and map the firm’s progress.
Communication between all business units
Many firms’ hierarchical structure means communication, particularly from Executives, can be far-removed from the day-to-day experience of employees in the rest of the business
An organisational structure review can change this – though not necessarily overnight.
Changing the flow of communication so it can move around a business more fluidly will not only generate more ideas, it will also keep everyone in the loop and enhance focus on corporate strategy, their responsibilities with upcoming projects, recent executives pitches and current performance.
Transition risks posed by shake-ups to organisational structures
It’s tough for any business to grow and evolve without shaking up its organisational structure from time to time, but it’s even harder for a company to implement the strategy with zero risk management planning.
Any company upheaval carries some form of risk, but changes to structure can disrupt business continuity or operations without pre-planning. It’s important to have transparent leadership and accountability at this time: create resources to monitor your firm’s operational, commercial and financial figures during the transition period.
There should also be regular checks on each team and their members to ensure everyone remains on the same page.
Where to start with an organisational review process
So, you’ve established which sort of organisational structure you want for your business, you know why it’s needed, which business units, functions or services will be affected, and what the end goals are. It’s time to start putting the wheels in motion.
There are several areas that will be affected to some extent or other by the review – let’s take a look at 4 important factors.
- Procedures and processes
Analysing the procedures and processes of a single department or across the entire company can bring to light previously unmentioned bottlenecks and inefficiencies – both systematic and people-based. It will also highlight employees and methods that perform smoothly and that perhaps could be replicated elsewhere within the company.
- Synergies and efficiency
Any review of an organisational structure aims to identify synergies and create effective leadership, as well as spotlight areas where more effort or a different process is needed to reduce costs or develop a new structure.
A review can be an uncertain time for everyone, from employees, Managers and department heads. But, the vast majority of organisational redesigns look to enhance performance, sometimes within a market, sometimes company-wide. Usually, the key personnel involved in this process are looking to create benefits, enhance internal structures and bolster a companies’ future.
- The all-important financials
An organisational overhaul doesn’t stop at who does which job within a company. It can also take in the financials, for example staff costs, freelance costs, administration or marketing costs (all areas where we can help).
It will determine whether you’re spending too much on services or products that aren’t benefiting your business or bringing in the customers, or whether staffing changes could boost skills and performance, while at the same time keeping your clients happy.
- Looking to the future
A close analysis of every part of your business structure will also generate a lot of information that will need careful analysis. Once all that data has been sifted through, it’s time to talk to the people at the heart of your company.
You should begin by telling each Department Head and Manager (and then your team members) the results of the review, before asking for wider feedback and input.
Additional information and viewpoints should be taken into consideration before you determine any specific goals following the review. Whether you want to increase output, move into new markets, address customer complaints, or cut costs and waste. All of this data needs to be incorporated into a final report, complete with recommendations for performance management and next steps.
Contact us for help with your structures and company development
At de Jong Phillips, we help a range of businesses understand the story behind their numbers, up level their systems, and create structure around your goals.
We can help streamline your financial processes and systems to get the most out of your operations structure, standing shoulder to shoulder with you no matter which stage you’re at, and setting you up for growth and success.
As we’ve outlined above, the most successful companies carry out an organisational structure review every year, to ensure they are operating as effectively, and as profitably as possible. From a business owner’s point of view, this can help reduce your stress levels and increase productivity considerably too.