The framework which companies use to figure out their management authority, and internal and external communication processes is known as organizational structure. The structure includes policies, duties and responsibilities of each and every individual in the organization. Organizational structure is influenced by several factors, both internal and external. Business owners are responsible for creating the organizational structure framework of their company.

Size

Size is one of the driving factors for a company’s organizational structure. Smaller businesses do not need a vast structure but larger business organizations generally require a more intense framework.

Companies require more managers for supervising employees if the employee base is large. Highly specialized businesses require a more formal and specialized organizational structure.

Life Cycle

The company’s life cycle affects the development of an organizational structure. Business owners who usually tend to grow and expand their operations develop an organizational structure to outline their business mission, vision and goals.

Businesses that reach peak performance generally have a detailed and more mechanical organizational structure. This occurs due to the fact that chain of command goes on increasing from the top to bottom. Organizational structure can also be a tool to improve efficiency and profitability. Such improvements may be required as more competitors enter the marketplace.

Strategy

Business strategies influence the development of organizational structure. High-growth firms generally have smaller organizational structures to quickly adapt to changes in the business environment. Business owners are often reluctant to reduce managerial control in operations.

Smaller firms looking to illustrate their business strategy may usually delay creating an organizational structure. Business owners are found to be increasingly interested in setting business strategies rather than creating an internal business structure.

Business Environment

The external business environment affects the organizational structure of the company. Dynamic environments having rapid and constantly changing consumer behavior are often more turbulent and shaky than stable environments.

Companies that seek to address the consumer demands can struggle while creating an organizational structure in a rapidly changing and dynamic environment. More time and capital can also be spent in dynamic environments.