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Company Reporting Structure
Choosing the right company reporting structure can be a difficult process, and the transition can be long and complicated. But choosing the best structure for your company will help you build a better company culture and execute your business strategy with ease. Not sure where to start? We’re here to help.
What Is a Company Reporting Structure?
A company reporting structure is how a company organizes and distributes duties and responsibilities, including supervision. There are many different kinds of reporting structures, and they’re often depicted visually using a flowchart or company reporting tree.
The goal of any great company reporting structure is to create a smooth workflow that helps the company execute its mission, goals, and business strategy.
Why It’s Important to Have the Right Reporting Structure
Below are some key reasons to make sure you have the right structure:
- To increase employee engagement and satisfaction. The right reporting structure prevents employees from feeling confused about who to report to or what their responsibilities are.
- To help execute your business strategy. Companies must have the right reporting structure for their business strategy. If not, it may feel like an uphill battle to complete projects on time, innovate, and compete.
- To avoid delays in production. The wrong reporting structure can lead to delays in production by causing confusion amongst employees, gaps in management, or other issues.
- To prevent overspending on labor. Companies often go through a growth period without adjusting their company reporting structure. This can lead to overspending on labor because you’re working with an old structure but a new business strategy.
8 Types of Reporting Structures to Consider
Divisional Organizational Structure
The divisional reporting structure is a common hierarchical company formation. It organizes employees into individual teams that can function autonomously, somewhat like a small company within the company. There are three different ways to build divisions:
Geographically-based divisional companies create divisions focused on different geographic areas. These can be global regions, like the United States, Europe, and South America, or national regions.
- Can account for cultural or regional differences in the market
- Autonomy within regions creates practical efficiencies
- Improves logistics
- Autonomy can lead to a lack of communication
- Regions may compete for resources
- Branding can become inconsistent
- Amazon (hybrid structure)
Market-based divisional companies organize by market. This is common in companies who have multiple brands or target markets for their products.
- Divisions can specialize in individual target markets with their branding
- Company will be able to adjust quickly to changes in the market
- Lack of communication can lead to competing brands
- Regions may compete for resources
- Employees may create duplicative work
- Gap Inc.
- Volkswagen Group
In product-based divisional companies, divisions are created to focus on particular products. This is a common structure for (but not unique to) companies with products that require a lot of research and development.
- Improves overall product quality
- Can shorten product development and launch timelines
- May lead to incompatibility between products
- Branding can become inconsistent
- Products that should target the same market may not
4. Flat Organizational Structure
Flat organization structures have little to no distance between staff and company leadership. They’re considered flat because there are few to no middle-management positions.
- Easy to understand
- Facilitates quick decision-making
- Employees can specialize in their respective roles
- Flat structures don’t adjust well to growth
- Lack of communication can lead to inconsistent decision-making
5. Functional Organizational Structure
The functional reporting structure is another common hierarchical arrangement. It organizes employees into departments based on their functions. Common functions include marketing, sales, human resources, production, and legal.
- Clearly defined lines of reporting and authority
- Facilitates mentorship and career development
- Easily adjusts to growth
- Communication between functions can be limited
- Does not facilitate innovation
- Decision-making can become overly bureaucratic
- Southwest Airlines
6. Matrix Organizational Structure
A matrix organizational structure involves providing all employees with two reporting relationships: one for product management and another for their function. Employees report to a product manager and a job function manager. This structure has become much less popular in recent years.
- Encourages collaboration
- Matrix structures are flexible
- Confusing lines of reporting
- Work can be duplicative and costly
- Can lead to conflict between managers or employees
- Texas Instruments
7. Network Structure
Network company structures either outsource certain functions to another company to share resources, or they have multiple locations housing different company functions.
- It’s cost-efficient
- Provides autonomy for certain functions
- Dependence on outside resources
- Heightened potential for logistical delays
- Limited communication can lead to inconsistencies and conflict
8. Team-Based Structure
The team-based structure organizes the company into smaller teams focused on a particular company goal, product, or service. They’re created to accelerate development and generate a collaborative atmosphere.
- Facilitates innovation
- Can improve collaboration and teamwork
- Teams can create conflict between employees
- Ad hoc or temporary teams can lead to drops in productivity
- Difficult to measure performance
How to Choose the Reporting Structure that is Right for Your Company
Step 1: Analyze Your Business Strategy and Workforce
Before choosing a new company reporting structure, analyze what your business strategy is and what your workforce looks like. This analysis will be different for every company and influenced by industry-specific needs.
If, for example, your business strategy involves making the best product, you may want to choose a reporting structure that focuses on allowing your employees to innovate and focus on products.
Step 2: Consider How the Company Might Grow
If you anticipate that your company will grow, you’ll want to choose a structure that can easily adjust to an influx of new employees and new business. You’ll also want to consider how your company will grow. Will you increase the number of clients? Will you create more products? Or will you open new locations?
Step 3: Create a Transition Plan
A transition plan will help your employees understand what changes are coming. Because a new reporting structure often involves changing supervisory relationships, it’s important to prepare each supervisor and employee to take on their new roles. Transition plans should be comprised of:
- A realistic timeline with incremental goals
- Team meetings to explain the new company structure and how it aligns with the business’s strategy
- Hand-off meetings between former and future supervisors and employees
- Opportunities to ask questions
If you’re running a large transition, you may consider creating an internal web page where employees can access information about upcoming changes.
Lastly, if your new reporting structure will result in lay-offs, demotions, or other negative outcomes for some employees, you’ll want to reach out to your legal counsel to make sure that the transition plan doesn’t violate any labor laws.
Step 4: Communicate Changes to Your Employees
Create a communication plan to help facilitate the transition to the new company reporting structure. Transitions can be frustrating for employees, as the change can cause them to leave team members who they’ve built close relationships with or switch to new shifts. A great communication plan will reduce confusion and frustration for your employees and prevent delays in production.
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