Organizational Structure: From Founders to Finance and Beyond

Mar 25, 2022 Understand organizational structure from ProCFO Partners

The organizational structure in business is how the company is set up concerning the reporting hierarchy. The company could have a vertical, horizontal, or matrix organizational structure.

“You can learn a lot about how an organization operates and how a CEO thinks when you look at the people or positions who report to the CEO,” says CFO Mike Durney on the importance of an organizational structure built on delegation and empowerment. While every business is different, there are unique skill sets that the right departmental leaders should bring to an organization that complements others on the team and creates the necessary space for high performance.

Understanding Organizational Structure

Vertical Organization

The vertical organization structure is a type of organizational structure in which the company is split into different divisions, each one fulfilling a specific function. Specialization is a primary advantage of vertical organizational structure.

For instance, let’s look at Apple. The departments in Apple are divided by product lines, and all the departments are led by a senior executive who reports to the CEO.

Another example includes a marketing agency with separate advertising and public relations departments. This type of organization aims to streamline processes and make it easier for employees to specialize in one area. Department heads report to the CEO. The CEO reports to the board of directors, who report to shareholders.

Horizontal Organization

In a horizontal organization structure, departments are organized by function rather than specialization.

This organizational structure is also called a functional organization because it assigns employees to departments based on their skills and responsibilities.

An example of a horizontal organization is the United States Department of Agriculture (USDA). The USDA has six major departments: the National Institute of Food and Agriculture, the Agricultural Research Service, the Economic Research Service, the National Agricultural Statistics Service, the Animal and Plant Health Inspection Services and Rural Development.

Each department has its own set of functions that it performs. One department might be responsible for research, while another might be responsible for inspection services.

Another example is a company with a marketing department, an IT department, and a customer service department. Each department has its own manager.

The advantages of this type of organizational structure include:

  • Employees can be more specialized in their skillset
  • Employees can be more autonomous in their work

Matrix Organization

Matrix organization structure is one of the most common organizational structures today. It is an organizational structure that combines elements from both vertical (functional) and horizontal (departmental) models.

A matrix organization structure has two reporting paths: one to the functional head (e.g., marketing) and one to the department head (e.g., sales). The matrix organization structure usually means that employees must report to two different supervisors, which can be confusing for some employees. Still, it also provides a more balanced workload for them.

There are four main types of matrix structures:

  1. Functional-divisional, where the organization is split into departments based on function and each department has its own manager.
  2. Geographic-divisional, where the organization is split into departments based on geography and each department has its own manager.
  3. Divisional-functional, where the organization is split into departments based on function. Each department has its own manager and reports to a divisional head who oversees that function across all divisions in the company.
  4. Divisional-geographic, where the organization is split into departments according to geography. Each department has its own manager and reports to a division head who oversees that geography across all divisions, like a regional manager.

The Best Organization Structure For You

The way you structure your company will depend on the size of your company and the type of work you do. The honest answer here might be more straightforward – it’s the organizational structure that you’ll actually use.

Especially in small and mid-market businesses, structure and reporting span of control can be vague, inconsistent and improvised. The primary arbiter for which organization structure the company should use usually is the CEO. The CEO should consider criteria like:

  • What skills do they, the CEO, uniquely possess that might make them more or less valuable to a specific function in the business? In Sales organizations, often the C-Suite is packed with people who came through the ranks of successful sales. They will likely have more valuable input on sales than they might on, say, HR.
  • How strong are their delegation skills? A good leader develops other good leaders. A vital component of that development is confidently assigning the completion or management of the completion of tasks.
  • Are they micromanaging? Micromanaging is almost always a dysfunction and not a benefit. Besides taking up significant time and resources that the CEO should be spending elsewhere, micro-management eliminates empowerment and independence that employees and managers crave.

Delegation skills are essential for any leader, but they are especially crucial for CEOs responsible for overseeing a company’s day-to-day operations while also being the primary visionary to help a company grow. The most effective CEO will:

  • Set clear expectations – Before delegating tasks to others, it is crucial to make sure that you understand what is expected of them and that they know what is expected of them. Make sure to set clear expectations so that both parties understand what needs to be done and when it needs to be done.
  • Provide guidance – One of the most important parts of delegation is guiding how best to complete a task or project. Teaching helps others learn how to do and think rather than execute and report.

The CFO and Your Organization Structure

As companies get bigger and are strategically trying to expand their business, financial planning and analysis (FPA) become more and more essential. Businesses that ignore this content to see their finance functions limited to a controller, bookkeeper or accountant do so at their peril.

The CFO should lead on analyzing what’s going on in the business, analyzing cost structure, selling prices, cost of goods, expenses and much more. Look for your CFO to take responsibility for financial planning and analysis, the budgeting profit process and the long-term forecasting process. If there’s an imbalanced reliance on simple business accounting, the complete picture is lost. Financial strategy is not the stuff of simple print-outs of profit and loss or cash flow statements. What the CEO needs to understand is: what’s the business doing? What are the opportunities? And how do you financially plan for them?

The right organizational structure will help minimize frustrations, confusion or redundancies. Structure helps the CEO and other leaders manage their most valuable (and precious) asset – time. An organization structure built around development and empowerment helps everybody in the organization assume responsibilities that help everyone win.

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