Growing pains for medium businesses: Why you should clearly define internal business structure

By Peter Meyer, Principal Consultant

18 June 2025

Is the internal structure of your business confused and confusing? Is it holding back your growth or frustrating attempts to streamline processes?

As small businesses grow into medium-sized enterprises, complexity increases but the organisation’s structure often lags behind. Responsibilities blur. Accountabilities are unclear. Overlaps and duplication creep in. No one knows where to begin to improve systems and processes.

Large organisations typically use formal architectural frameworks like TOGAF® from the Open Group, or the Business Architecture Guild’s BIZBOK® guide to map their structures and align operations with strategy.

Medium-sized businesses usually don’t need that level of formality. Many key benefits can be obtained with a light weight approach that evolves with the business.

The benefits to the business include clear responsibilities and accountabilities, more efficient processes, and a better capacity to adapt as the business changes and grows.

In this article, I describe the problems that occur with fuzzy internal structures and how clarifying structure through functional modelling can provide valuable benefits.

I then provide a two stage approach setting out the key steps involved in developing a functional model for a medium-sized organisation with, say, more than 15 staff members. The first stage describes how to model the current business structure. The second stage describes the steps needed if you want to begin planning improvements, based on insights gained from the first stage.

This approach enables medium-sized businesses to dip their toe in the water and work out what level of business architecture planning is important to them.

Unless the organisation already has an experienced business analyst on staff, it is unlikely it will be able to undertake the suggested steps alone, particularly if the business wants to make changes. An objective analysis is required, along with experience at business analysis, stakeholder identification and engagement, and modelling. An experienced business analysis consultant should be able to provide that objectivity and expertise.

The problems with fuzzy internal business structures

As small businesses grow into medium-sized organisations, internal structure often fails to keep pace. Roles evolve organically, often around particular managers and their capabilities or their political influence within the organisation. Over time, the lines of responsibility and accountability become blurred. Who owns what? Duplication and inefficiency creep in. What are managers actual accountabilities? Who collaborates with whom? How are decisions made and who is responsible for particular decisions?

As this problem worsens, it acts as a dead weight on the business, stifling innovation adding overhead and undermining service or product delivery. Some of the worse consequences include:

Roles that are not correctly aligned to real business needs because of incorrectly defined accountabilities, or accountabilities that are focused on the wrong outcomes.

Roles with unclear responsibilities and accountabilities caused by poorly defined internal structure and vague, uncoordinated role or position descriptions.

Duplication of effort and internal friction caused by overlapping or poorly defined responsibilities or when managers hoard responsibilities for functions that could be more effectively managed by someone else.

Slow, confused or inconsistent decision making because no one is sure who has authority or where staff shop around among different managers for the answer they want.

Unreasonable conduct by managers who take advantage of ambiguities in responsibilities to arbitrarily override other managers.

Ineffective or poorly focused recruitment caused by lack of role clarity and vague role or position descriptions that don’t accurately reflect the current needs of the business.

Failures in service or product delivery caused by inefficient processes, unclear responsibilities or lack of supervision.

Slow onboarding of new staff because of poor role clarity and little or no documentation of how things work.

Disconnected, siloed systems with excessive manual processes because no one can see how functions are interrelated.

Failed or ineffective efforts to improve systems caused by lack of functional clarity and role alignment. Consultants and solution providers don’t know where to start.

Lack of timely, complete and accurate information to inform decision making caused by inefficient processes and disconnected systems.

Change resistance, as staff protect their turf in the absence of role clarity and in a culture that is not focused on operational efficiency.

I have observed every one of those problems in real business. How many of them exist in your organisation?

No organisation can afford to let those problems remain unaddressed.

Unrecognised costs of fuzzy business structures

Every one of the problems that arise from fuzzy internal structures imposes unrecognised costs on the business. Those costs may include:

  • Excessive staff time devoted to unproductive activities including redundant manual processes.
  • Excessive time devoted to unproductive meetings and emails.
  • Staff who may not be working effectively or who are working on the wrong things.
  • Loss of customers.
  • Excessive costs of high staff turnover, as good staff leave out of frustration.
  • Excessive costs of onboarding new staff.
  • Costs of inaccurate or slow decision making because of the lack of reliable business information.

These costs are not one-off occurrences. They represent ongoing financial drag that compounds over time.

Surely, the bottom line will be improved if those costs were removed or substantially reduced!

What is a functional model?

A functional model is a simple map of how your business works in terms of what functions need to be performed and who is responsible for each of those functions.

At its core, the model identifies:

  • Primary business functions (also called core functions or value chain activities), being those that directly produce and deliver business outputs to customers.
  • Support or secondary functions such as infrastructure management, HR management, technology management, marketing and legal.
  • The role primarily responsible for each function.
  • Key collaborators who support or contribute to the function.

This is not a traditional org chart. It maps what the business does with who is meant to do it. Most likely, there will be several components to the finished model, including:

  • A list of product or service lines with top-level and second level functions plus a stakeholder matrix.
  • One or more functional organisational charts to provide a high level picture of roles and functions plus the assignments to managers.

Benefits of a functional model

A lightweight functional model provides a practical way to begin solving the most important issues affecting many medium-sized business. It will:

  • Support improved understanding of the business structure for better decision making. The functional model becomes a taxonomy of the business that gives a clear picture of how the business works now, compared to how it could work.
  • Provide the foundation of a change plan to improve the allocation of functions to roles so you can reduce inefficiencies and waste.
  • Support role clarity, making it easier to define performance expectations, conduct performance reviews, and recruit effectively.
  • Improve onboarding and staff handover.
  • Provide a foundation for the more detailed business process analysis that is required for process improvement and systems planning.
  • Support the development of simple role guides or process summaries to minimise reliance on the knowledge of particular individuals for critical functions.
  • Generally reduce friction and waste by providing a clearer view to all staff of the relationships between processes and role responsibilities.

Stage 1: Develop a current state functional model

Step 1.1: Identify the project sponsor and project team

This process will require the full buy-in of senior management, ideally the CEO or COO. Without such an active sponsor, the project will likely fail to achieve any meaningful results.

The project team must include key managers from each area of the business that will be affected by the review. They should be active supporters of the project.

Step 1.2: Develop a project brief

It is essential that everyone involved in the project understands the problems that are to be addressed and the objectives.

A project brief should be developed to define its scope and objectives. There is limited value in developing a functional model if the result is to leave the business in the same state as when the project started. Most likely, change will be required if all objectives are to be achieved. The project brief is the first step in building support for that change. It will help to build awareness of the problems and of the opportunities for improvement.

Once it is settled, the project brief should be circulated to everyone involved in the project.

Step 1.3: Develop the ‘as is’ functional model

Step 1.3.1 Identify all product or service lines

Identify all distinct product or service lines (value chains) in the business. Provide a description for each value chain.

Step 1.3.2 Identify high-level primary business functions in each value chain

Business functions are divided into two categories:

  • Primary Functions (described earlier)
  • Support Functions (described earlier)

For each product or service line, identify the top-level primary functions involved. Begin each with a verb so that it is an active statement. You should expect no more than about a dozen top-level functions for a product or service line.

Subdivide each top level function into second level functions as necessary to define functions at sufficient detail that they can be assigned to roles. This is called a functional decomposition. In most cases it should not be necessary to subdivide to a third level for this exercise.

Step 1.3.3: Identify support functions

Identify all categories of support function and define their top-level functions.

Step 1.3.4: Define the primary roles

Define primary roles that encompass all functions, both primary and support. These roles will already exist within the organisation.

Step 1.3.5: Allocate functions to roles

Allocate functions to primary roles, based on the current business structure. The primary role is accountable for performance of the function. Many functions may be allocated to a role.

Step 1.3.6: Identify key collaborators

For each function, define the collaborators or stakeholders who work on the function and define their interest. That can be done using a RACI matrix framework (Responsible, Accountable, Consulted, Informed) or an alternative approach that is better suited to operational, rather than project functions. For an example, see McKinsey and Company, “The limits of RACI—and a better way to make decisions” July 2022.

Step 1.3.7: Review the draft functional model with all stakeholders

Use this review to standardise terminology, verify that all functions are identified, that they are correctly allocated to roles and that all stakeholders are identified.

Step 1.4: Take stock

At the end of these steps, you have a clear picture of how the business is currently structured. That may be useful in itself. It will support a range of improvements going forward such as development of more precise role or position descriptions, and role guides or process summaries. It will also provide a valuable resource for any consultants you may need to engage for further systems planning or improvement.

However, if you want to maximise the benefits of the work so far, you may need to make changes to the business structure. Consider the next stage to decide how far you need to go.

Stage 2: Plan change

Step 2.1 Consider changes to the current internal structure

It is very likely that the initial functional model will identify areas where processes should be re-assigned and roles changed. Making those changes will require careful planning and need the full backing of the highest levels of management.

Identify where functions are not allocated and where functions seem to be allocated to multiple roles. Also identify functions that, based on their relationship with other functions, may be incorrectly allocated to a primary role.

Changes should only be made to solve problems that impose costs or constraints on the business. Specifically define the problems that exist with the current structure and the benefits expected from the changes.

Even if some people perceive problems, others may not. Managers who may lose control of particular functions or who may have to take on new functions may not be ready to acknowledge the problems. Often those issues have been the subject of previous dispute between managers. Those differences must be resolved by senior management during the planning of the ‘to be’ functional model.

Step 2. 2: Develop a proposed ‘to be’ functional model

Based on the work under the previous step, modify the ‘as is’ functional model to reflect the proposed changes.

Step 2.3: Develop the change implementation plan

A simple change implementation plan should address at least these issues:

  • What changes are proposed, including by reference to the ‘to be’ version of the functional model
  • The persons responsible for implementing changes
  • The benefits of the proposed changes
  • The timing for changes
  • How the changes are to be implemented
  • Related works that may be proposed, including development of new role or position descriptions
  • Training, support or other assistance that will be available during the change process.

Conclusions

The internal structure of a business, represented by the assignment of functions to roles, must align with how the business actually works. When that alignment breaks down, costs rise, inefficiencies multiply and growth is inhibited.

A functional model brings clarity without creating unnecessary bureaucracy. It is a simple, high-value tool that allows managers to reduce waste, improve accountability and make better decisions.