What Is the Organizational Structure of a Corporation?
The organizational structure of a corporation is used to establish the hierarchy of a company.3 min read
2. The Organizational Structure of a Corporation
3. Establishing the Best Organizational Structure
4. Line Structure
5. Functional Structure
The organizational structure of a corporation is used to establish the hierarchy of a company. Every business establishes the levels of staff it requires to run effectively. The organizational structure is a key to deciding these staffing requirements.
Apart from identifying the hierarchy of a business, an organizational structure can also be used to allocate defined roles to teams and to individual staff members. This helps to motivate staff members by clarifying their areas of authority. The organizational structure of a business sometimes differs according to the company. However, a number of typically used structures exist.
Common Structural Types
- There are multiple types of organizational structures.
- The most common type is made up of a board of directors, administrators, staff members, shareholders, or owners.
- The overall aim of the directors and the management is to increase shareholder value to reach the highest level of profits.
- Technically, the management team takes care of the daily workings of a company.
- The directors make sure shareholders are taken care of.
- However, many boards of directors also have individuals from management as part of the board.
- No maximum number of staff members exists. A company can have any number needed to conduct business.
- Alternatively, one person can act as the only shareholder, director, administrator, and staff member.
The Organizational Structure of a Corporation
The world of business is constantly shifting, and defining staff roles and company hierarchy is becoming more challenging. One of the primary justifications for having these terms in place is corporate governance. The growth of business ownership by members of the public has led to a division between owners and management.
Before the 20th century, a large number of businesses were moderate in size, and owned and operated by families. Today, there are many complex global corporations, which trade publicly and appear on either one or many international exchanges. In an effort to establish companies in which shareholder value is protected, many businesses have created a two-tier business hierarchy:
- The first tier consists of directors and their associated board. The company shareholders select these directors.
- The second tier consists of upper management, whom the directors employ.
Establishing the Best Organizational Structure
- When you are looking into corporations, it's worth checking whether the number of in-house board members matches with the number of external members.
- Another way to establish whether a company has a balanced structure is to see if there is a division between the roles of CEO and chairperson.
- There should also be a group of professionals, including accountants, lawyers, and directors, offering a wealth of expert knowledge.
- Often, boards are made up of the present CEO or chairperson, CFO, and COO. These board members are sometimes joined by the former CEO and family members. Although this doesn't mean the corporation will turn out to be a poor investment, it's important to consider whether a business structure like this will benefit you as a shareholder.
- Understanding the best corporate structure for your business is essential, as is automating your procedures.
In a standard line structure:
- The president or CEO is at the highest level.
- Next, there are directors, otherwise known as Vice Presidents (VPs) in designated departments.
- The lower level is made up of managers, and the hierarchy continues down to operational staff.
Line structure is an inflexible structure, and there is a minimum transfer of information, which is standard in bureaucratic corporations. These days, line structure is uncommon in companies. But historically, it was used in a variety of organizations, ranging from military to academic. In the context of this structure, departments do not collaborate with one another, and personnel follow the instructions of their direct manager.
- When a company has a functional structure, it means that company creates a hierarchy according to the roles within it.
- This structure takes some elements from the line structure. However, the distinction is that all staff members in each department must report to the entire board of directors.
- For example, a staff member from the technology department could be requested by the HR manager to deal with an issue in that department. This can happen across all departments.
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