Organisational structure

What it means

Organisational structure is the arrangement of departments, positions and reporting lines in a company. It sets who is responsible for what, who reports to whom and where decisions are made. It is laid down in the organisational rules and drawn as an organisation chart.

Common types are the functional structure with departments such as sales, production and finance, the divisional structure by product or region, and the matrix organisation, where an employee answers to two managers. Small firms tend to be flat, with most people reporting directly to the managing director.

The structure is more than a drawing. It drives the job descriptions, signing powers, expense approval and the split of costs into cost centres. When it does not match reality, responsibility becomes blurred and decisions get delayed.

How it works in practice

As a company grows the structure needs regular review. A founder who approves every invoice becomes a bottleneck. The answer is clear delegation of authority with limits, for example a department head approves purchases up to a set amount and management decides above it.

For accounting it helps when organisational units coincide with cost centres. Managers then get reports on the costs they actually control, and leadership sees the profitability of individual parts of the business without laborious manual recalculation.

In groups of companies there is a legal structure, meaning which company owns which, and a management structure that may cut across companies. In a holding structure decision-making must respect the powers of each subsidiary's statutory body.

What to watch out for

The chart in the internal rules often lags behind reality. Audits, due diligence and disputes over responsibility rely on documents, so an outdated structure can mean that nobody is formally responsible for an area someone actually runs.

Internal reporting lines do not change who acts for the company externally. The company is represented by its statutory bodies and by persons holding a power of attorney or procuration; a director's title on the chart does not by itself authorise anyone to sign contracts in the company's name.