The organizational structure of the typical small business evolves from a series of specific decisions to help manage the challenges presented by growth.
When there becomes too much else to do, the entrepreneur finally decides to stop doing the books and hires a bookkeeper.
As demand increases and more sales opportunities arise, a salesperson is hired to help. When more and more workers get hired, a supervisor is named to manage day-to-day operations. And when a new location is opened, a manager is brought in to help run it.
With each of these decisions the entrepreneur starts to create an organizational structure.
As the business grows, employees are organized into specific functions such as bookkeeping, sales and operations, and eventually someone is put in charge of each of these departments.
While the decisions an entrepreneur makes to handle each specific challenge may make good sense individually, sometimes it doesn’t add up to a complete whole after the structure has been pieced together.
To be effective, the organization’s structure needs to align with the overall market strategy that the business is pursuing.
In their classic book, The Discipline of Market Leaders, Michael Treacy and Fred Wiersema identify the three common competitive strategies of successful businesses. They conclude that there is a specific alignment of structure, culture and systems necessary to support the chosen strategy.
The first competitive strategy is operational excellence. This is what a business needs to be efficient, consistent and low-cost. Burger chain McDonald’s is a good example of this strategy, as its customers want the same food served quickly and inexpensively in every McDonald’s they visit. This strategy works best with what might be called a bureaucratic structure, where decision-making is completely centralized at the top levels of the business with tight controls to ensure consistent performance.
The second strategy is product leadership, in which the business seeks to be the leading innovator in its market. This is a common strategy of many technology businesses. The structure that works best with this strategy is one that is flexible and can quickly adapt to each new product offering. People are reassigned and reorganized to meet the unique needs of each new product.
The third strategy is customer intimacy. This strategy — as it evolves — must allow any employee to do what needs to be done to meet the needs of the customer. A common mistake of small businesses is that, as they grow, they try to pursue all of these strategies at once. This is never sustainable over the long run.
Each strategy demands a specific approach to organizing how work gets done.
A key to being a successful venture and managing growth is finding the competitive strategy that works best for the market, and then working to build a structure over time that supports that strategy.
There is no one best structure for all businesses. But there is a best structure for the type of market strategy that a business chooses to pursue. Find it.
