Many organizations start out with a simple structure. An arrangement that does not rely on formal systems of division of labor, often because one person performs all the tasks that the organization needs to accomplish.. In this type of structure, an organizational chart is usually not needed. Simple structures do not rely on formal systems of division of labor If the firm is a sole proprietorship, one person performs all the tasks the organization needs to accomplish.  This type of structure is built around the owner/ manager/entreprenuer and is typical of small companies in the early stages of their development. The owner/ manager/entreprenuer often has specialist knowledge of the product or service. Typically these organizations are single-product or single-service companies that serve local markets. For example, in a small bakery it is possible that the baker is  resposible for the bread as well as handling all aspects of the business (cashier, calculating taxes etc.). One person (the owner, the manager) looks after all decisions whether they are day-to-day operational matters or strategic nature. 

 

If the firm consists of more than one person, tasks tend to be distributed among them in an informal manner rather than each person developing a narrow area of specialization. In a family-run restaurant or bed and breakfast, for example, each person must contribute as needed to tasks, such as cleaning restrooms, food preparation, and serving guests (hopefully not in that order). Meanwhile, strategic decision making in a simple structure tends to be highly centralized. Indeed, often the owner of the firm makes all the important decisions. Because there is little emphasis on hierarchy within a simple structure, organizations that use this type of structure tend to have very few rules and regulations. The process of evaluating and rewarding employees’ performance also tends to be informal.

 

The informality of simple structures creates both advantages and disadvantages. On the plus side, the flexibility offered by simple structures encourages employees’ creativity and individualism. Informality has potential negative aspects, too. Important tasks may be ignored if no one person is specifically assigned accountability for them. A lack of clear guidance from the top of the organization can create confusion for employees, undermine their motivation, and make them dissatisfied with their jobs. Thus when relying on a simple structure, the owner of a firm must be sure to communicate often and openly with employees. 

Source:  Creating an Organizational Structure”, section 9.2 from the book Strategic Management: Evaluation and Execution