example of organizational structure of business plan

7 Organizational Structure Types (With Examples)

Updated: Jul 31, 2023, 6:24am

Table of Contents

What is an organizational structure, 4 common types of organizational structures, 3 alternative organizational structures, how to choose the best organizational structure, frequently asked questions (faqs).

Every company needs an organizational structure—whether they realize it or not. The organizational structure is how the company delegates roles, responsibilities, job functions, accountability and decision-making authority. The organizational structure often shows the “chain of command” and how information moves within the company. Having an organizational structure that aligns with your company’s goals and objectives is crucial. This article describes the various types of organizational structures, the benefits of creating one for your business and specific elements that should be included.

Employees want to understand their job responsibilities, whom they report to, what decisions they can and should make and how they interact with other people and teams within the company. An organizational structure creates this framework. Organizational structures can be centralized or decentralized, hierarchical or circular, flat or vertical.

Centralized vs. Decentralized

Many companies use the traditional model of a centralized organizational structure. With centralized leadership, there is a transparent chain of command and each role has well-defined responsibilities.

Conversely, with a decentralized organizational structure, teams have more autonomy to make decisions and there may be cross-collaboration between groups. Decentralized leadership can help companies remain agile and adapt to changing needs.

Hierarchical vs. Circular

A hierarchical organization structure is the pyramid-shaped organization chart many people are used to seeing. There is one role at the top of the pyramid and the chain of command moves down, with each level decreasing in responsibilities and authority.

On the other hand, a circular organization chart looks like concentric circles with company leadership in the center circle. Instead of information flowing down to the next “level,” information flows out to the next ring of management.

Vertical vs. Flat

A vertical organizational chart has a clear chain of command with a small group of leaders at the top—or in the center, in the case of a circular structure—and each subsequent tier has less authority and responsibility. As discussed below, functional, product-based, market-based and geographical organizational structures are vertical structures.

With a flat organization structure, a person may report to more than one person and there may be cross-department responsibilities and decision-making authority. The matrix organizational structure described below is an example of a flat structure.

Benefits of Creating an Organizational Structure

There are many benefits to creating an organizational structure that aligns with the company’s operations, goals and objectives. Clearly disseminating this information to employees:

• Provides accountability
• Clarifies expectations
• Documents criteria for promotion
• Designates decision-making authority
• Creates efficiency
• Fosters collaboration

Essential Elements of Clear Organizational Structure

Regardless of the special type of organizational structure you choose, it should have the following components:

• Chain of command
• Roles and responsibilities
• Scope of control
• Decision-making authority
• Departments or teams within the organization

Functional/Role-Based Structure

A functional—or role-based—structure is one of the most common organizational structures. This structure has centralized leadership and the vertical, hierarchical structure has clearly defined roles, job functions, chains of command and decision-making authority. A functional structure facilitates specialization, scalability and accountability. It also establishes clear expectations and has a well-defined chain of command. However, this structure runs the risk of being too confining and it can impede employee growth. It also has the potential for a lack of cross-department communication and collaboration.

Product- or Market-Based Structure

Along with the functional structure, the product- or market-based structure is hierarchical, vertical and centralized. However, instead of being structured around typical roles and job functions, it is structured around the company’s products or markets. This kind of structure can benefit companies that have several product lines or markets, but it can be challenging to scale. It can also foster inefficiency if product or market teams have similar functions, and without good communication across teams, companies run the risk of incompatibility among various product/market teams.

Geographical Structure

The geographical structure is a good option for companies with a broad geographic footprint in an industry where it is essential to be close to their customers and suppliers. The geographical structure enables the company to create bespoke organizational structures that align with the location’s culture, language and professional systems. From a broad perspective, it appears very similar to the product-based structure above.

Process-Based Structure

Similar to the functional structure, the process-based structure is structured in a way that follows a product’s or service’s life cycle. For instance, the structure can be broken down into R&D, product creation, order fulfillment, billing and customer services. This structure can foster efficiency, teamwork and specialization, but it can also create barriers between the teams if communication isn’t prioritized.

Matrix Structure

With a matrix organizational structure, there are multiple reporting obligations. For instance, a marketing specialist may have reporting obligations within the marketing and product teams. A matrix structure offers flexibility, enables shared resources and fosters collaboration within the company. However, the organizational structure can be complex, so it can cause confusion about accountability and communication, especially among new employees.

Circular Structure

Similar to the functional and product-based structure, a circular structure is also centralized and hierarchical, but instead of responsibility and decision-making authority flowing down vertically, responsibility and decision-making authority flow out from the center. A circular structure can promote communication and collaboration but can also be confusing, especially for new employees, because there is no clear chain of command.

Organic Structure

Unlike vertical structures, this structure facilitates communication between and among all staff. It is the most complex, but it can also be the most productive. Although it can be challenging to know who has ultimate decision-making authority, it can also foster a positive company culture because employees don’t feel like they have “superiors.” This structure can also be more cost-efficient because it reduces the need for middle managers.

There is no one “right” organizational structure. When deciding which structure will work best for your company, consider the following:

• Current roles and teams within the company. How are job functions currently organized? Does it foster communication and productivity? Does it impede or encourage employee growth?
• Your strategic plan. What are your company’s goals for the short-term and long-term?
• Feedback from employees, leadership and other stakeholders. What do those within your company say about how the company is structured? What feedback do you have from other stakeholders, such as customers and suppliers?
• Alignment. What structure will best support your strategic plans and address any feedback received?

What is the most common organizational structure?

A functional organizational structure is one of the most common organizational structures. If you are still determining what kind of structure to use, this organizational structure can be an excellent place to start.

What is the difference between an organizational structure and an organizational chart?

An organizational chart is a graphic that depicts the organizational structure. The chart may include job titles or it can be personalized to include names and photos.

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How to Write a Business Plan: Organization Structure

How to write a business plan: organizational structure, what is the organizational structure for a business plan.

The organization structure section should discuss whether your business will be a sole proprietor, limited liability corporation, or corporation, who will run your business, each person’s responsibility, and how your business will expand if needed.  There are numerous benefits to a detailed assessment of the company’s structure.  First, examining the structure of the business will help for tax purposes.  For example, limited liability and corporations are considered excellent for protecting shareholders concerning liabilities.  However, tax-wise, these firms often are double taxed.  The second benefit of a detailed assessment of a company’s structure is to understand how each owner will contribute to the company.  In other words, if there is more than one owner, what are their responsibilities, and how are these responsibilities to be carried out.

Why is the Organizational Structure important? 

There are numerous reasons why the organizational structure is essential for a business plan. In this section, the business owner will lay out how the company will be structured.  For example, this section will include job titles and responsibilities, resumes from owners and management, showing expertise in the industry, and supporting accolades for expertise.  Through discussing job responsibilities and experiences for management, readers will better understand why this type of business structure, and this management team, will be successful in the proposed business.

A second important reason for the organizational structure is that the section introduces business owners.  The owners and management team should not only be introduced in this section, but their experiences in the industry need to be highlighted and thoroughly explained.  In doing this, a sound foundation for management competence will be established.

A final reason for its importance is the job responsibility segment.  Ownership and management need to have a written document showing specific duties for each owner, if applicable, and specific job responsibilities for each position within the company.  By having this document, readers will see how the business will function and better understand the breakup of management responsibilities.

When to write the Organizational Structure?

The organizational structure should be written after the company description.   In the company description, readers will be introduced to the problem that the company is going to solve and how they propose to solve this problem.  This is usually the product or service offered.  The logical next step is to show a business structure that will allow the company to supply that product or service effectively and efficiently.  Thus the need for the organizational section follows immediately behind the company description.

How to write the Organizational Structure?

When I write my organizational structure for a business plan, for the most part, I start the first paragraph by reminding the readers of the company name.  From this, I then introduce how the company will be held in ownership.  For example, will the company be a limited liability corporation?  Sole proprietorship?  Next, I briefly introduce the management team and owners.  Further, I also briefly introduce their experience in the industry.

By following this structure, the first paragraph is an excellent summation of the section. This allows the reader to understand the breadth of the ownership structure without gaining significant details.

Organizational Structure:  Ownership

In the ownership section, I usually start writing the section by introducing the CEO/founder/majority owner.  In this portion, I usually write the segment, almost like a brief biography.  I will discuss the CEO's history in the industry and the reason why they feel that they are best suited to start and run the operation.

Once this is complete, I then follow the same structure with the other management team members and minority stakeholders.  When this is done, the reader should walk away with an excellent understanding of the qualifications of the ownership team and how their skills will complement each other.

Need Help Writing an Organizational Structure for a Business Plan?

Call or Text Paul, Doctoral Candidate, MBA.

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Organizational Structure:  Responsibilities

In the job responsibility section, I usually structure this portion as a bullet-pointed list.  At the top, I put the title such as CEO, project manager, or job title.  Following this, I list the responsibilities and expectations for each position.  Not only does this help show structure and foresight for the company.  But also, this will help management divvy up duties for the business.

Organizational Structure: Resume

The resume section is for senior managers and owners.  By including resumes, supporting documentation is available for claims made related to experience.  For example, if the CEO claims to have 20 years of experience in the industry, then the resume will show where this experience came from.  This adds credibility to previous claims made.

Organizational Structure: Compensation

Compensation is sometimes necessary to include in the organizational structure component.  Investors expect management to be compensated and employees as well.  However, excessive compensation is often an issue with startups and established businesses.  By showing reasonable compensation for each position, not only will a solid understanding of the pay for each position be shown, but restraint for compensation by the management team and ownership may be highlighted as well.

Organizational Structure: Achievements

This final section is almost like a cherry on top of the cake.  By this point, the reader should be well-versed in the experience and expertise of ownership and the management team.  Adding achievements highlights their expertise in their chosen industry.

Organizational Structure Example

Organizational structure.

Legal Structure

ABC Restaurant will be a limited liability corporation.

Management Summary

John Smith, Sr., MBA., is the founder and CEO of ABC Restaurant.  He has started and managed numerous successful small restaurants over the last ten years.  Restaurants started, and managed, including a breakfast cafe, food truck, and 24-hour diner.  For each business, he was responsible for all aspects of the organization, from marketing to strategic planning.

Job Responsibilities

• Create and execute marketing strategies for business growth.
• Align business strategies with the vision statement.
• Negotiating contracts with vendors.
• Ensure legal compliance for the business.
• Continually examine the firm’s external environment for new market opportunities.

General Manager:

• Control inventory to ensure optimal levels are attained.
• Manage day-to-day operations of the restaurant.
• Servers and cooks during high volume times.
• Interview and hire new employees.
• Assist in the onboarding process for new employees.
• Set up all workstations in the kitchen
• Prepare ingredients to use in cooked and non-cooked foods.
• Check food while cooking for appropriate temperatures.
• Ensure great presentation by dressing dishes as trained.
• Keep a sanitized and clean environment in the kitchen area.
• Stock dining area tables with needed items.
• Greet customers when they enter.
• Present dinner menus and help customers with food/beverages selections.
• Take and serve orders quickly and accurately.

Author: Paul Borosky, MBA., Doctoral Candidate, Published Author

Updated: 3/4/2022

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Writing the Organization and Management Section of Your Business Plan

What is the organization and management section in a business plan.

• What to Put in the Organization and Management Section

Organization

The management team, helpful tips to write this section, frequently asked questions (faqs).

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Every business plan needs an organization and management section. This document will help you convey your vision for how your business will be structured. Here's how to write a good one.

Key Takeaways

• This section of your business plan details your corporate structure.
• It should explain the hierarchy of management, including details about the owners, the board of directors, and any professional partners.
• The point of this section is to clarify who will be in charge of each aspect of your business, as well as how those individuals will help the business succeed.

The organization and management section of your business plan should summarize information about your business structure and team. It usually comes after the market analysis section in a business plan . It's especially important to include this section if you have a partnership or a multi-member limited liability company (LLC). However, if you're starting a home business or are  writing  a business plan for one that's already operating, and you're the only person involved, then you don't need to include this section.

What To Put in the Organization and Management Section

You can separate the two terms to better understand how to write this section of the business plan.

The "organization" in this section refers to how your business is structured and the people involved. "Management" refers to the responsibilities different managers have and what those individuals bring to the company.

In the opening of the section, you want to give a summary of your management team, including size, composition, and a bit about each member's experience.

For example, you might write something like "Our management team of five has more than 20 years of experience in the industry."

The organization section sets up the hierarchy of the people involved in your business. It's often set up in a chart form. If you have a partnership or multi-member LLC, this is where you indicate who is president or CEO, the CFO, director of marketing, and any other roles you have in your business. If you're a single-person home business, this becomes easy as you're the only one on the chart.

Technically, this part of the plan is about owner members, but if you plan to outsource work or hire a virtual assistant, you can include them here, as well. For example, you might have a freelance webmaster, marketing assistant, and copywriter. You might even have a virtual assistant whose job it is to work with your other freelancers. These people aren't owners but have significant duties in your business.

Some common types of business structures include sole proprietorships, partnerships, LLCs, and corporations.

Sole Proprietorship

This type of business isn't a separate entity. Instead, business assets and liabilities are entwined with your personal finances. You're the sole person in charge, and you won't be allowed to sell stock or bring in new owners. If you don't register as any other kind of business, you'll automatically be considered a sole proprietorship.

Partnership

Partnerships can be either limited (LP) or limited liability (LLP). LPs have one general partner who takes on the bulk of the liability for the company, while all other partner owners have limited liability (and limited control over the business). LLPs are like an LP without a general partner; all partners have limited liability from debts as well as the actions of other partners.

Limited Liability Company

A limited liability company (LLC) combines elements of partnership and corporate structures. Your personal liability is limited, and profits are passed through to your personal returns.

Corporation

There are many variations of corporate structure that an organization might choose. These include C corps, which allow companies to issue stock shares, pay corporate taxes (rather than passing profits through to personal returns), and offer the highest level of personal protection from business activities. There are also nonprofit corporations, which are similar to C corps, but they don't seek profits and don't pay state or federal income taxes.

This section highlights what you and the others involved in the running of your business bring to the table. This not only includes owners and managers but also your board of directors (if you have one) and support professionals. Start by indicating your business structure, and then list the team members.

Owner/Manager/Members

Provide the following information on each owner/manager/member:

• Percentage of ownership (LLC, corporation, etc.)
• Extent of involvement (active or silent partner)
• Type of ownership (stock options, general partner, etc.)
• Position in the business (CEO, CFO, etc.)
• Duties and responsibilities
• Educational background
• Experience or skills that are relevant to the business and the duties
• Past employment
• Skills will benefit the business
• Awards and recognition
• Compensation (how paid)
• How each person's skills and experience will complement you and each other

Board of Directors

A board of directors is another part of your management team. If you don't have a board of directors, you don't need this information. This section provides much of the same information as in the ownership and management team sub-section. 

• Position (if there are positions)
• Involvement with the company

Even a one-person business could benefit from a small group of other business owners providing feedback, support, and accountability as an advisory board. 

Support Professionals

Especially if you're seeking funding, let potential investors know you're on the ball with a lawyer, accountant, and other professionals that are involved in your business. This is the place to list any freelancers or contractors you're using. Like the other sections, you'll want to include:

• Background information such as education or certificates
• Services provided to your business
• Relationship information (retainer, as-needed, regular, etc.)
• Skills and experience making them ideal for the work you need
• Anything else that makes them stand out as quality professionals (awards, etc.)

Writing a business plan seems like an overwhelming activity, especially if you're starting a small, one-person business. But writing a business plan can be fairly simple.

Like other parts of the business plan, this is a section you'll want to update if you have team member changes, or if you and your team members receive any additional training, awards, or other resume changes that benefit the business.

Because it highlights the skills and experience you and your team offer, it can be a great resource to refer to when seeking publicity and marketing opportunities. You can refer to it when creating your media kit or pitching for publicity.

Why are organization and management important to a business plan?

The point of this section is to clarify who's in charge of what. This document can clarify these roles for yourself, as well as investors and employees.

What should you cover in the organization and management section of a business plan?

The organization and management section should explain the chain of command , roles, and responsibilities. It should also explain a bit about what makes each person particularly well-suited to take charge of their area of the business.

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Business Plan Section 3: Organization and Management

This section explains how your business runs and who’s on your team. Learn how to present the information in this section of your business plan.

This section of your business plan, Organization and Management, is where you’ll explain exactly how you’re set up to make your ideas happen, plus you’ll introduce the players on your team.

As always, remember your audience. If this is a plan for your internal use, you can be a little more general than if you’ll be presenting it to a potential lender or investor. No matter what its purpose, you’ll want to break the organization and management section into two segments: one describing the way you’ve set up the company to run (its organizational structure), and the other introducing the people involved (its management).

Business Organization

Having a solid plan for how your business will run is a key component of its smooth and successful operation. Of course, you need to surround yourself with good people, but you have to set things up to enable them to work well with each other and on their own.

It’s important to define the positions in the company, which job is responsible for what, and to whom everyone will report. Over time, the structure may grow and change and you can certainly keep tweaking it as you go along, but you need to have an initial plan.

If you’re applying for funding to start a business or expand one, you may not even have employees to fit all the roles in the organization. However, you can still list them in your plan for how the company will ideally operate once you have the ability to do so.

Obviously, for small businesses, the organization will be far more streamlined and less complicated than it is for larger ones, but your business plan still needs to demonstrate an understanding of how you’ll handle the workflow. At the very least, you’ll need to touch on sales and marketing, administration, and the production and distribution of your product or the execution of your service.

For larger companies, an organizational plan with well-thought-out procedures is even more important. This is the best way to make sure you’re not wasting time duplicating efforts or dealing with internal confusion about responsibilities. A smooth-running operation runs far more efficiently and cost-effectively than one flying by the seat of its pants, and this section of your business plan will be another indication that you know what you’re doing. A large company is also likely to need additional operational categories such as human resources and possibly research and development.

One way to explain your organizational structure in the business plan is graphically. A simple diagram or flowchart can easily demonstrate levels of management and the positions within them, clearly illustrating who reports to whom, and how different divisions of the company (such as sales and marketing) relate to each other.

Here is where you can also talk about the other levels of employees in your company. Your lower-level staff will carry out the day-to-day work, so it’s important to recognize the types of people you’ll need, how many, what their qualifications should be, where you’ll find them, and what they’ll cost.

If the business will use outside consultants, freelancers, or independent contractors, mention it here as well. And talk about positions you’d want to add in the future if you’re successful enough to expand.

Business Management

Now that we understand the structure of your business, we need to meet the people who’ll be running it. Who does what, and why are they onboard? This section is important even for a single practitioner or sole proprietorship, as it will introduce you and your qualifications to the readers of your plan.

Start at the top with the legal structure and ownership of the business. If you are incorporated, say so, and detail whether you are a C or S corporation. If you haven’t yet incorporated, make sure to discuss this with your attorney and tax advisor to figure out which way to go. Whether you’re in a partnership or are a sole owner, this is where to mention it.

List the names of the owners of the business, what percent of the company each of them owns, the form of ownership (common or preferred stock, general or limited partner), and what kind of involvement they’ll have with day-to-day operations; for example, if they’re an active or silent partner.

Here’s where you’ll list the names and profiles of your management team, along with what their responsibilities are. Especially if you’re looking for funding, make sure to highlight the proven track record of these key employees. Lenders and investors will be keenly interested in their previous successes, particularly in how they relate to this current venture.

Include each person’s name and position, along with a short description of what the individual’s main duties will be. Detail his or her education, and any unique skills or experience, especially if they’re relevant to the job at hand. Mention previous employment and any industry awards or recognition related to it, along with involvement with charities or other non-profit organizations.

Think of this section as a resume-in-a-nutshell, recapping the highlights and achievements of the people you’ve chosen to surround yourself with. Actual detailed resumes for you and your management team should go in the plan’s appendix, and you can cross-reference them here. You want your readers to feel like your top staff complements you and supplements your own particular skill set. You also want readers to understand why these people are so qualified to help make your business a success.

This section will spell out the compensation for management team members, such as salary, benefits, and any profit-sharing you might be offering. If any of the team will be under contract or bound by non-compete agreements, you would mention that here, as well.

If your company will have a Board of Directors, its members also need to be listed in the business plan. Introduce each person by name and the position they’ll hold on the board. Talk about how each might be involved with the business (in addition to board meetings.

Similar to what you did for your management team, give each member’s background information, including education, experience, special skills, etc., along with any contributions they may already have had to the success of the business. Include the full resumes for your board members in the appendix.

Alternately, if you don’t have a Board of Directors, include information about an Advisory Board you’ve put together, or a panel of experts you’ve convened to help you along the way. Having either of these, by the way, is something your company might want to consider whether or not you’re putting together the organization and management section or your business plan.

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Business Plan Organization and Management: How to Write Guide .

Sep 17, 2023 | Business Consulting , Business Plan , Organization and Management , Organizational Development , Strategy

Writing the Business Plan Organization and Management Section

It provides critical information for those looking for evidence that your staff has the necessary experience, skills, and pedigree to realize the objectives detailed in the rest of your business plan.

What Is the Organization and Management Section in a Business Plan?

The organization and management section of your business plan should provide details about your business structure and team. This section typically comes after the executive summary. However, some people have it further in the document after the market analysis section.

This section generally is separated into two parts. The first concerns the organization as a whole. It gives readers an overview of the company structure, which is an excellent opportunity for the reader to lift the roof off your office and peer into its inner workings. For your legal design, you may set up as a limited liability company (LLC) or nonprofit/ charity or form a partnership. It’s crucial to include this section. However, suppose you’re starting a home business or have an already operating business where you’re the only person involved. In that case, you can skip this section or show the company registration details from either the company’s house or the awarding .gov.

The second part focuses specifically on your management team and introduces readers to each member — your chance to impress them with the many accomplishments pinned to your organization’s management team.

This section may seem less important than some of the other parts of your business plan, but the truth is that your people are your business. If they’re highly competent and accomplished, the implication is that so is your business.

Of course, if you’re a sole proprietor with no management structure or any employees, this section is unnecessary other than to talk about yourself and your achievements.

The section on organization and management should outline the hierarchy, individual roles, and corresponding responsibilities. It should also highlight each person’s strengths and qualifications for their positions.

Business Plan Organization Section

The organizational section of your business plan outlines the hierarchy of individuals involved in your business, typically in a chart format. This section identifies the President or CEO, CFO, Director of Marketing, and other roles for partnerships or multi-member LLCs. If you’re a single-person home business, this section is straightforward as you are the only person on the chart.

Although this section primarily focuses on owner members, you can include outsourced workers or virtual assistants if you plan to hire them. For example, you may have a freelance web admin, marketing assistant, or copywriter. You may even have a virtual assistant who coordinates with your other freelancers. While these individuals are not owners, they hold significant responsibilities in your business.

There are various business structures, such as sole proprietorships, partnerships, LLCs, and corporations.

Detail the Legal Structure within the Business Plan Organization and Management Section

Here is an indicative list of business structures. It would help if you talked to your accountant and legal advisors to determine which legal form is the best for your business proposition.

Sole Proprietorship

When embarking on a business venture, it’s essential to consider the various structures available. A sole proprietorship is a structure whereby the business is not regarded as separate from its owner’s finances. The owner retains complete control and responsibility for the company. However, they are unable to sell stocks or bring in new owners. The business becomes a sole proprietorship if not registered under any other structure.

Partnership

When forming a partnership, it can either be a limited partnership (LP) or a limited liability partnership (LLP). One partner assumes most liability in a limited partnership (LP). In contrast, the other partners have limited liability and control over the business. Alternatively, in a limited liability partnership (LLP), all partners have limited liability from debts and actions of other partners, and there is no general partner.

Limited Liability Company

A limited company (LTD) or limited liability company (LLC) is a mixture of business structures that mixes aspects of partnerships and corporations. It offers limited personal liability to the owner and passes profits through to their tax returns.

Corporation

There are various types of corporate structures. A C-corporation enables the issuance of stock shares, pays corporate taxes instead of personal returns, and provides the highest level of personal protection from business activities. On the other hand, nonprofit corporations are similar to C corporations. However, they do not aim to make profits and are exempt from state or federal income taxes.

More information on company legal structures is available on UK.Gov and USA.SBA websites.

Describe Your Company’s Organizational Structure

This first step illustrates the positions in your organization’s employee hierarchy and how they all relate to each other.

This is usually done graphically as a guide, using an organizational chart, or “org chart” for short. People use a Microsoft tool, i.e., PowerPoint or Excel, to help.

Organization Charts typically follow a top-down hierarchy, starting with your CEO/ Managing Director in the top box at the top of the page. Lines extend down from that person’s name to boxes containing the terms of the CEO’s direct reports.

We have included an example organizational chart below for guidelines only.

Identify your business organization structure and list your team members’ strengths and skills.

Those managers then have lines extending to those who report to them, and so on, down to your lowest staff positions.

This section will give your readers a quick understanding of your management and governance structure, the size of your organization, and your lines of control and communication.

Describe your Team in your Business Plan Organization and Management Section

In your business plan’s Organization and Management section, please provide a detailed description of your team. Y ou will discuss the company’s management team, starting with the owners.

This section highlights who is involved in the running of your business and who are the support professionals. It also includes the roles and responsibilities of managers.

Suppose the company structure is a multi-owner arrangement or some other multi-owner arrangement. In that case, you’ll want to include information for every member and their percentage of ownership and ongoing involvement in the company.

It’s important to discuss how ownership interests are split, their responsibilities, what they did before securing their current position, and how they came to be involved with the company.

Here, it would help if you talked about some of your critical team members. These people are directly responsible for large portions of your business operations.

Owner/Manager/Members

Within your business o rganization and management section, y ou should introduce the team and talk about their experience, qualifications, previous companies and achievements, role in the company, and any special skills they bring with them. Please provide the following details for each owner, manager, or member of the business within your business plan:

• Percentage of ownership (if applicable)
• Level of involvement (active or silent partner)
• Type of ownership (e.g., stock options, general partner)
• Position in the company (CEO, CFO, etc.)
• Responsibilities and Duties
• Educational background
• Relevant experience and skills
• Previous employment history
• Skills that will benefit the business
• Awards or recognition received
• Compensation structure
• How each individual’s skills and experience will complement and contribute to the business’s success

Perhaps they’re an entrepreneur, business coach, exclusive advisor, or industry specialist to help you grow.

This is an ideal opportunity for companies with an Executive Board of Directors, Governance Structure, or Advisory Board to introduce them to your readers.

Executive Board

Having a board of directors is essential for your management team. Without one, you may be missing out on crucial information. This section includes details similar to those found in the ownership and management team sub-section, such as the names, areas of expertise, positions (if applicable), and involvement with the company of each board member.

Strategic Advisors

Suppose you’re looking for funding for your business or to fill a gap in your knowledge, or you may not have the funds to hire an executive board. In that case, you must inform potential partners and investors that you have a team of professionals assisting you. This includes lawyers, accountants, and any freelancers or contractors you may be working with. When listing these individuals, include their name, title, educational background, certifications, services they provide to your business, and their relationship with you (i.e., hourly rates, projects, retainer, as-needed, regular). Additionally, highlight their skills and experience that make them an asset to your team you need

Does anything else make them stand out as quality professionals (awards, past working with credible brands)?

Spotlight on the Wider Team Structure

Now, you’ve showcased the management team in its entirety. You can provide brief bios for hiring team needs or secondary members and talk at length about how the team’s combined skills complement each other and how they amplify the team’s effectiveness.

It’s also important to point out any gaps in the knowledge your team is currently suffering. Your readers will likely be savvy enough to pick up on existing holes.

Therefore, you’ll want to get ahead of these criticisms and demonstrate that you’re already aware of the positions and complementary skill sets your management team still requires and how you plan to address the knowledge gaps with future hires.

Do you need help writing your business plan o rganization and management section ? 

Every successful business plan should include the organization and management section, helping you communicate your legal structure and team.

Writing a business plan can seem overwhelming, especially when starting a small, one-person business. However, it can be a reasonably simple task. This section of the plan should be updated if there are any changes to the organization structure or team members, such as additional training, awards, or other resume changes that benefit the business.

Creating your comprehensive business plan takes planning, research, time, and a herculean effort. If, at any point, the work becomes too much to handle, we can step in to assist.

Do you want an expert “second opinion” before creating your business plan or financial forecasts? Let’s talk !

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Contact Noirwolf Consulting today using the website contact form or by emailing [email protected] or call us at +44 113 328 0868.

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How to Write a Business Plan: Step-by-Step Guide + Examples

Noah Parsons

24 min. read

Updated April 17, 2024

Writing a business plan doesn’t have to be complicated. 

In this step-by-step guide, you’ll learn how to write a business plan that’s detailed enough to impress bankers and potential investors, while giving you the tools to start, run, and grow a successful business.

• The basics of business planning

If you’re reading this guide, then you already know why you need a business plan . 

You understand that planning helps you: 

• Raise money
• Grow strategically
• Keep your business on the right track 

As you start to write your plan, it’s useful to zoom out and remember what a business plan is .

At its core, a business plan is an overview of the products and services you sell, and the customers that you sell to. It explains your business strategy: how you’re going to build and grow your business, what your marketing strategy is, and who your competitors are.

Most business plans also include financial forecasts for the future. These set sales goals, budget for expenses, and predict profits and cash flow. 

A good business plan is much more than just a document that you write once and forget about. It’s also a guide that helps you outline and achieve your goals. 

After completing your plan, you can use it as a management tool to track your progress toward your goals. Updating and adjusting your forecasts and budgets as you go is one of the most important steps you can take to run a healthier, smarter business. 

We’ll dive into how to use your plan later in this article.

There are many different types of plans , but we’ll go over the most common type here, which includes everything you need for an investor-ready plan. However, if you’re just starting out and are looking for something simpler—I recommend starting with a one-page business plan . It’s faster and easier to create. 

It’s also the perfect place to start if you’re just figuring out your idea, or need a simple strategic plan to use inside your business.

Dig deeper : How to write a one-page business plan

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• What to include in your business plan

Executive summary

The executive summary is an overview of your business and your plans. It comes first in your plan and is ideally just one to two pages. Most people write it last because it’s a summary of the complete business plan.

Ideally, the executive summary can act as a stand-alone document that covers the highlights of your detailed plan. 

In fact, it’s common for investors to ask only for the executive summary when evaluating your business. If they like what they see in the executive summary, they’ll often follow up with a request for a complete plan, a pitch presentation , or more in-depth financial forecasts .

Your executive summary should include:

• A summary of the problem you are solving
• A description of your product or service
• An overview of your target market
• A brief description of your team
• A summary of your financials
• Your funding requirements (if you are raising money)

Dig Deeper: How to write an effective executive summary

Products and services description

This is where you describe exactly what you’re selling, and how it solves a problem for your target market. The best way to organize this part of your plan is to start by describing the problem that exists for your customers. After that, you can describe how you plan to solve that problem with your product or service. 

This is usually called a problem and solution statement .

To truly showcase the value of your products and services, you need to craft a compelling narrative around your offerings. How will your product or service transform your customers’ lives or jobs? A strong narrative will draw in your readers.

This is also the part of the business plan to discuss any competitive advantages you may have, like specific intellectual property or patents that protect your product. If you have any initial sales, contracts, or other evidence that your product or service is likely to sell, include that information as well. It will show that your idea has traction , which can help convince readers that your plan has a high chance of success.

Market analysis

Your target market is a description of the type of people that you plan to sell to. You might even have multiple target markets, depending on your business. 

A market analysis is the part of your plan where you bring together all of the information you know about your target market. Basically, it’s a thorough description of who your customers are and why they need what you’re selling. You’ll also include information about the growth of your market and your industry .

Try to be as specific as possible when you describe your market. 

Include information such as age, income level, and location—these are what’s called “demographics.” If you can, also describe your market’s interests and habits as they relate to your business—these are “psychographics.” 

Related: Target market examples

Essentially, you want to include any knowledge you have about your customers that is relevant to how your product or service is right for them. With a solid target market, it will be easier to create a sales and marketing plan that will reach your customers. That’s because you know who they are, what they like to do, and the best ways to reach them.

Next, provide any additional information you have about your market. 

What is the size of your market ? Is the market growing or shrinking? Ideally, you’ll want to demonstrate that your market is growing over time, and also explain how your business is positioned to take advantage of any expected changes in your industry.

Dig Deeper: Learn how to write a market analysis

Competitive analysis

Part of defining your business opportunity is determining what your competitive advantage is. To do this effectively, you need to know as much about your competitors as your target customers. 

Every business has some form of competition. If you don’t think you have competitors, then explore what alternatives there are in the market for your product or service. 

For example: In the early years of cars, their main competition was horses. For social media, the early competition was reading books, watching TV, and talking on the phone.

A good competitive analysis fully lays out the competitive landscape and then explains how your business is different. Maybe your products are better made, or cheaper, or your customer service is superior. Maybe your competitive advantage is your location – a wide variety of factors can ultimately give you an advantage.

Dig Deeper: How to write a competitive analysis for your business plan

Marketing and sales plan

The marketing and sales plan covers how you will position your product or service in the market, the marketing channels and messaging you will use, and your sales tactics. 

The best place to start with a marketing plan is with a positioning statement . 

This explains how your business fits into the overall market, and how you will explain the advantages of your product or service to customers. You’ll use the information from your competitive analysis to help you with your positioning. 

For example: You might position your company as the premium, most expensive but the highest quality option in the market. Or your positioning might focus on being locally owned and that shoppers support the local economy by buying your products.

Once you understand your positioning, you’ll bring this together with the information about your target market to create your marketing strategy . 

This is how you plan to communicate your message to potential customers. Depending on who your customers are and how they purchase products like yours, you might use many different strategies, from social media advertising to creating a podcast. Your marketing plan is all about how your customers discover who you are and why they should consider your products and services. 

While your marketing plan is about reaching your customers—your sales plan will describe the actual sales process once a customer has decided that they’re interested in what you have to offer. 

If your business requires salespeople and a long sales process, describe that in this section. If your customers can “self-serve” and just make purchases quickly on your website, describe that process. 

A good sales plan picks up where your marketing plan leaves off. The marketing plan brings customers in the door and the sales plan is how you close the deal.

Together, these specific plans paint a picture of how you will connect with your target audience, and how you will turn them into paying customers.

Dig deeper: What to include in your sales and marketing plan

Business operations

The operations section describes the necessary requirements for your business to run smoothly. It’s where you talk about how your business works and what day-to-day operations look like. 

Depending on how your business is structured, your operations plan may include elements of the business like:

• Supply chain management
• Manufacturing processes
• Equipment and technology
• Distribution

Some businesses distribute their products and reach their customers through large retailers like Amazon.com, Walmart, Target, and grocery store chains. 

These businesses should review how this part of their business works. The plan should discuss the logistics and costs of getting products onto store shelves and any potential hurdles the business may have to overcome.

If your business is much simpler than this, that’s OK. This section of your business plan can be either extremely short or more detailed, depending on the type of business you are building.

For businesses selling services, such as physical therapy or online software, you can use this section to describe the technology you’ll leverage, what goes into your service, and who you will partner with to deliver your services.

Dig Deeper: Learn how to write the operations chapter of your plan

Key milestones and metrics

Although it’s not required to complete your business plan, mapping out key business milestones and the metrics can be incredibly useful for measuring your success.

Good milestones clearly lay out the parameters of the task and set expectations for their execution. You’ll want to include:

• A description of each task
• The proposed due date
• Who is responsible for each task

If you have a budget, you can include projected costs to hit each milestone. You don’t need extensive project planning in this section—just list key milestones you want to hit and when you plan to hit them. This is your overall business roadmap. 

Possible milestones might be:

• Website launch date
• Store or office opening date
• First significant sales
• Break even date
• Business licenses and approvals

You should also discuss the key numbers you will track to determine your success. Some common metrics worth tracking include:

• Conversion rates
• Customer acquisition costs
• Profit per customer
• Repeat purchases

It’s perfectly fine to start with just a few metrics and grow the number you are tracking over time. You also may find that some metrics simply aren’t relevant to your business and can narrow down what you’re tracking.

Dig Deeper: How to use milestones in your business plan

Organization and management team

Investors don’t just look for great ideas—they want to find great teams. Use this chapter to describe your current team and who you need to hire . You should also provide a quick overview of your location and history if you’re already up and running.

Briefly highlight the relevant experiences of each key team member in the company. It’s important to make the case for why yours is the right team to turn an idea into a reality. 

Do they have the right industry experience and background? Have members of the team had entrepreneurial successes before? 

If you still need to hire key team members, that’s OK. Just note those gaps in this section.

Your company overview should also include a summary of your company’s current business structure . The most common business structures include:

• Sole proprietor
• Partnership

Be sure to provide an overview of how the business is owned as well. Does each business partner own an equal portion of the business? How is ownership divided? 

Potential lenders and investors will want to know the structure of the business before they will consider a loan or investment.

Dig Deeper: How to write about your company structure and team

Financial plan

Last, but certainly not least, is your financial plan chapter. 

Entrepreneurs often find this section the most daunting. But, business financials for most startups are less complicated than you think, and a business degree is certainly not required to build a solid financial forecast. 

A typical financial forecast in a business plan includes the following:

• Sales forecast : An estimate of the sales expected over a given period. You’ll break down your forecast into the key revenue streams that you expect to have.
• Expense budget : Your planned spending such as personnel costs , marketing expenses, and taxes.
• Profit & Loss : Brings together your sales and expenses and helps you calculate planned profits.
• Cash Flow : Shows how cash moves into and out of your business. It can predict how much cash you’ll have on hand at any given point in the future.
• Balance Sheet : A list of the assets, liabilities, and equity in your company. In short, it provides an overview of the financial health of your business. 

A strong business plan will include a description of assumptions about the future, and potential risks that could impact the financial plan. Including those will be especially important if you’re writing a business plan to pursue a loan or other investment.

Dig Deeper: How to create financial forecasts and budgets

This is the place for additional data, charts, or other information that supports your plan.

Including an appendix can significantly enhance the credibility of your plan by showing readers that you’ve thoroughly considered the details of your business idea, and are backing your ideas up with solid data.

Just remember that the information in the appendix is meant to be supplementary. Your business plan should stand on its own, even if the reader skips this section.

Dig Deeper : What to include in your business plan appendix

Optional: Business plan cover page

Adding a business plan cover page can make your plan, and by extension your business, seem more professional in the eyes of potential investors, lenders, and partners. It serves as the introduction to your document and provides necessary contact information for stakeholders to reference.

Your cover page should be simple and include:

• Company logo
• Business name
• Value proposition (optional)
• Business plan title
• Completion and/or update date
• Address and contact information
• Confidentiality statement

Just remember, the cover page is optional. If you decide to include it, keep it very simple and only spend a short amount of time putting it together.

Dig Deeper: How to create a business plan cover page

How to use AI to help write your business plan

Generative AI tools such as ChatGPT can speed up the business plan writing process and help you think through concepts like market segmentation and competition. These tools are especially useful for taking ideas that you provide and converting them into polished text for your business plan.

The best way to use AI for your business plan is to leverage it as a collaborator , not a replacement for human creative thinking and ingenuity. 

AI can come up with lots of ideas and act as a brainstorming partner. It’s up to you to filter through those ideas and figure out which ones are realistic enough to resonate with your customers. 

There are pros and cons of using AI to help with your business plan . So, spend some time understanding how it can be most helpful before just outsourcing the job to AI.

Learn more: 10 AI prompts you need to write a business plan

• Writing tips and strategies

To help streamline the business plan writing process, here are a few tips and key questions to answer to make sure you get the most out of your plan and avoid common mistakes .  

Determine why you are writing a business plan

Knowing why you are writing a business plan will determine your approach to your planning project. 

For example: If you are writing a business plan for yourself, or just to use inside your own business , you can probably skip the section about your team and organizational structure. 

If you’re raising money, you’ll want to spend more time explaining why you’re looking to raise the funds and exactly how you will use them.

Regardless of how you intend to use your business plan , think about why you are writing and what you’re trying to get out of the process before you begin.

Keep things concise

Probably the most important tip is to keep your business plan short and simple. There are no prizes for long business plans . The longer your plan is, the less likely people are to read it. 

So focus on trimming things down to the essentials your readers need to know. Skip the extended, wordy descriptions and instead focus on creating a plan that is easy to read —using bullets and short sentences whenever possible.

Have someone review your business plan

Writing a business plan in a vacuum is never a good idea. Sometimes it’s helpful to zoom out and check if your plan makes sense to someone else. You also want to make sure that it’s easy to read and understand.

Don’t wait until your plan is “done” to get a second look. Start sharing your plan early, and find out from readers what questions your plan leaves unanswered. This early review cycle will help you spot shortcomings in your plan and address them quickly, rather than finding out about them right before you present your plan to a lender or investor.

If you need a more detailed review, you may want to explore hiring a professional plan writer to thoroughly examine it.

Use a free business plan template and business plan examples to get started

Knowing what information to include in a business plan is sometimes not quite enough. If you’re struggling to get started or need additional guidance, it may be worth using a business plan template. 

There are plenty of great options available (we’ve rounded up our 8 favorites to streamline your search).

But, if you’re looking for a free downloadable business plan template , you can get one right now; download the template used by more than 1 million businesses. 

Or, if you just want to see what a completed business plan looks like, check out our library of over 550 free business plan examples . 

We even have a growing list of industry business planning guides with tips for what to focus on depending on your business type.

Common pitfalls and how to avoid them

It’s easy to make mistakes when you’re writing your business plan. Some entrepreneurs get sucked into the writing and research process, and don’t focus enough on actually getting their business started. 

Here are a few common mistakes and how to avoid them:

Not talking to your customers : This is one of the most common mistakes. It’s easy to assume that your product or service is something that people want. Before you invest too much in your business and too much in the planning process, make sure you talk to your prospective customers and have a good understanding of their needs.

• Overly optimistic sales and profit forecasts: By nature, entrepreneurs are optimistic about the future. But it’s good to temper that optimism a little when you’re planning, and make sure your forecasts are grounded in reality. 
• Spending too much time planning: Yes, planning is crucial. But you also need to get out and talk to customers, build prototypes of your product and figure out if there’s a market for your idea. Make sure to balance planning with building.
• Not revising the plan: Planning is useful, but nothing ever goes exactly as planned. As you learn more about what’s working and what’s not—revise your plan, your budgets, and your revenue forecast. Doing so will provide a more realistic picture of where your business is going, and what your financial needs will be moving forward.
• Not using the plan to manage your business: A good business plan is a management tool. Don’t just write it and put it on the shelf to collect dust – use it to track your progress and help you reach your goals.
• Presenting your business plan

The planning process forces you to think through every aspect of your business and answer questions that you may not have thought of. That’s the real benefit of writing a business plan – the knowledge you gain about your business that you may not have been able to discover otherwise.

With all of this knowledge, you’re well prepared to convert your business plan into a pitch presentation to present your ideas. 

A pitch presentation is a summary of your plan, just hitting the highlights and key points. It’s the best way to present your business plan to investors and team members.

Dig Deeper: Learn what key slides should be included in your pitch deck

Use your business plan to manage your business

One of the biggest benefits of planning is that it gives you a tool to manage your business better. With a revenue forecast, expense budget, and projected cash flow, you know your targets and where you are headed.

And yet, nothing ever goes exactly as planned – it’s the nature of business.

That’s where using your plan as a management tool comes in. The key to leveraging it for your business is to review it periodically and compare your forecasts and projections to your actual results.

Start by setting up a regular time to review the plan – a monthly review is a good starting point. During this review, answer questions like:

• Did you meet your sales goals?
• Is spending following your budget?
• Has anything gone differently than what you expected?

Now that you see whether you’re meeting your goals or are off track, you can make adjustments and set new targets. 

Maybe you’re exceeding your sales goals and should set new, more aggressive goals. In that case, maybe you should also explore more spending or hiring more employees. 

Or maybe expenses are rising faster than you projected. If that’s the case, you would need to look at where you can cut costs.

A plan, and a method for comparing your plan to your actual results , is the tool you need to steer your business toward success.

Learn More: How to run a regular plan review

Free business plan templates and examples

Kickstart your business plan writing with one of our free business plan templates or recommended tools.

Free business plan template

Download a free SBA-approved business plan template built for small businesses and startups.

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One-page plan template

Download a free one-page plan template to write a useful business plan in as little as 30-minutes.

Sample business plan library

Explore over 500 real-world business plan examples from a wide variety of industries.

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How to write a business plan FAQ

What is a business plan?

A document that describes your business , the products and services you sell, and the customers that you sell to. It explains your business strategy, how you’re going to build and grow your business, what your marketing strategy is, and who your competitors are.

What are the benefits of a business plan?

A business plan helps you understand where you want to go with your business and what it will take to get there. It reduces your overall risk, helps you uncover your business’s potential, attracts investors, and identifies areas for growth.

Having a business plan ultimately makes you more confident as a business owner and more likely to succeed for a longer period of time.

What are the 7 steps of a business plan?

The seven steps to writing a business plan include:

• Write a brief executive summary
• Describe your products and services.
• Conduct market research and compile data into a cohesive market analysis.
• Describe your marketing and sales strategy.
• Outline your organizational structure and management team.
• Develop financial projections for sales, revenue, and cash flow.
• Add any additional documents to your appendix.

What are the 5 most common business plan mistakes?

There are plenty of mistakes that can be made when writing a business plan. However, these are the 5 most common that you should do your best to avoid:

• 1. Not taking the planning process seriously.
• Having unrealistic financial projections or incomplete financial information.
• Inconsistent information or simple mistakes.
• Failing to establish a sound business model.
• Not having a defined purpose for your business plan.

What questions should be answered in a business plan?

Writing a business plan is all about asking yourself questions about your business and being able to answer them through the planning process. You’ll likely be asking dozens and dozens of questions for each section of your plan.

However, these are the key questions you should ask and answer with your business plan:

• How will your business make money?
• Is there a need for your product or service?
• Who are your customers?
• How are you different from the competition?
• How will you reach your customers?
• How will you measure success?

How long should a business plan be?

The length of your business plan fully depends on what you intend to do with it. From the SBA and traditional lender point of view, a business plan needs to be whatever length necessary to fully explain your business. This means that you prove the viability of your business, show that you understand the market, and have a detailed strategy in place.

If you intend to use your business plan for internal management purposes, you don’t necessarily need a full 25-50 page business plan. Instead, you can start with a one-page plan to get all of the necessary information in place.

What are the different types of business plans?

While all business plans cover similar categories, the style and function fully depend on how you intend to use your plan. Here are a few common business plan types worth considering.

Traditional business plan: The tried-and-true traditional business plan is a formal document meant to be used when applying for funding or pitching to investors. This type of business plan follows the outline above and can be anywhere from 10-50 pages depending on the amount of detail included, the complexity of your business, and what you include in your appendix.

Business model canvas: The business model canvas is a one-page template designed to demystify the business planning process. It removes the need for a traditional, copy-heavy business plan, in favor of a single-page outline that can help you and outside parties better explore your business idea.

One-page business plan: This format is a simplified version of the traditional plan that focuses on the core aspects of your business. You’ll typically stick with bullet points and single sentences. It’s most useful for those exploring ideas, needing to validate their business model, or who need an internal plan to help them run and manage their business.

Lean Plan: The Lean Plan is less of a specific document type and more of a methodology. It takes the simplicity and styling of the one-page business plan and turns it into a process for you to continuously plan, test, review, refine, and take action based on performance. It’s faster, keeps your plan concise, and ensures that your plan is always up-to-date.

What’s the difference between a business plan and a strategic plan?

A business plan covers the “who” and “what” of your business. It explains what your business is doing right now and how it functions. The strategic plan explores long-term goals and explains “how” the business will get there. It encourages you to look more intently toward the future and how you will achieve your vision.

However, when approached correctly, your business plan can actually function as a strategic plan as well. If kept lean, you can define your business, outline strategic steps, and track ongoing operations all with a single plan.

See why 1.2 million entrepreneurs have written their business plans with LivePlan

Noah is the COO at Palo Alto Software, makers of the online business plan app LivePlan. He started his career at Yahoo! and then helped start the user review site Epinions.com. From there he started a software distribution business in the UK before coming to Palo Alto Software to run the marketing and product teams.

Table of Contents

• Use AI to help write your plan
• Common planning mistakes
• Manage with your business plan
• Templates and examples

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7 Organizational Structure Types With Examples

Meaghan is a writer from North Carolina with experience in B2B, technology, and digital marketing topics. Throughout her career, Meaghan has worked with B2B, software, and digital marketing businesses to create and deliver engaging content that drives brand authority and revenue and helps consumers make informed buying decisions.

Kara is an editor from North Carolina with experience in business technology and services topics as well as health. She is dedicated to delivering clear and captivating content to readers who want to make well-informed choices. Throughout her career, Kara has collaborated with and advised many small businesses in diverse marketing roles. Such experiences offer her a distinct viewpoint on how appropriate technology and services can drive growth for entrepreneurs. Kara’s writing has appeared on Verywellfamily.com, Labroots.com, and SkinnyMs.com.

Growing companies will likely need to adopt an organizational structure at some point, and it’s better to start thinking about implementation sooner rather than later. An organizational structure serves as the blueprint defining how roles, responsibilities and communication channels are arranged within a company. It outlines the hierarchy, reporting relationships and workflow, providing a framework guiding employees’ daily activities. 

A well-designed organizational structure enhances operational efficiency, promotes clarity in decision-making processes and facilitates strategic alignment by aligning resources and efforts toward achieving corporate objectives. It is important to have the right organizational structure that aligns with your company’s goals. This article will describe seven different organizational structure types and the benefits each one could have for your business.

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What Is Organizational Structure?

Organizational structure refers to the formal framework that defines how tasks, roles and responsibilities are organized and coordinated within a company. At its core, it establishes a clear and systematic arrangement of components to ensure efficient operation. The hierarchical aspect of organizational structure illustrates the levels of authority and communication within the organization. Typically, this involves a pyramid-like structure, where top-level management oversees middle management, which, in turn, supervises lower-level employees. Reporting relationships are integral, delineating how information flows through the organization and promoting effective communication. 

Roles and responsibilities are distributed systematically, clarifying who is accountable for specific tasks. This facilitates the efficient allocation of resources and ensures that each employee understands their role in achieving organizational objectives.

Functional Organizational Structure

A functional organizational structure, sometimes called a role-based structure, is where tasks and responsibilities are grouped based on specific functions or roles within the company. It’s one of the most commonly used organizational structures. A functional organizational structure starts with roles with the highest levels of responsibility at the top and then goes down from there. Departments, teams or employees are organized based on their specific roles or skills and their function within the company. Typically, each department or team is managed independently. An example of a functional organizational structure would be a company that has several separate departments, such as accounting, human resources , marketing, sales and production.

Functional organizational structure allows for specialization amongst teams and scalability while also providing a clear chain of communication and command. Examples of companies that use a functional organizational structure include Amazon and Starbucks. 

• Fosters scalability
• Promotes operational efficiency
• Allows employees to focus on their own roles
• Encourages specialization 
• Helps teams and departments function independently
• May lead to poor cross-department communication
• Can create silos in the organization
• May hinder decision making
• Narrow scope of how employee’s roles relate to company objectives

Accounting Department

The accounting department typically encompasses several key roles and functions crucial to the financial management of the organization. These roles include chief financial officer (CFO), accountants, tax specialists, financial analysts and payroll specialists to handle payroll tax .

Human Resources Department

In a functional organizational structure, the human resources department plays a crucial role in workforce organization. Typical roles within a human resources department include HR manager or director, recruiting specialist, training and development specialist, benefits and compensation manager, employee engagement and wellness coordinator, diversity and inclusion specialist and compliance specialist.

Marketing Department

Within a functional organizational structure, common marketing roles would include a marketing manager and marketing coordinator or specialist, which could be broken down into more niche roles such as social media marketing specialist, content creation specialist, campaign coordinator, SEO analyst and more. This breakdown allows for specialization within each role.

Information Technology Department

Common IT positions in a functional organizational structure include the IT Manager or Director, overseeing the overall technology strategy and infrastructure, and Systems Administrators or Network Engineers, responsible for day-to-day maintenance, troubleshooting and optimization of the organization’s IT systems. This functional arrangement ensures a focused and efficient approach to both strategic IT planning and operational support.

Divisional Organizational Structure

With a divisional organizational structure, a company’s different divisions will have control over their own resources, almost like operating as their own business under the larger corporation. This type of structure organizes employees around either a product or geographical location. Different divisions will typically focus on a specific product line or market. 

Each division would have its own team of departments, such as its own marketing team, accounting department, human resources department, sales team and IT department. This is especially beneficial for large organizations that need to adjust their strategies for different audiences in their different markets. Examples of companies that use a divisional organizational structure are Disney and McDonalds.

• Helps large companies be flexible in their operations
• Quicker responses to needs or changes that are location or product-based
• Allows teams to experiment and test different approaches and strategies
• Helps companies understand and operate in their individual markets better
• Can lead to duplication of efforts
• A lack of broad organizational communication
• Competitions amongst departments or divisions

Matrix Organizational Structure

A matrix organizational structure combines a functional and divisional structure and shows the organization and reporting structure of cross-functional teams . Within a matrix structure, employees report to multiple managers, for example, their department and project managers. Within a matrix organizational structure, a marketing specialist and engineer may report to their individual department managers but then report to the same product manager for a specific project. 

Multiple managers and a matrix organization structure allow for wider company interaction or efficient operations. Some examples of companies that successfully utilize a matrix structure include Caterpillar, Texas Instruments and Nike.

• Ability to pull different talents into different projects
• Provides a more dynamic view of the company
• Allows employees to build skills and grow outside of their usual roles
• More efficient project management and faster deliverables
• Can lead to authority conflicts among leaders and managers
• Frequency of role and project changes
• Conflicting objectives between managers

Team-Based Organizational Structure

Team-based organizational structure is pretty self-explanatory – it groups employees together based on teams. Unlike a functional organization structure which groups employees together based on job functions, roles and skills, a team-based structure groups employees together based on a specific goal or product. A team-based structure usually goes against traditional hierarchy and provides high flexibility. This structure is typically very dynamic and ever changing, with employees moving from team to team as new goals and projects come in.

This type of organizational structure gives employees more control over their work and roles and promotes more efficiency, problem-solving and collaboration within the smaller teams. Teams are fully responsible for their own projects and workloads. Examples of companies that use a team-based organizational structure include Apple, Whole Foods and Google.

• Promotes innovation and lateral career moves
• Experienced is valued over seniority
• More flexible with less emphasis on management
• Allows companies to be more agile
• Goes against the traditional hierarchical structure of many companies
• Career path growth may not be clear
• No clear leadership roles or formalization

Flat Organizational Structure

In a flat organizational structure, employees will report to multiple people, and there may also be cross-departmental responsibilities and decision-making. There are fewer middle managers between employees and top-level managers. This type of structure requires less supervision and requires more employee involvement. 

Flat organizational structures are very simple and sometimes might be referred to as a flatarchy. Matrix structures can be considered a flat organizational structure. This type of structure is typically used in small businesses or start-ups. Examples of successful companies using a flat organizational structure include Google and Hubspot.

• Increased employee responsibility and independence
• More open communication
• Clear path to decision-making
• Fast implementation process
• Not very scalable
• Relies on one or a few people to be the decision-maker
• Leads to a lack of specialization among employees

Circular Organizational Structure

A circular organizational structure puts leaders in the center rather than at the top so that leadership and information gets placed outward rather than trickling down the hierarchy. This structure also views employees as part of the larger whole of the organization rather than sectioning them off into their separate departments. A circular structure removes separation and looks at all departments as being a part of the bigger picture. 

An example of a company that uses a circular organizational structure is MorningStar. 

• Better flow of information through the organization
• Promotes collaboration between departments 
• Promotes communication between all employees
• Can cause confusion on who to report to
• Decision making may take longer
• Can take longer to implement new things

Network Organizational Structure

A network organizational structure goes beyond the internal company structure and expands to the vendors, subcontractors, freelancers and offsite locations that work together to deliver the product or service the organization provides. This structure helps make sense of how all the company resources are spread out. This approach allows companies to broaden their capabilities and fill skillset gaps. 

Examples of companies that use a network organizational structure include IBM and Dow Chemical.

• Allows for organizational agility and flexibility
• Easily visualizes the web of all company teams and resources
• Fosters initiative and collaboration among employees
• Helps employees and stakeholders understand workflows better
• Can create communication issues between internal and external teams and resources
• Can become complex to navigate internal and external relationships
• Can make it difficult for decision-making and who makes the final approval

Centralized vs. Decentralized Organizational Structures

Centralization vs. decentralization refers to defining how managers and employees give input on company goals and strategies. A centralized organizational structure gives leaders ultimate control over the decision-making process, while a decentralized organizational structure allows employees to impact business decisions. 

Traditionally, in a centralized organizational structure, decisions are made at the top and then distributed down the chain of command. This type of structure gives leaders greater control over business operations, provides a clear chain of command and establishes clear role responsibilities and duties. However, since decisions would need to keep going up and down the chain of command with this structure, it can make the decision-making process and implementation longer and sometimes inefficient. 

With a decentralized organizational structure, employees have more autonomy and can provide input by identifying issues and making decisions before communicating with upper management. This eliminates process delays and helps companies be more adaptable. However, this structure can create more coordination challenges.

Hierarchical vs. Circular Structures

A hierarchical structure is very traditional and the most common type of organizational structure. This type of structure is shaped like a pyramid, with one role at the top and then the chain of command being spread down below. It usually goes from board directors to C-level executives, senior management, middle management and general employees. A hierarchical structure allows businesses to streamline communication, authority and processes transparently. 

On the other hand, a circular structure takes leaders off the top and puts them in the middle, with management and lower-level employees circling. This way, instead of leaders at the top of the pyramid sending information down the chain of command, it gets sent outward. This promotes more collaboration and communication among teams and employees.

Vertical vs. Flat Organizational Structures

A vertical organizational structure has a clear chain of command with leaders at the top, whereas a flat organizational structure has employees reporting to more than one manager and promotes more lateral career moves. 

A vertical organizational structure would be similar to a hierarchical or circular structure where there is a clear hierarchy of leadership and managers versus employees, and authority and responsibility decreases the lower down the chain you go. A flat organizational structure usually has fewer management or leadership tiers, allowing employees to have more cross-departmental responsibilities and input in decisions. Matric structures are often flat organizational structures.

Key Elements of Organizational Structure

Regardless of the type of structure, all organizational structures have key, basic elements.

• Chain of command: Passing of instructions, reporting and decision-making within the organization
• Roles and responsibilities: Identify work specializations within the organizational structure and how they’re split amongst employees in teams and projects
• Scope of control: Regulates the number of direct reporters managed by a single supervisor and depends on the chain of command and distribution of roles and responsibilities within the organization
• Decision-making authority: Determines whether the structure is either centralized or decentralized, depending on what is most beneficial for the organization, its goals and the type of teams
• Departments and teams: All organizational structures will divide employees and management into their own departments and teams that will be reflected in the chosen structure

Benefits of Intentional Organizational Structure

Intentional organizational structure provides numerous benefits for an efficient and thriving workplace. By deliberately designing roles, hierarchies and communication channels, organizations can enhance clarity, ensuring that employees understand their responsibilities and how they contribute to overall goals. This intentional structuring also promotes effective coordination and collaboration, minimizing ambiguity and confusion regarding reporting relationships and decision-making processes. Moreover, a well-thought-out organizational structure supports strategic alignment, enabling the optimal allocation of resources and adapting to evolving business environments.

Choosing the Best Organizational Structure

There is no organizational structure that’s better than the other. There’s only the right organizational structure for your business, so it’s important to choose what’s going to be the best structure to support your current team and company objectives. When choosing the right organizational structure for your business, some things to consider are:

• The current teams and roles within your company. Look at how roles are currently organized and how responsibilities are divided. Do current structures promote clear communication, efficient productivity and employee growth? 
• Company goals and objectives. It’s important to always keep in mind your company’s goals and objectives and the strategic plans in place to meet them to determine what structure will best support reaching those goals and align with the plans in place.
• Employee and management feedback. Getting feedback from employees and leadership about what structures would support communication, decision-making, productivity and collaboration is crucial for choosing a structure your staff will thrive in.

It’s important to note that the organizational structure you choose now doesn’t have to be the one you stick with forever. As your company grows, the team evolves and business objectives change, you can adapt your organizational structure to grow with the company to meet its needs in every phase of business.

The Bottom Line

Organizational structure styles, whether functional, divisional, matrix, team-based, circular or network, each come with distinct advantages and challenges. The key lies in aligning the chosen structure with company-specific factors such as size, industry, culture and strategic goals. To determine the best approach, you should assess your company’s unique needs, considering factors like company size, industry dynamics and the level of interdepartmental collaboration required. Flexibility and adaptability are crucial; an organization might evolve its structure over time to remain responsive to changing internal and external conditions.

Frequently Asked Questions

What are the pros and cons of a functional organizational structure?

A functional organizational structure allows employees to focus on their specific roles and skill sets, making it easier for companies to scale internally. However, this structure can create silos within the company and impede interdepartmental communication.

What is the difference between a divisional and matrix structure?

While a divisional structure organizes departments based on products, markets or geographic regions, a matrix structure blends elements of both functional and divisional structures, allowing employees to report to both functional and project managers simultaneously.

How do you determine if a flat or team-based structure is better for your company?

To determine if a flat or team-based structure is better for your company, consider factors such as the size of the organization, the need for rapid decision-making, the importance of cross-functional collaboration, and the level of autonomy and empowerment desired among employees.

What is an example of a company with a circular organizational structure?

MorningStar, an American food processing company, is an example of a company with a circular organizational structure, emphasizing self-management and a lack of traditional hierarchy, allowing employees to operate without formal titles and reporting relationships.

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Top 10 Organizational Plan Templates with Samples and Examples

Taranjeet Singh

Organizational plans are the foundation upon which companies build their strategies, set their objectives, and chart their course toward success. Did you know organizations with well-defined plans are 50% more likely to achieve their goals and objectives? It's no secret that a well-structured plan can be the key to success in business and management.

The Importance of Organizational Plans

Organizational plans are the blueprints that guide an organization toward its goals and aspirations. These plans outline the structure, roles, and responsibilities of individuals within the organization, ensuring that everyone is on the same page.

Fast-track your success to the next level with our coaching action plan templates .

These actionable plans provide a clear direction for the company, helping to prioritize tasks and allocate resources efficiently. In essence, organizational plans are the roadmaps that lead businesses to their desired destinations.

Organizational Plan Templates from SlideTeam: Your Solution

Creating a plan from scratch can be demanding, especially when dealing with complex structures or tight timelines. But the question is, how can you create an effective plan that aligns your team and maximizes your chances of success?

The answer is Organizational Plan Templates from SlideTeam.

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These PowerPoint templates offer a comprehensive and visually appealing framework for developing organizational plans.

Moreover, these templates are designed to be flexible, allowing you to customize them to suit your requirements. They provide the structure and the guidance, but you have the creative freedom to make them your own.

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In the fast-paced business world, time is of the essence, and with our powerpoint templates , you can save valuable hours and focus on your business. You can focus on what truly matters – strategizing, communicating your vision, and guiding your team towards success.

In this blog, we will explore how SlideTeam's templates work and provide practical tips for leveraging these templates to maximize the efficiency and clarity of your organizational planning. Let’s begin!

Template 1: Organizational Planning PowerPoint Deck

With over 35 information-packed slides, this PowerPoint deck supports your decision-making and improves your company's performance. Explore vital aspects of your organization's current situation with dedicated slides that showcase key performance indicators (KPIs), including attraction KPIs, value KPIs, retention KPIs, and engagement KPIs. Assess your organization's readiness for development using a handy checklist, and gain a clear understanding of the organizational development framework, encompassing the "why," "what," and "how" of growth. Additionally, the deck provides insights into the selection of management styles, highlighting their features and their impact on your organization's success rate. Identify areas for improvement with a specialized slide on management skills training, outlining employees' needs, goals, and estimated training costs. Download our PowerPoint deck and take your strategic development to the next level.

Download Now!

Template 2: Strategic Organizational Plan for Leadership Development PowerPoint Theme

This powerful one-page presentation delivers all the essential information for effective leadership development. It is structured to help you outline leadership goals, strategies, Key Performance Indicators (KPIs), and target dates with utmost clarity and conciseness. Download this PowerPoint theme today to streamline your leadership development efforts and drive success.

Template 3: Approach And Activities to Restructure Organizational Plan PowerPoint Layout

This PowerPoint presentation is divided into three critical sections, each offering strategic insights and actionable steps.

The first section, "Operational and Commercial Due Diligence," provides a detailed overview of assessing your organization's current state and identifies key areas that require attention.

The second section, "First 100 Days - Successfully Takeover Control," is a roadmap for the initial restructuring phase, ensuring a seamless transition of power.

The third section, "Restructuring + Interim Management," delves into the core activities required to implement structural changes efficiently.

Download our PowerPoint Set to make informed decisions to restructure your organization effectively.

Template 4: Organizational Planning Process for Virtual Terrorism PowerPoint Preset (to avoid it)

This presentation unfolds a strategic roadmap in four concise steps. Step 1 involves an overall analysis of your work culture's vulnerabilities and threats related to virtual terrorism. Step 2 delves into establishing a robust cybersecurity framework, a cornerstone for your defense. Step 3 helps you identify and define the specific programs required to enhance your cybersecurity measures. Finally, Step 4 guides you in documenting and formalizing your cybersecurity program, ensuring its continuity and accountability. Download the C yber Security PPT PowerPoint Deck to fortify your defenses.

Template 5: Strategic Perspective for Effective Organizational Planning PowerPoint Template

This presentation offers a unique approach, presenting a three-pronged strategy to navigate the intricate world of strategic planning. Hindsight, the first perspective, empowers you to meticulously analyze the past and determine its impact on your organization.

Insight, the second perspective, delves deep into discovering organizational problems. Identify their root causes, enabling you to address issues at their core rather than merely addressing surface-level symptoms.

Foresight, the final perspective, equips you to construct a forward-thinking strategy to alleviate the impact of identified problems. By taking a proactive approach, you can make sure that your organization remains resilient and agile in the face of future challenges.

Download this PPT Slide and transform your organizational planning into a strategic powerhouse.

Template 6: Manual Steps for Strategic Organizational Planning PowerPoint Layout

This PowerPoint Layout is the definitive resource for professionals seeking a strategic edge in organizational planning. It offers a concise and compelling roadmap comprising eight essential manual steps to guide you through the strategic planning process.

Each step is designed to provide a proper understanding of the strategic planning journey, ensuring that your organization moves forward with clarity and precision. This template equips you with the knowledge and tools required for effective decision-making, aligning your team's efforts towards common objectives.

With its clear and concise content, this slide is your trusted companion for strategic organizational planning.

Download this invaluable resource now and steer your organization towards a prosperous future.

Template 7: 6 Stage Cycle of Organizational Planning Process PowerPoint Preset

This PPT presentation highlights the six critical stages of the planning process, offering a structured approach to help your organization reach its goals.

Starting with the crucial initial step of setting clear objectives, this template guides you through gathering relevant data, followed by a meticulous information analysis. Once data has been thoroughly examined, the presentation assists in creating a well-structured plan, ensuring your strategy aligns perfectly with your objectives.

The implementation phase is detailed, providing valuable insights into effectively putting your plan into action. Finally, the monitoring stage is presented to help you track and evaluate your plan's progress, ensuring adjustments can be made as needed.

Download it now to equip your team with a clear and concise roadmap to success.

Template 8: 5 Elements for Organizational Planning and Objectives PowerPoint Template

This PowerPoint presentation is designed to streamline your organizational planning and objectives by highlighting five critical elements: Plan, Objectives, Innovation, Monitoring, and Investment. With a concise slide, it provides a straightforward and highly usable resource for conveying key concepts to your team or stakeholders. It simplifies complex ideas and helps you convey the essence of your strategic vision. Download the template and empower your presentations with clarity, simplicity, and impact.

Download Now

Template 9: Multiple Organizational Projects Plan Report PowerPoint Layout

This PowerPoint presentation is an invaluable tool for presenting and tracking multiple projects within your organization.

Our template provides a clear, concise, and data-driven overview of your projects, including project details such as tasks, status, owner, assigned team members, anticipated start and end dates, actual end dates, estimated costs, and actual costs. With this comprehensive report, you can easily monitor the progress of your projects, ensuring that they stay on track and within budget.

Download PowerPoint template and take control of your projects like never before.

Template 10: One Pager IT Company Strategic Organizational Plan in Entrepreneurship PowerPoint Presentation

This dynamic and informative presentation offers an overview of your IT company's strategic roadmap, designed to propel your business to new heights.

In this presentation, you will find a thorough company overview showcasing your mission, values, and competitive advantage, allowing your audience to understand your organization's core principles. Dive into your organization-wide strategies, which outline the path to success.

The strategic organizational goals section breaks down your financial, customer, international/operational, people, and learning objectives, guiding your team towards clear, actionable targets. Additionally, our presentation includes an easily navigable organizational chart, providing insight into your company's structure and hierarchy.

Download this template to bring your strategic vision to life.

In exploring Organizational Plan Templates from SlideTeam, we've seen how these powerful tools can elevate your business planning. With their ready-made structure and visual appeal, these templates simplify crafting robust organizational plans, allowing you to focus on the essence of your strategy. By implementing these templates, your organization gains a more precise direction, smoother communication, and better resource allocation. Embrace the future with a well-defined roadmap, and watch your organization thrive.

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What Is an Organizational Structure?

Understanding an organizational structure, centralized vs. decentralized organizational structures, types of organizational structures, benefits of organizational structures, the bottom line, organizational structure for companies with examples and benefits.

Ariel Courage is an experienced editor, researcher, and former fact-checker. She has performed editing and fact-checking work for several leading finance publications, including The Motley Fool and Passport to Wall Street.

Investopedia / Julie Bang

An organizational structure is a system that outlines how certain activities are directed in order to achieve the goals of an organization. These activities can include rules, roles, and responsibilities.

The organizational structure also determines how information flows between levels within the company. For example, in a centralized structure, decisions flow from the top down, while in a decentralized structure, decision-making power is distributed among various levels of the organization. Having an organizational structure in place allows companies to remain efficient and focused.

Key Takeaways

• An organizational structure outlines how certain activities are directed to achieve the goals of an organization.
• Successful organizational structures define each employee's job and how it fits within the overall system.
• A centralized structure has a defined chain of command, while decentralized structures give almost every employee receiving a high level of personal agency.
• Types of organizational structures include functional, divisional, flatarchy, and matrix structures.
• Senior leaders should consider a variety of factors before deciding which type of organization is best for their business, including the business goals, industry, and culture of the company.

Businesses of all shapes and sizes use organizational structures heavily. They define a specific hierarchy within an organization. A successful organizational structure defines each employee's job and how it fits within the overall system. Put simply, the organizational structure lays out who does what so the company can meet its objectives.

This structuring provides a company with a visual representation of how it is shaped and how it can best move forward in achieving its goals. Organizational structures are normally illustrated in some sort of chart or diagram like a pyramid, where the most powerful members of the organization sit at the top, while those with the least amount of power are at the bottom.

Not having a formal structure in place may prove difficult for certain organizations. For instance, employees may have difficulty knowing to whom they should report. That can lead to uncertainty as to who is responsible for what in the organization.

Having a structure in place can help with efficiency and provide clarity for everyone at every level. That also means each and every department can be more productive, as they are likely to be more focused on energy and time.

An organizational structure is either centralized or decentralized. Traditionally, organizations have been structured with centralized leadership and a defined chain of command. The military is an organization famous for its highly centralized structure, with a long and specific hierarchy of superiors and subordinates. In a centralized organizational system, there are very clear responsibilities for each role, with subordinate roles defaulting to the guidance of their superiors.

There has been a rise in decentralized organizations, as is the case with many technology startups . This allows companies to remain fast, agile, and adaptable, with almost every employee receiving a high level of personal agency. For example, Johnson & Johnson is a company that's known for its decentralized structure.

As a large company with over 200 business units and brands that function in sometimes very different industries, each operates autonomously. Even in decentralized companies, there are still usually built-in hierarchies (such as the chief operating officer operating at a higher level than an entry-level associate). However, teams are empowered to make their own decisions and come to the best conclusion without necessarily getting "approval" from up top.

Functional Structure

Four types of common organizational structures are implemented in the real world. The first and most common is a functional structure. This is also referred to as a bureaucratic organizational structure and breaks up a company based on the specialization of its workforce. Most small-to-medium-sized businesses implement a functional structure. Dividing the firm into departments consisting of marketing, sales, and operations is the act of using a bureaucratic organizational structure.

Divisional or Multidivisional Structure

The second type is common among large companies with many business units. Called the divisional or multidivisional (M-Form) structure, a company that uses this method structures its leadership team based on the products, projects, or subsidiaries they operate. A good example of this structure is Johnson & Johnson. With thousands of products and lines of business, the company structures itself so each business unit operates as its own company with its own president.

Divisions may also be designated geographically in addition to specialization. For instance, a global corporation may have a North American Division and a European Division.

Similar to divisional or functional structures, team-based organizations segregate into close-knit teams of employees that serve particular goals and functions, but where each team is a unit that contains both leaders and workers.

Flat (Flatarchy) Structure

Flatarchy, also known as a horizontal structure, is relatively newer, and is used among many startups. As the name alludes, it flattens the hierarchy and chain of command and gives its employees a lot of autonomy. Companies that use this type of structure have a high speed of implementation.

Matrix Structure

Firms can also have a matrix structure. It is also the most confusing and the least used. This structure matrixes employees across different superiors, divisions, or departments. An employee working for a matrixed company, for example, may have duties in both sales and customer service .

Circular Structure

Circular structures are hierarchical, but they are said to be circular as it places higher-level employees and managers at the center of the organization with concentric rings expanding outward, which contain lower-level employees and staff. This way of organizing is intended to encourage open communication and collaboration among the different ranks.

Network Structure

The network structure organizes contractors and third-party vendors to carry out certain key functions. It features a relatively small headquarters with geographically-dispersed satellite offices, along with key functions outsourced to other firms and consultants.

Putting an organizational structure in place can be very beneficial to a company. The structure not only defines a company's hierarchy but also allows the firm to lay out the pay structure for its employees. By putting the organizational structure in place, the firm can decide salary grades and ranges for each position.

The structure also makes operations more efficient and much more effective. By separating employees and functions into different departments, the company can perform different operations at once seamlessly.

In addition, a very clear organizational structure informs employees on how best to get their jobs done. For example, in a hierarchical organization, employees will have to work harder at buying favor or courting those with decision-making power. In a decentralized organization, employees must take on more initiative and bring creative problem solving to the table. This can also help set expectations for how employees can track their own growth within a company and emphasize a certain set of skills—as well as for potential employees to gauge if such a company would be a good fit with their own interests and work styles.

What Are Some Types of Organizational Structures?

The four types of organizational structures are functional, multi-divisional, flat, and matrix structures. Others include circular, team-based, and network structures.

What Are the Key Elements of an Organizational Structure?

Key elements of an organizational structure include how certain activities are directed in order to achieve the goals of an organization, such as rules, roles, responsibilities, and how information flows between levels within the company.

What Is an Organizational Structure Example?

An example of an organizational structure is a decentralized structure, which gives individuals and teams high degrees of autonomy without needing a core team to regularly approve business decisions. A good example of this decentralized structure is Johnson & Johnson. With thousands of products and lines of business, the company structures itself so each business unit operates as its own company with its own president.

What Is an Organizational Structure Chart?

Organizational structures are normally illustrated in some sort of chart or diagram like a pyramid, where the most powerful members of the organization sit at the top, while those with the least amount of power are at the bottom.

What Is the Best Organizational Structure?

There is no one best organizational structure, as it depends on the nature of the company and the industry it operates in.

There are entire fields of study based on how to optimize and best structure organizations to be the most effective and productive. Senior leaders should consider a variety of factors before deciding which type of organization is best for their business , including the business goals, industry, and culture of the company.

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Organizational Structure in Business Plan Example: Best Practices and Templates

• June 24, 2022
• digitalpitakoppa

Discover the Perfect Organizational Structure for Your Business Plan

Are you in the process of creating a business plan and wondering what Organizational Structure to use? Look no further! In this blog post, we`ll explore different Organizational Structures and provide you with a real-life example to help you make the best decision for your business.

Understanding Organizational Structure

Organizational structure refers to the way in which a company`s activities are divided, organized, and coordinated. It defines the hierarchy, reporting relationships, and distribution of responsibilities within an organization. Choosing the right organizational structure is crucial for the success of your business, as it affects communication, decision-making, and overall efficiency.

Example of Organizational Structure in a Business Plan

Let`s take look Example of Organizational Structure in a Business Plan tech startup:

Benefits of This Organizational Structure

This hierarchical structure provides clear reporting lines and accountability, allowing for efficient decision-making and streamlined communication. Each department is led by an experienced leader who is responsible for driving the success of their respective area. This structure is ideal for a growing tech startup, as it allows for flexibility and agility while maintaining a focus on innovation and growth.

When creating your business plan, carefully consider the organizational structure that best aligns with your business goals, industry, and size. By choosing the right organizational structure, you can set your business up for success and ensure that your team is positioned to perform at their best.

We hope this example and information have been helpful in guiding you towards making the best decision for your business plan. If you have any questions or need further assistance, feel free to reach out to us.

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How to build an organizational development plan: a comprehensive guide (+template), share this article.

Discover the power of strategic organizational development with our comprehensive plan and access a comprehensive template. Learn how to assess your company's current state, set strategic objectives, and create targeted action plans for growth.

Trying to keep up with the constant changes in the market sometimes feels like you’re a tortoise in a race full of hares. But the tortoise won the race in the end, and by taking the time for proper planning and organization, your organization can too.

Organizational development, or OD, is a process of planned change that seeks to increase the effectiveness and efficiency of an organization. An organizational development plan (ODP) is a comprehensive document that outlines how an organization will go about achieving its goals and objectives. 

It includes strategies for improving overall performance, developing employee skills, increasing customer satisfaction, and more. The ODP allows companies to identify their current strengths and weaknesses to create meaningful plans for improvement. 

By having a clearly-defined plan in place, organizations measure progress over time and make necessary adjustments as needed. An effective OD plan makes an organization more efficient, productive, competitive, and profitable. 

The benefits of implementing an organizational development plan include: 

• Improved employee morale
• Increased collaboration among staff
• Reductions in costs associated with reorganizations or restructurings
• Enhanced customer service levels
• Higher levels of productivity
• Improved communication among staff and management
• More efficient use of resources

Skip ahead:

Assessing Organizational Needs and Readiness

Defining organizational development goals and objectives, identifying key focus areas for improvement, action planning and implementation, monitoring and evaluation, sustaining organizational development, organizational development plan template, case studies and success stories, frequently asked questions.

The first step in crafting an ODP is conducting a thorough organizational analysis. This process involves examining the organization’s current state, including operational effectiveness, efficiency, customer satisfaction, employee engagement, and other relevant areas. Gaining a clear understanding of what requires improvement allows the organization to prioritize its efforts accordingly.

Consideration of External Factors

In addition to assessing internal aspects of the organization, it’s crucial to consider external factors that may impact performance – such as economic conditions or industry trends. By taking these outside influences into account when developing plans for growth and competitiveness can help ensure success.

SWOT Analysis

After completing a comprehensive analysis, organizations should use these findings to conduct a SWOT analysis – identifying strengths and weaknesses along with any opportunities or threats present. This information helps create strategies for capitalizing on strengths while minimizing or mitigating weaknesses as well as recognizing potential new revenue sources or competitive advantages.

Developing an Effective ODP

An effective ODP should include concrete steps addressing issues identified through the assessment process (organizational analysis and SWOT). It’s essential to take both internal factors (e.g., company culture, employee morale) and external forces (e.g., competition in the marketplace) into consideration during plan development so that adjustments can be made accordingly for maximum effectiveness.

The second step in crafting an ODP involves defining the organization’s goals and objectives, which will inform decisions about strategy implementation, resource allocation, and progress measurement. It is crucial to establish measurable, clear goals that align with the organization’s values and mission statement for easy progress tracking over time.

SMART Objectives

Once the overall goals are set, organizations should formulate SMART objectives – Specific, Measurable, Attainable, Relevant, and Time-bound targets. These criteria ensure that achievable targets are established while enabling organizations to evaluate their progress with tangible results. Moreover, these objectives should align with broader organizational goals to guarantee advancement towards larger ambitions.

Aligning Goals with Vision and Mission

Organizations must also ensure that their defined goals and objectives resonate with their vision and mission statements. This alignment allows organizations to optimize resource utilization in achieving overarching aspirations effectively.

Enhancing Decision-Making through Clarity

A comprehensive understanding of an organization’s desired direction facilitates improved decision-making when implementing strategies for growth or improvement. Setting clear organizational development goals aligned with a company’s vision and mission statement, along with well-defined SMART objectives, will enable organizations to navigate successfully throughout the entire process.

The third step in crafting an ODP involves pinpointing key areas for improvement based on the organization’s overall goals and objectives. Both short-term and long-term objectives should be considered when determining focus areas. Involving employees in this process can yield valuable insights into the current state of the organization and potential improvement points.

Developing Targeted Strategies 

After identifying focus areas, organizations can start formulating strategies and initiatives tailored to their specific needs, taking into account existing capabilities and resources. These strategies must be realistic and achievable to ensure success, with employee participation providing valuable input on potential solutions.

Allocating Resources Effectively

Organizations need to determine resource allocation – both financial and human – for each initiative while considering associated costs to maximize efficiency in resource use. Additionally, it is essential to provide adequate training and support for employees involved in implementing these strategies.

Establishing Key Performance Indicators (KPIs)

Lastly, setting up KPIs helps measure the success of implemented strategies over time, allowing organizations to track progress or make necessary adjustments as needed. Common KPIs include customer satisfaction, employee engagement, productivity, and profitability.

An effective ODP should consist of actionable steps to achieve desired outcomes. Break down large strategies into smaller tasks with specific timelines to keep the plan on track and ensure everyone is aware of their responsibilities. Establishing milestones also helps teams stay motivated and measure success over time.

Assigning Roles and Deadlines

Once the plan is broken down into manageable tasks, assign specific responsibilities and deadlines for each step. This approach ensures team members understand their roles in achieving desired outcomes while maintaining motivation through clear expectations.

Communication and Change Management Plans

Develop communication plans to keep all stakeholders informed about progress, allowing team members to voice opinions or suggest changes if needed. A concise communication plan promotes seamless organizational change implementation by ensuring everyone remains aligned at all times.

Risk Mitigation through Change Management

A well-defined change management plan enables teams to identify potential risks early in the process so they can be addressed proactively before becoming issues that could hinder progress.

Building Support among Stakeholders

Engage both internal (employees) and external (customers, suppliers, partners ) stakeholders throughout the planning process for widespread support of your ODP’s goals—this builds a sense of ownership that sustains motivation across all parties involved.

A crucial aspect of a successful ODP is setting measurable, specific, realistic, achievable, and timely goals that align with the organization’s values and mission statement. These metrics serve as benchmarks for measuring progress over time.

Tracking Progress and Milestones

Track progress by regularly assessing the organization’s current state against the ODP’s goals and objectives – enabling the identification of improvement areas or potential roadblocks. Monitoring also allows leadership to acknowledge successes while motivating employees toward further achievements.

Conducting Regular Reviews 

Perform regular reviews to examine organizational performance against established metrics, analyze successes and failures, and identify improvement areas or new growth opportunities – all while making necessary adjustments accordingly.

Maintaining Flexibility in ODPs 

Organizational development plans should remain adaptable based on evolving needs. If progress isn’t being made toward set objectives within the ODP framework, consider changes such as altering processes and procedures, adding staff members, or implementing new technologies.

For organizational development to have a lasting impact, it’s crucial to seamlessly integrate the plan into every aspect of company culture. Begin by clearly communicating the plan’s objectives and strategies to employees, ensuring they understand how their roles contribute to achieving these goals. 

Encourage open dialogue about why specific changes are necessary for both individual growth and overall success. By fostering a transparent environment, you’ll cultivate employee buy-in and facilitate smoother transitions throughout your organization.

Empowering Employees with Resources

Support your team by offering diverse resources tailored to their needs, like customized training programs , engaging workshops, insightful seminars, mentorship opportunities, or access to online learning platforms. 

Providing these tools ensures everyone stays aligned with your vision while knowing what they need to do for collective triumph. Empowering employees with resources helps them feel valued and nurtures personal growth that benefits the organization as a whole.

Cultivating a Learning Environment

Embrace a culture that prioritizes continuous learning and improvement at all levels within your organization. By regularly assessing processes and investing in employee skill development through targeted training initiatives or knowledge-sharing sessions, you’ll stay agile in today’s rapidly evolving business landscape. An ongoing commitment to nurturing talent will not only help attract top candidates but also retain existing talent eager for professional growth.

Acknowledging Accomplishments

It’s essential not just to celebrate major milestones but also to recognize small wins along the way; these acknowledgments fuel motivation, boost morale, and strengthen unity within an organization. In team settings where collaboration is key, recognizing personal contributions fosters camaraderie across all levels while encouraging further cooperation among coworkers.

Sharing success stories internally via newsletters or social media channels can inspire others on how their efforts play an essential role in achieving common goals – ultimately creating a positive feedback loop that benefits everyone involved.

Adapting Through Feedback Loops

Establish feedback loops to fine-tune your organizational development plans (ODP) effectively. These can involve employee surveys, one-on-one meetings, or regular team debriefs where employees openly discuss progress made and any challenges encountered. This regular input from employees helps identify areas needing improvement while adjusting ODPs accordingly.

To get started implementing your plan quickly, try this handy organizational development plan template .

This organizational development plan template provides a comprehensive structure for planning and implementing your organization’s development initiatives. You can customize the template to suit your organization’s specific needs and objectives.

The template also comes with charts for the ten organizational development plan frameworks.

These fillable templates can help you apply each of the ten organizational development frameworks to your organization. Customize them to suit your organization’s specific needs and objectives.

Organizational development plans can be implemented across many different industries. 

Marriott International, a prominent player in the hospitality industry, implemented an organizational development plan (ODP) aimed at enhancing customer satisfaction and loyalty. Leveraging data analytics to pinpoint areas needing improvement, they devised targeted strategies that led to significant growth in customer ratings and an 8% increase in overall profits.

Enhancing Patient Experience in Healthcare

In healthcare, Kaiser Permanente created an ODP encompassing process improvements and employee training initiatives to elevate patient satisfaction levels. This comprehensive strategy resulted in their patient experience scores soaring from an already impressive 84% satisfaction rate to a remarkable 94%.

Streamlining Manufacturing Processes

Toyota’s manufacturing sector adopted an ODP focused on augmenting quality, efficiency, and safety. Consequently, the company reduced production costs by 10% while simultaneously increasing customer satisfaction levels by 7%.

The Key to Successful Organizational Development Plans

These success stories illustrate how effective ODPs can benefit organizations across various industries. A well-crafted plan enables companies to monitor progress over time and make necessary adjustments as required.

For optimal results, it’s crucial for ODPs to be tailored specifically for each organization – identifying areas needing improvement while addressing potential obstacles that may hinder growth. Managers play a pivotal role here, ensuring employees comprehend the plan’s objectives and their individual roles within its execution.

Regularly measuring progress allows businesses to stay current with industry trends or internal changes within their organization and make adjustments or updates when needed accordingly.

Finally, communication is essential to keep all stakeholders informed of ongoing progress and fosters transparency while maintaining motivation toward achieving shared goals. 

Organizational development plans are a valuable tool for any type of organization. By creating an ODP, organizations can identify their current strengths and weaknesses to create meaningful plans for improvement. 

An effective OD plan should be tailored to an organization’s needs and goals, measure progress over time, communicate results regularly with all stakeholders involved, and make necessary adjustments or changes if needed. 

With careful planning and implementation, an organizational development plan increases performance, develops employee skills, increases customer satisfaction levels, reduces production costs, improves safety standards, and much more.

Download the Organizational Development Plan Framework: Propel Your Company’s Growth

Drive the growth and success of your organization with our comprehensive Organizational Development Plan Framework. This essential resource provides a structured approach to strategically enhance your company’s capabilities and maximize its potential.

Q. What is an organizational development plan? 

An organizational development plan (ODP) is a comprehensive document that outlines how an organization will achieve its goals and objectives. It includes strategies for improving overall performance, developing employee skills, increasing customer satisfaction, and more. 

Q. Why is an organizational development plan important for businesses? 

An organizational development plan improves performance and gets organizations closer to their goals. It provides a roadmap for the organization to follow to achieve success. 

The ODP outlines specific strategies to implement, such as training programs , process improvements, or changes in organizational culture. Having an effective plan will ensure that resources are allocated properly and progress is monitored over time.

Q. How do I assess the needs and readiness of my organization for development?

Assessing needs and readiness involves evaluating current performance, analyzing data on employee engagement and satisfaction, identifying areas where improvement is needed, and understanding the organization’s goals. 

It also requires looking at external factors that could affect your business such as changing customer demands or market trends. Once you have completed this assessment process, you will be better prepared to develop a comprehensive plan for achieving organizational success. 

Q. What are the key components of an effective organizational development strategy?

The key components of an effective organizational development strategy include: 

• Establishing a vision and mission statement
• Developing core values and objectives that align with the company’s vision and mission statement
• Identifying areas of improvement within the organization and developing plans to address them
• Implementing an effective communication plan
• Measuring progress against established benchmarks to determine success
• Evaluating and revising the ODP as needed based on feedback

Q. How do I implement an organizational development plan within my organization?

Implementing an ODP requires a comprehensive analysis of your current organizational structure and processes. This means assessing the strengths and weaknesses of your current system to identify areas for improvement. 

Once you have identified these areas, you can develop strategies for making improvements. These strategies should be tailored to your organization’s specific needs and goals and may include changes to policies, procedures, or even technology. 

Additionally, all stakeholders must be involved in the development process so that they understand why these changes are being made and how they will benefit them.

Q. How can I measure the effectiveness of an organizational development plan?

Organizational development plans should be evaluated regularly to determine if they are achieving their intended outcomes. Different metrics can be used depending on the type of plan, such as customer satisfaction surveys, employee engagement surveys, and performance reviews. Financial statements and other key performance indicators (KPIs) can give insight into an organization’s overall progress, too.

Q. Are there any templates available for creating an organizational development plan?

There are many templates available online that you can use to create an organizational development plan. These templates usually include sections for objectives, strategies, and action plans. They also offer guidance on what information to include in each section. This template is a fantastic resource for starting your ODP.

Q. Can you provide examples of organizations that have successfully implemented an organizational development plan?

Google has used an ODP to develop its internal structure and culture to create a more collaborative and innovative workplace. Similarly, Amazon has used OD plans to increase customer satisfaction by streamlining processes and creating better communication channels between employees and customers. Apple Inc. has also regularly utilized OD plans to update its product lines for maximum customer appeal and profitability.

Daniela Ochoa is the go-to Content Marketing Specialist here at Thinkific Plus! With years of experience in marketing and communications, she is passionate about helping businesses grow through strategic storytelling, innovative digital campaigns, and online learning at scale.On this blog, she shares her expertise in content marketing, lead generation, and more.

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4 Matrix Organizational Structure Examples (+ Benefits and Templates)

November 22, 2022

If you’re struggling with managing multiple teams and projects, a matrix organization structure can make all the difference. In layman’s terms, the matrix organizational structure is just a way of relaying information between all team members across multiple departments. 

For instance, members of different teams report to project and functional managers (marketing, finance, production managers, and so on), who then report to the chief executive officer. 

This improves cross-team communication and eliminates the need for team members to align or realign whenever a new project kicks off. 

So if you want to know the following:

• What a matrix organization structure is
• The different types of matrix structures
• Why it’s a better way of running projects
• How to build your own matrix
• Some critical examples from prominent companies 

Then you’ll love this in-depth guide. 

Ready to enter the matrix? Let’s get started.

What is a Matrix Organizational Structure?

How does a matrix organizational structure operate and what are the benefits, 1. philips example, 2. starbucks example, 3. engineering and marketing department, 4. advertising agency example.

In the classic, top-down organizational structure, the CEO stands at the very top while the COO (chief operating officer), CFO (chief financial officer), and department managers come next. 

In a horizontal structure, copywriters report to the creative director, who reports to the CMO, who then reports to the CEO. You get the point. Reporting is linear, and everyone from marketing, sales, design, and development, to finance and HR teams follow the same reporting structure.

The traditional top-down structure is less complex than the matrix organizational structure. For one, the matrix organization structure may involve team members reporting to both their department and functional manager and project managers that also report to their department managers.

That’s why the top-down organizational structure is tree-like while the matrix organizational structure has a rectangular shape. 

It’s worth mentioning that the matrix organizational structure unites and balances out several types of organizational structures. It brings in project managers a new chain of command besides functional managers, which is why some like to name it the two-boss matrix. 

Working on large-scale projects where a diverse set of talent is included, project managers:

• Manage talent across departments and create solid and diverse project teams,
• Maximize the resources that are already at their disposal,
• Help everyone realize how essential teamwork is, and encourage team members to collaborate, communicate, and deliver on time and within budget. 

Ultimately, this contributes to creating better copy, products, and customer experience. 🤝

Types of matrix organizational structures

Matrix organizational structures can be either weak, balanced, or strong, depending on how the power between project and functional managers is deployed. 

However, don’t be led by the names since a weak matrix is not necessarily worse than the strong one, which differs from project to project, from one company to another, and these roles are rather fluid. 

Project managers have very little authority and decision-making power in a weak matrix. This kind of matrix is named weak because functional managers are in charge of the project budget and timeline, and project managers’ authority is super limited.

In balanced matrix structures, team members report to department and project managers with equal power and authority. The balanced matrix could be the best one since it eliminates the potential clashes between leaders, keeps communication open, and makes it easy to get to successful project delivery. 

As you can already conclude, in a strong matrix, project managers have more authority than functional managers to allocate resources properly and plan budgets with a free hand.

Some people find the matrix structure either confusing or overwhelming simply because it typically involves several chains of commands and multiple reporting structures. The truth is, it’s way less complicated than it seems at first! 

If you create a thoughtful project plan , assign and manage assets most efficiently, and develop a communication plan, you’ll be good. 👌 

Team and cross-team collaboration and shared resource planning result in higher productivity rates within most matrix organizations. The matrix structure makes up for the weaknesses of the single-boss structure, and this duality of authorities can contribute to better products or services. 

Now, let’s take a look at some of the benefits of implementing a matrix organizational structure!

Fosters cross-departmental communication

Unlike the top-down-organizations, the matrix structure encourages communication between team members and their respective functions and project managers.

We know dealing with two (or sometimes even more) managers and reporting to them may sound a bit off. However, engaging with key decision-makers can actually facilitate the exchange of information and expertise and improve organization-wide relationships. 

 Scheduling appointments regularly is a great option to strengthen the coordination process, big time. 

Improves employee engagement

Being a part of multiple teams and reporting to multiple managers increases employee engagement . The reason for this is simple. It makes them feel like an active part of any project. Employees love when they can make a difference and contribute to getting the project from start to finish. 

Other than that, by recruiting internally, you will save some money you’d otherwise spend on overhead costs if you’d hire new staff every time you’d work on a new product or service. 

This also gives your employees a chance to break the monotony of their work routine, helps them expand their skill set, achieve goals at a faster pace , and deliver projects faster too. 

Allows leaders to set clear project goals

Reporting progress to department heads and project managers and reporting to senior management contributes to achieving greater clarity on objectives, solidifying project goals, and delivering faster. 

Strengthens teamwork

The matrix allows team members to establish dynamic connections with each other and stimulates the development of creative ideas, all of which lead to enhanced and seamless team collaboration. 

4 Matrix Organizational Structures Use-Cases and Examples

In this section, we’ll go through four use cases and examples of matrix organizations to see how other successful companies have implemented this approach. These examples were all created using the ClickUp Whiteboard feature, where you can start with a blank canvas or use one of ClickUp’s templates to help you get started quicker!

This example visually explains something we’ve already mentioned in one of the previous sections. The matrix organization has a rather triangular shape, while the top-down organization has a tree-like shape. 

Thus, in the first example, you can see that sales, finance, and IT teams report to commercial, finance, and technology managers, that then report to both the national organization and product division (PD). This explains those two chains of commands that were also mentioned several times throughout the article. 

The second example displays reporting to a single authority. Sales, finance, and IT teams report to commercial, finance, and technology managers, who report to the national organization that reports to the product division. 

Here’s an example of how Starbucks applies the matrix organizational structure. We used the Whiteboard to visually represent the reporting structure the most popular coffeehouse applies to their business. ☕

Let’s imagine that these four geographic divisions (North America, Asia, Latin America, and EMEA) are project managers. 

So, we have senior VPs who report to executive VPs who report to group presidents, who then report to one of the aforementioned divisions. Finally, each division reports to the global entity, which then reports to the CEO. 

Again, the Whiteboard view came in handy, and we wanted to show how marketing departments can apply the matrix organization. In a nutshell – you can easily differentiate project managers from the content director, creative director, director of demand generation, and director of product marketing. 

Team members work together on tasks and report to project managers and the directors mentioned above. Project managers report to the director of the project manager, while the director of the project manager and other directors then report to the head of marketing (CMO), who reports to the CEO. 

We can apply this kind of organizational structure to other departments of any engineering company (finance, operations, etc.), and using call center software is also proving to be a valuable tip for enhancing communication channels.  

Last but not least, here’s how an advertising agency can apply the matrix structure to their business. 

You can see that various team members (brand specialist, blog manager, video producer, etc.) report to department managers (marketing, production, creative, and content managers) and a project manager two.  

Project manager two reports to project manager one, who reports to the head of PM. Functional managers then report to the head of marketing, production, and editorial director, while both of the head of PM and the head of marketing, production, and editorial director report to the agency president. 

These are just a few matrix examples that you can use as inspiration; there are various ways to structure a balanced matrix organization. If you’d like to create your own matrix organization, you can easily do so in ClickUp’s Whiteboard feature, like I did to create the examples above.

You can start with a blank canvas and use the drag-and-drop feature to easily build your ideal organizational structures . And if you need help getting started or simply want to get a solid framework to start with, then turn to the Organizational Chart Whiteboard Template to give you a helping hand!

Your Turn to Create Your Own Matrix Organizational Structure 

We’ve cleared the air about the fab matrix organizational structure for you and tried to explain how you can make it work well when working on complex projects. 

You can optionally choose to embed your company’s chart on your website to enlighten customers about the modus operandi of your business. 

The idea of reporting to multiple leaders improves collaboration, makes employees more engaged, sparks creativity, eliminates overhead costs, and results in delivering better solutions.  However, to be able to implement the matrix structure, you also need to work with a tool as powerful as the structure itself–ClickUp!

Start using it today to get access to hundreds of features that’ll help your entire organization manage and deliver projects efficiently and tools to help you create an effective matrix organization. 🚀

Guest Writer:

Alladdine Djaidani  is a digital marketer and the founder of  HustlerEthos.com

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What is Ethical Leadership and Why is it Important?

Ethical leadership is not only the right thing to do, it is key to driving an organization's success.

Valerie Kirk

Errors, bad behavior, and poor judgment in leadership can negatively impact a company’s brand and reputation. For business success, it’s critical for organizations to fill their C-suite with ethical leaders.

Ethical leadership involves leaders and managers making decisions based on the right thing to do for the common good, not just based on what is best for themselves or for the bottom line. While profits are important, ethical leaders take into consideration the needs of customers, communities, and employees in addition to company growth and revenue when making business decisions. 

Ethical leaders encourage their team members to model this behavior, too. They help to build a workplace culture that values transparency, collaboration and inclusion, and where everyone feels safe to share their voice.

They can also help organizations recruit and retain top talent. Professionals are increasingly seeking out companies whose leaders strive to do the right thing. Generation Z, who will make up 25 percent of the workforce by 2025, demands leadership ethics more than generations that came before them. 

“Gen Z is not going to negotiate. They have really strong values and ethics, and they don’t bend them because of intimidation or because they are just getting a paycheck,” said Michael McCarthy, instructor at Harvard Division of Continuing Education’s Professional & Executive Development and host of the “ Happy at Work ” podcast. “The idea of letting harmful or hurtful behavior slide is not acceptable.”

Leaders who weigh ethical considerations before making key business decisions drive a company’s long-term success. 

The 6 Main Principles of Ethical Leadership

Having ethical leaders isn’t as simple as hiring “good” people. Companies should strive to fill their leadership ranks with people who embody the principles of ethical leadership. The six main principles include: 

Respect includes valuing others’ skills and contributions. While historically respect in the workplace may have been one-way (leaders demanding respect from employees), in an ethical work environment, respect is mutual. 

Mutual respect leads to healthier workplace relationships where both sides appreciate and support what the other is doing and feel secure in talking through issues and challenges. Healthy relationships create positive work environments, which drives increased productivity.

Current and upcoming business leaders should take mutual respect into account as workforce expectations continue to shift.  

“I tell current leadership to respect Gen Z. They have values and morals, and you’re going to have a better organization because of them,” McCarthy said. “They aren’t going to put up with the old hierarchy that doesn’t offer mutual respect.” 

2. Accountability

Ethical leaders hold themselves accountable for their actions. They make decisions based on integrity and stand behind their work. They also lead by example, communicate openly about challenges, and don’t look to place blame on others for any shortfalls.

Leaders make ethical decisions based on doing what is right for employees, customers, and the community. Because these constituents are always top of mind for ethical leaders, they often have a strong sense of service. They engage in activities such as charitable giving and volunteer work to give  back to their communities — and encourage their teams to do the same. 

Leaders who are transparent build trust amongst their organizations and amongst customers. 

To build and maintain trust, leaders must be good communicators who speak openly and honestly about issues. Regardless of the issue’s severity or unpopularity, leaders’ responsibility to be clear and candid  empowers others to make the right decisions with the information they have. 

Honesty and transparency also help to build a brand’s reputation, leading to long-term customer loyalty.

Justice is not just about following the law, but about ensuring that everyone is getting what they deserve. Ethical leaders approach situations with a focus on treating everyone fairly, and they expect their teams to treat each other and customers the same way. Through their actions, they build equitable work environments where everyone feels respected. 

6. Community

Ethical leaders view their companies as communities and consider everyone involved when evaluating situations and making decisions. By viewing their organizations this way, they build equity and inclusion into their decision-making process and create work environments that encourage collaboration across teams. 

Learn more about Harvard DCE’s Ethical Leadership program

Examples of Positive and Negative Ethical Leadership

The following three examples are of companies that were faced with ethical dilemmas and how different leadership styles led to vastly different outcomes. 

Johnson & Johnson

One of the most famous examples of ethical leadership was the case of the Tylenol cyanide poisonings in the early 1980s. Seven people died of cyanide poisoning, and the only connecting factor was that they had all taken extra-strength Tylenol. During investigation, it was discovered that the tablets were laced with cyanide.

Johnson & Johnson’s leaders acted quickly and pulled all Tylenol products off the shelves — 31 million bottles, worth over $100 million — and stopped all production and advertising. The swiftness of their decision, although costly, put customers’ well-being first and saved lives.

They partnered with law enforcement to find the perpetrator and subsequently developed the first-ever tamper-resistant packaging. They were transparent with the public about what they were doing to ensure this tragedy never happened again. 

The Tylenol brand recovered from the incident, largely because of Johnson & Johnson’s ethical leadership team’s swift action and transparent care for customers.

In 2008, JetBlue left passengers stranded on the tarmac at the John F. Kennedy International Airport for more than five hours during a snowstorm. The delay had a ripple effect — JetBlue had to cancel more than 1,000 flights over the following five days.

In response, JetBlue’s CEO wrote a letter of apology to customers. He also directed his team to draft a customer bill of rights, which outlined customers’ rights to information about flights and information about compensation in the event of delays or cancellations.

The CEO also participated in a public apology tour, taking full responsibility for the incident rather than blaming it on the weather.

His transparency and accountability created trust with customers, who stayed loyal to the airline.

Wells Fargo

In September 2016 , it was revealed that employees of Wells Fargo, one of the largest banks in the United States, opened millions of unauthorized accounts in order to meet aggressive sales targets. This widespread fraudulent activity was the result of a work culture that prioritized quantity over quality and pushed employees to engage in unethical practices.

Company leaders denied knowledge of fraudulent practices. The bank was hit with significant financial penalties, but because of the lack of accountability, they damaged the trust of their customers and investors. They reported a 50 percent profit loss in the quarter following the scandal.

Meeting the Ethical Challenges of Leadership

Companies cannot underestimate the power of different leadership styles on their growth and long term success. Those who practice ethical leadership have positive corporate cultures where employees are engaged, motivated, and feel good about coming to work. Companies without ethical leadership face lower productivity and high turnover rates, impacting the organization’s bottom line.

Ethical leaders aren’t just born with these skills — they develop them over years of experience and training. 

Harvard DCE Professional & Executive Development offers a two-day Ethical Leadership program that helps leaders develop skills to make ethical choices and lead companies through challenging dilemmas. 

Topics covered include: 

• Making ethical decisions with conflicting responsibilities 
• Building a moral framework within yourself and the organization
• Understanding the role of employees in both their professional and personal lives 
• Navigating a slippery slope when seemingly good people do bad things
• Building a corporate culture that values moral behavior

Learn more about the ethical leadership program, including how to register.  

Leaders looking to expand their ethical leadership skills should also consider the two-day Authentic Leadership program , where they will learn how to develop mindfulness and authenticity to build trust, create engagement, and promote productivity. 

Explore all Executive Leadership and Management courses

About the Author

Valerie Kirk is a freelance writer and corporate storyteller specializing in customer and community outreach and topics and trends in education, technology, and healthcare. Based in Maryland near the Chesapeake Bay, she spends her free time exploring nature by bike, paddle board, or on long hikes with her family.

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The Division of Continuing Education (DCE) at Harvard University is dedicated to bringing rigorous academics and innovative teaching capabilities to those seeking to improve their lives through education. We make Harvard education accessible to lifelong learners from high school to retirement.