A company reporting structure sets out the flow of authority in an organization, detailing how duties, responsibilities, and supervision are divided.
Typically set out in a reporting tree or flowchart, a company reporting structure explains:
- The chain of command, i.e., how are tasks assigned and approved?
- The span of control, i.e., who supervises employees?
- Centralization, i.e., who makes decisions?
A company reporting structure can be simple and self-evident. For example, in a small business with two or three employees, it is likely that everyone reports to the owner. But reporting structures are especially important to larger companies that require clearly defined lines of authority and standardized procedures.
Company reporting structures can be:
- Vertical or horizontal. In a vertical—or hierarchical—structure, the flow of authority is top-down. In a horizontal structure, the flow of authority is flatter, allowing for greater employee autonomy.
- Mechanical/bureaucratic or organic. A mechanical or bureaucratic company structure typically involves a high level of centralization, with control flowing downwards from a central authority figure. In comparison, an organic organizational structure is flatter, with an emphasis on horizontal communication.
- Rigid or flexible. Vertical or mechanical structures are more rigid, with clearly defined roles and responsibilities. Horizontal or organic structures allow for more flexibility when it comes to chain of command and decision-making.
Why do you need a company reporting structure?
A defined company reporting structure:
- Improves operational efficiency. When your employees know who to go to, and when, it helps them to complete tasks on time. A defined structure also helps you execute your business strategy and achieve your business objectives by promoting transparency and prioritizing communication.
- Enhances employee experience. Employees know who they need to report to or seek support and guidance from, helping them to stay organized and productive. If this is unclear, it can be a source of stress for employees. A clear reporting structure allows employees to understand potential promotion pathways, keeping them motivated.
- Minimizes labor overspending. If roles and responsibilities unnecessarily cross over with each other, you may be hiring too many people and overspending on labor. A company reporting structure helps you to keep track of your labor costs.
Types of company reporting structures
A divisional structure is a vertical, hierarchical structure, with semi-autonomous teams supervised by lower-level managers who then report to the head of the company, typically the CEO. Teams are divided by geography, product, or market.
A divisional structure clearly defines reporting relationships while also showing employees a clear promotion pathway. This structure takes advantage of employee specialties, especially when it comes to management.
However, it can be inefficient if the structure includes too many levels of management, slowing the flow of relevant information to the decision maker. It can also result in information being siloed rather than shared between departments.
A geographic divisional structure divides teams according to their country or regional location, for example, Europe, the United States, and Asia. It allows teams to accommodate regional and cultural differences while improving logistics by dealing with production and delivery at a local level.
On the other hand, dividing teams geographically can create communication difficulties between teams which can lead to inconsistencies across the brand. Regions may also feel they need to compete with each other for funding and resources. It also potentially decentralizes decision-making.
Companies with a large range of products—or that are selling products that require significant research and development—may consider dividing their teams by product.
The advantage of this structure is that a company can focus its resources on creating the best product and getting new products to the market faster. At the same time, it can also lead to inconsistencies between products or even products targeting the same market. It can also result in duplication of functions if there’s poor communication between product teams.
Organizations with multiple brands or distinct target markets can divide their teams according to the market they serve. This allows teams to customize their marketing to their target market and quickly adapt to any market changes.
However, this structure can also result in brands competing against each other—despite being under the same parent company—for market share and resources and could lead to a duplication of work without strong communication.
Another type of vertical or hierarchical structure with centralized decision-making, a functional structure arranges employees based on job functions, e.g., human resources, IT, marketing, production, sales, legal, and finance. Under each functional team, employees report to a department head, who then reports to senior management.
This traditional structure makes it easy for employees to understand clear lines of authority. It’s also good for career progression and mentorship. By allowing employees and departments to specialize, a functional company potentially increases productivity and can easily be scaled as the company grows.
On the other hand, a functional structure requires good communication between teams. Without it, information-sharing can be limited and decision-making can become an automated process. It can also affect teamwork by focussing on loyalty to a specific team rather than the organization as a whole.
A flat company structure is a horizontal organizational structure with little distance between management and employees. Access to leadership is open to everyone, with limited—if any—middle management or executive positions.
This simple structure ensures a company is agile through quick decision-making. Ideal for smaller companies, this structure sees employees self-managing to achieve shared organizational goals.
However, a flat structure may not suit larger companies or companies that grow quickly. A high level of communication is needed to ensure consistent decision-making across the organization. It can also lead to confusion if employees don’t have a clear line of authority to refer to in order to resolve an issue.
Matrix or hybrid structure
Under a matrix or hybrid structure, each employee has two reporting relationships—a project manager and a functional department lead, with one usually taking priority over the other. For example, if a drinks company is launching a new brand of soda, both the project manager and marketing team would supervise a team of employees working on the launch.
This highly flexible structure is suited to companies in innovative industries that develop a large number of new products or services. It can lead to more balanced decision-making, as employees have two sources of supervision, creating a higher degree of coordination and information-sharing across the organization.
But it can also be a complex structure to maintain and apply. A matrix structure can cause duplication of work and may create issues if a conflict arises between two different managers.
Combining the elements of a divisional and matrix structure, a teams-based structure centers around small teams working on a shared organizational goal as necessary.
One team may work on a specific task while another works across functions overseeing one aspect of the entire business. Once a project finishes, the employees working on it can move on to another team.
A less hierarchical organizational structure, arranging employees by teams is especially useful for creating a close-knit, collaborative environment and encouraging a high level of innovation.
However, it can also lead to conflict between teams and team members. Additionally, it can be challenging to manage individual performance under a team-based structure when certain individuals rely on the broader effort of the team and don’t pull their weight.
Companies that use a network structure either outsource specific functions to another company or freelancers or manage different company functions across multiple locations. For example, a drinks company may develop its recipes in-house, then contract a local manufacturer in each region to make the product.
This structure emphasizes communication and relationship goals over a formal hierarchy to take advantage of resource sharing. A highly flexible business structure maximizes cost efficiencies by allowing appropriate functions to run autonomously.
On the downside, a network structure relies on external resources outside of a company’s control and can be logistically complex.
A more modern type of business structure, a flatarchy combines features of functional and flat organizational structures.
While the company is largely organized under a hierarchical structure, employees are encouraged to raise new ideas. If an idea is approved, a dedicated team is then set up to develop and implement it. This team has a flat structure, often reporting directly to the CEO. There’s limited or no bureaucracy and it autonomously manages its resources.
This structure, used by tech giants such as Google, prioritizes innovation.
How to choose a company reporting structure
There’s no one size fits all approach when choosing a company reporting structure. Here are some tips for selecting, implementing, or updating your organization’s reporting structure.
- Consider the factors unique to your business. The right structure for your company depends on a range of factors unique to it, such as industry, size, nature of the business, workforce, product or service, geographic locations, and individual expertise. A change of ownership or changes in the economy may also influence your choice. It’s also important to tailor the structure to business strategy so it helps you achieve your company goals and mission. For example, if your business strategy envisages rapid growth, you need a reporting structure that can grow with it.
- Prepare a transition plan. If you’re introducing a new reporting structure, a transition plan helps your employees understand the upcoming changes, timeframes, and how they will affect them. Allow your employees to ask any questions they have. A change in company structure can create anxiety, especially if there’s the prospect of layoffs. This should be managed carefully and sensitively and you should seek legal advice if you’re considering making employees redundant.
- Communicate the reporting structure. The key to an effective company structure is clearly communicating it. The best way to do this is via a visual representation, such as a flowchart. Share this with your employees so that they can understand the reporting structure and refer to it when necessary.
A company reporting structure outlines the flow of authority in your organization—how tasks are assigned and approved, who supervises whom, and who makes decisions.
There’s a range of different company structures you can use, ranging from formal, vertical structures to more flexible, horizontal structures. The right one depends on the factors unique to your organization.
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