A key element of the upcoming Senior Managers and Certification Regime (SM&CR) is for firms to be able to show who is responsible for what within the organisation. It presents a timely opportunity to make sure your firm has an effective organisational structure in place.
Organisations come in all shapes and sizes and, as such, different businesses choose different structures to organise staff within the firm.
The type and size of the organisational structure will depend on the size of the business, the extent of its operation and the number employees. However, the structure chosen must be suitable to meet the aims of the business. The greater the number of employees, the more important it is to ensure that an effective organisational structure is in place.
Consider your own organisation. How would you describe its organisational structure? Is this well-defined and clear? Does it suit the size and scope of the business?
Organisational structures often develop along with the organisation itself and it can be hard to step back and take account of what this looks like and how well it functions. Depending on the size of the organisation, layers of management may be formed, consisting of departments, teams and managers. These hierarchies can be presented visually in charts known as organograms. They allow people to know where their role fits into the organisation.
When few staff are employed, it will usually be necessary for people to assume multiple roles. For example, the owner of the business may initially be directly involved in issues such as sales, marketing, human resources, finance and operations. As the business grows, it may be possible to employ more staff and certain responsibilities and tasks can be delegated.
The larger an organisation gets, the more likely it is to develop a hierarchy with multiple layers of management, particularly if the organisation operates from more than one site or increases the scope of its operation. Such organisational structures are sometimes known as ‘tall’ organisations and will have various service areas, departments and teams to administer the workload.
Advantages of the tall or ‘hierarchical’ structure is that management reporting is clearly defined, people will recognise the ‘chain of command’ and who their manager is, and workloads may be more focused in a particular area or discipline. Some people may be motivated to move up within the structure through promotion. The disadvantage is that communication may be slower to travel from the top of the organisation down through multiple levels of management, affecting the organisation’s ability to react quickly to change. Whilst some degree of competitiveness can be a good thing, it is also possible that different departments may not work together as well as they could, working in ‘silos’ rather than collaborating.
By contrast, ‘flat’ organisations have few tiers of management. Communication should be easier in this structure, allowing senior staff to have closer working relationships with all employees. This structure may therefore afford greater responsibility to employees. However, a flat organisational structure means that managers may have lots of people reporting directly to them, which can result in a challenging workload. Alternatively, line management arrangements may be very loose and there may be confusion over responsibility and accountability – i.e. who reports to who? This may create power struggles and overlap. The larger an organisation becomes, the harder it is to maintain a flat structure.
Under SM&CR, Senior Managers will need to complete a Statement of Responsibilities (SoR), a concise document that sets out the areas and functions for which the Senior Manager has accountability. With a suitable organisational structure in place, it will be easier to demonstrate (internally and externally) the extent of a Senior Manager’s role, responsibilities and authority.
Enhanced SM&CR firms must create a Responsibilities Map which sets out the firm’s management and governance arrangements and the allocation of responsibilities across the firm. It will cover the firm’s business areas and management functions; reporting lines of individuals and committees; and should indicate, where relevant, how responsibilities are shared or divided between different people.
Whilst a Responsibilities Map is only a requirement for enhanced firms, and SM&CR does not impose any obligation on firms to change their governance structures, core firms should consider whether their organisational structure is fit for purpose. Does everyone know who is responsible for what? Are the reporting lines clear? By having a clear structure in place, suitable for the size and demands of your firm, you will be well-placed to meet challenges and opportunities in an efficient manner.