Managing the people side of a growing business is often just as difficult as managing operational challenges. From finding top talent to establishing and building a company culture, the human side of a business is a constant work in progress.
As businesses grow, one consideration leaders must wrestle with has to do with what is the best organizational structure. How many layers will the business have? At what point are other leadership roles outside of the CEO required? Answering these questions is essential if the business wants to continue to grow.
Flat and Tall Organizational Structures
While there are different ways to create an organizational structure, the two most common types are flat or tall.
In a flat organizational structure there are little to no layers between the CEO and front line employees. In a tall organizational structure, the opposite is true. There are many layers between the CEO and front line employees.
Determining which works best for an organization involves considering both the pace and direction of growth as well as the personal management style of the CEO.
Initially, it makes sense for everyone to report to the CEO. If the business only has five individuals, additional leadership roles only convolute the management process. Additionally, when a business is still in startup mode and still has that small business feel, many CEO’s want to be involved in everything and therefore should maintain complete leadership control.
Once the business grows to between 12-15 employees though, everyone reporting to the CEO may become a little more complicated. CEO’s may find they are spending too much time in one area while neglecting other aspects of the business. Or, the CEO finds that running everything through them hinders the ability of the organization to do the actual work of the business such as servicing customers or delivering product. CEO’s at this stage may find it necessary to add one additional layer between the employees and themselves.
The determination to add leaders in both flat and tall organizations should be based on areas that need most focus. This could be that the area requiring focus is the most important function of the business, or because it is currently lacking in some way. Leaders who wish to keep their organization flat will only add leaders when absolutely necessary and will limit the number of total leaders. Those in tall organizational structures will create leadership positions as each function of the business warrants that level of focus.
If the business stays small, 50 employees or less, a fairly flat structure can be maintained pretty easily. The addition of one or two managers will be typically all the business needs to thrive. Larger businesses, however, often find the need for more layers and a more intense organizational structure.
Create Leadership Positions Only When Necessary
A word of caution is necessary. One pitfall small businesses face is promoting improperly or creating unwarranted leadership positions. They may have an employee who has been with them from the beginning and in an effort to reward that employee, they create an unnecessary leadership position. This reward often backfires as the new layer creates complications that hinder the business. It can also set a dangerous precedent about how leadership positions are created. Regardless of the final organizational structure, flat or tall, leadership positions should only be created when warranted.
In conclusion, organizational structure is essential to business growth. Having the right people in leadership positions and in a reporting structure that does not complicate the act of doing business but supports it, will ensure a growing business keeps on that path. Both flat and tall organizational structures can be successful as long as they are created properly.