Why HR’s Organizational Structure Matters

What is an organizational structure?

An organizational structure is the framework of a company or department. It lays out and defines priorities through positions with generalist or specialist roles, indicating who reports to whom and how each person fits into the big picture. It also establishes decision-making as centralized or decentralized.

“Organizational structure is the way that capabilities are combined to form jobs and how those jobs are organized into reporting lines, in order to meet the objectives of the business,” said Julia Epstein, vice president of HR internal consulting at Estée Lauder Companies. “It starts with the work, then moves to how that work is organized into jobs, then how those jobs are grouped together into reporting and finally who can fill those jobs based on experience.”

An effective organizational structure can lay a foundation for positive impacts on the business. It flows with the company culture and is designed to attract and retain high-performing people by creating positions that leverage their best skills and provide development and growth. That ensures meaningful work and a sense of purpose that carries into the future.

Why does HR’s organizational structure matter? 

Your HR team is responsible for helping maintain an effective organizational structure by hiring the right employees for each open position, nurturing an environment of growth and guiding employees through their life cycles with your business. To best help your company perpetuate its organizational structure, your HR team must have an organizational structure of its own.

Efficiency and business outcomes 

HR’s organizational structure matters because it provides the framework to align resources with the priorities defined in your business strategy and to embody the organization’s culture. They design your business’s organizational structures and manage change as business needs become increasingly complex. Subsequently, the work that HR staff does will impact business success in the future. 

“Organizational structure significantly impacts the efficiency of daily HR operations while also communicating HR’s role and value clearly to stakeholders — leaders, employees and job candidates,” said Robin Schooling, director of HR insights and innovation at HR consultancy Humareso. “A clear and well-defined structure can show that HR is organized, strategic and purposefully aligned with the overall objectives of the organization.”

Its effects go beyond HR function itself. Its design influences decision-making speed, employee engagement and the ability to adapt to organizational growth. 

Employee experience

The structure of your HR team directly impacts the company’s ability to attract, engage and retain top HR talent. In addition to successfully recruiting the right talent, HR is responsible for developing multiple generations of workers and providing them with the tools they need to be effective. They can help improve communication skills in leaders, motivating employees and respecting cultural differences. They also integrate career planning with workforce planning and employee engagement so employees can identify career paths and job opportunities within the organization. 

“Employees are the biggest asset to the company and have a direct impact on consumer experience,” Epstein said. “HR has the opportunity to be the enabler of the business strategy by creating an unmatched employee experience. The way HR is structured creates either efficiencies to deliver seamless HR services or a cumbersome experience that creates additional work for all employees and people leaders.”

If your HR team is improperly structured or understaffed, certain employee-experience processes can fall through the cracks, ultimately deteriorating your company culture and reputation.

Employee development

In addition to recruiting and engaging your workforce, your HR team is responsible for developing your talent, which can increase employee satisfaction, performance and retention. They engage technical experts with high potential and develop them into senior leaders who contribute to the business’s value proposition and competitive advantage. They can also develop line managers to become more proactive in managing and coaching talent. Without the right HR structure on board, your talent development will suffer.

Legal compliance

HR is responsible for ensuring your organization is compliant with labor laws and regulations. One employee rights violation can cost your business time and money. A properly structured HR department can help you stay up to date on evolving guidelines.

What types of HR organizational structures are there?

Several organizational structures are typical in today’s HR departments. Some are simple and others are complex. How can leaders determine which structure will have the most positive impact on the business? How can HR employees and job candidates determine which structure will best enable them to achieve their career goals? The best type of HR organizational structure for your business will depend on your specific needs.

Let’s look at some of the most common organizational structures for HR.

• Centralized: A single HR person or department manages all HR functions across the organization.
• Functional: This is a traditional HR setup for companies with HR departments. HR is divided into specialized units, such as recruitment, training and payroll, with experts managing each area separately.
• Shared services: Routine HR tasks are centralized into a shared service center, while specialized teams provide expert support in areas such as talent acquisition, compensation and employee development across the organization.
• HR business partner: HR professionals work closely with business units as strategic partners, aligning HR initiatives with overall company goals. This structure is common among larger organizations, Schooling said.
• Outsourced: A company contracts an external provider to handle HR functions, reducing internal workload but limiting direct control over HR processes.

At a basic level, you must decide what type of HR staff you need. One business may need to hire only one HR professional, whereas another business may need to expand to an entire HR department. Either way, your HR organizational structure should account for each HR member you hire. 

Although many business owners inquire about the ideal ratio of HR staff to total employees, Schooling said there is no universally perfect number. 

“Rather than relying on generic benchmarks, consider your company’s specific context, including technology use, HR’s mission and the specific needs of your workforce and leadership,” Schooling said. “It’s also important to decide whether you want to supplement your HR team with external consultants, rely solely on internal resources or perhaps adopt a hybrid approach.”

How can HR software help your organizational structure?

Regardless of how many HR professionals you have on your team, there is a good chance that you — like 3.2 million other small and midsize businesses (SMBs) — will also need some form of software to help automate your HR processes and keep all your HR documents in one streamlined platform.

In our recent HR management survey of SMBs, we found that HR software is most commonly used for reporting and analytics (71 percent), payroll and accounting (68 percent), employee benefits and time management (59 percent), compliance and risk management (41 percent), workforce surveys (39 percent), talent development (36 percent), and recruiting and onboarding (32 percent).

By managing those HR functions digitally, SMBs and their organizational structures found tremendous benefits. For example, 69 percent said HR software reduced their payroll processing time, 38 percent said it increased team member satisfaction and 25 percent said it improved their legal compliance.

Popular HR software to help with your organizational structure

If you are looking to reap those same rewards, several highly rated HR software solutions are available. Below are some of the most popular options. 

• Bambee: This is an excellent option for employers that need help mitigating HR risks. Bambee is more than just HR software. Read our Bambee review to learn more.
• Gusto: Payroll is a time-sucker for most HR professionals. If you want to automate the process with comprehensive payroll features, check out Gusto. Our review of Gusto goes into more detail about the HR software.
• Rippling: Rippling is king when it comes to HR automation. The intuitive platform lets you create customized workflows to automate virtually any HR process. To learn more about how the software can streamline your HR, read our Rippling review.
• Paycor: One of the most sought-after HR software features is reporting and analytics, and Paycor does a great job with it. Read our Paycor review to learn more.
• Paychex: It can be challenging for your HR staff to manage employees remotely, but Paychex can help. Read our review of Paychex to learn more.

These are just a few popular platforms that can help your HR team manage your HR functions. The best one for your business will depend on your specific needs.