Advantages and Disadvantages of an Entrepreneurial Business Structure

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What is a business structure?

A business structure relates to how the business is organised with regards to who makes the decisions and instructs which part of the business. Often drawn as a diagram, it shows the relationship between decision maker(s) and different departments within the business.

The entrepreneurial business structure

In the entrepreneurial business structure, any decision that needs to be made is made centrally, either by one person or at head office, the results of which are then communicated to workers. This is the most ‘rigid’ of organisational structures, as workers have little to no say or input in the decision-making process, instead having to just follow any orders that are issued.

The entrepreneurial business structure is most commonly found in sole traders with just a few employees, or in organisations which have to make decisions quickly such as publishing where there is often precious little time available to discuss things in meetings when there is a deadline that has to be met. In this instance, somebody has to make a decision quickly without having to discuss or justify it.

For a sole trader, they are often the only owner of the business, and so what they say goes. Because they own it, nobody has the authority to block or delay their decision. Whilst many may invite advice from the people they employ, they will often have an idea in their minds already about what they would like done, and so will probably just make the decision straight away themselves.

Advantages of the entrepreneurial business structure

The main advantage of the entrepreneurial business structure is the ability to make decisions quickly. Without lengthy meetings and discussions, or proposals sat waiting for approval, decisions can be made pretty much instantly and changes put into place. This allows businesses to quickly adapt to any change in market conditions. It is also a leadership style which is used by governments in emergencies, with virtually all countries having laws in place which allow legislation to bypass parliament or equivalent bodies and be enacted when speed and response time is top priority.

Another advantage is that it is one of the least expensive business structures available, and in most cases will be the cheapest option. This is because there are no layers of middle managers to pay or maintain (e.g. company cars).

Thirdly, everybody knows who is in charge and who they are accountable to, removing the chances of confusion being created if different department heads asked for different things from workers (e.g. the head of the production department asks workers to improve the quality of the product by spending more time on each, at the same time as the head of the finance department asks for increased output to generate more revenue).

Disadvantages of the entrepreneurial business structure

Despite its advantages, there are a number of disadvantages to the entrepreneurial business structure.

Because of its autocratic nature, with workers being told what to do with no input on the decision, there is always a real danger of them losing morale and motivation if they strongly disagree with the decision. The extent of their discouragement will depend upon a number of factors such as how strongly they disagree, as well as the amount of explanation (if any) they get as to why that particular decision was made.

Those making the decisions may not know as much about the problem, market conditions etc. as they think they do. Whilst they make quick decisions, they are not necessarily the best decisions, and it may be better for the business to have a specialist manager in place who is an expert in a particular area.

It may also not be a suitable organisational structure if the business grows, as the decision makers have simply too many decisions to make. As stated earlier, decisions can be made quickly in an entrepreneurial business structure. But if there are so many decisions to be made causing delays as different employees wait for answers, it may actually be quicker to appoint a manager and delegate responsibility to them for making certain decisions.