4.1 THE STRATEGIST IN YOU: Types of Organization Structure

(SHORT NOTES FROM STRATEGY TOOLS:

Organization Design at http://www.mindtools.com)

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Many people equate organization design with an organization's structure: The words "lean" and "flat" are used to describe organization design as well as its structure.  Organization design is the process of aligning an organization's structure with its mission.  This means looking at the complex relationship between tasks, workflow, responsibility and authority, and making sure these all support the objectives of the business.

Good organizational design helps communications, productivity, and innovation.  It creates an environment where people can work effectively.  A company can have a great mission, great people, great leadership, and still do not perform well because of poor organizational design.  The way work is done, the business processes, information sharing and how people are incentivized; directly affects how the organization’s performance.  All of these factors are facets of the organization's design and each is important to the organization's success.

Without planning, organization's design often takes on a hierarchical structure where it is common because business executives and managers are often reluctant to relinquish control.  Good organization design is the question of getting the right balance, that is:

·        getting the right controls,

·        the right flexibility,

·        the right incentives; and

·        getting the most from people and other key resources.

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Most organizations have elements of both hierarchy and more flexible, organic structures within.  Organic structures are more informal, less complex and more "ad-hoc" than hierarchical structures which rely on people within the organization using their initiative to change the way they work as circumstances change.

Characteristics	Hierarchical Structure	Organic Structure
Complexity	High – with lots of horizontal separation into functions, departments and divisions	Usually lower – less differentiation or functional separation
Formality	High – lots of well defined lines of control and responsibility	Lower – no real hierarchy and less formal division of responsibilities
Participation	Low – employees lower down the organization have little involvement with decision making	Higher participation  – lower level employees have more influence on decision makers
Communica-tion	Downward – information starts at the top and trickles down to employees	Lateral, upward, and downward communication – information flows through the organization with fewer barriers

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Stuctures	Characteristics	Advantages	Disadvantages
Examples Of Hierarchical Organization Structures
Functional	functions (accounting, marketing, HR etc) are quite separate	efficiency and economies of scale where functional skills are paramount	functional goals can end up overshadowing the overall goals of the organization
	each led by a senior executive who reports to the CEO
Divisional	organized by office or customer location	each division is free to concentrate on its own performance	functions and effort may be duplicated
	Each division is autonomous and has a divisional manager who reports to the company CEO
	business unit is typically structured along functional lines
Examples Of Organic Structures
Simple	structure is flat	efficiency and flexibility	can hold back growth when the company gets to a size where the founder or CEO cannot continue to make all the decisions
	have only two or three levels	responsibilities are usually clear
	employees tend to work as a large team with everyone reporting to one person
Matrix	people typically have two or more lines of report	focuses on divisional performance	its complexity
	may combine both functional and divisional lines of responsibility	sharing functional specialist skills and resources	added complexity of tensions between the two
	Example: a marketing manager may report both to the functional marketing director and the country director of the division he or she works in
Network	known as a lean structure	very flexible	inevitable loss of control
	has central, core functions that operate the strategic business	can adapt to the market almost immediately	dependence on third parties
	outsources or subcontracts non-core functions		the complexity of managing outsource and sub-contract suppliers

Different organization structures have different benefits in different situations.  The overall organization design must

·        aligned with the business strategy and the market environment in which the business operates

·        have the right business controls

·        have the right flexibility

·        have the right incentives

·        have the right people and

·        have the right resources

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FACTORS TO CONSIDER WHEN THINKING ABOUT THE ORGANIZATION STRUCTURE DESIGN
Strategy	must support your strategy
	hierarchical structure will not work for innovative intends
	If strategy is based on low cost, high volume delivery then a rigid structure with tight controls may be the best design
Size	small organization could be paralyzed by too much specialization
	larger organizations may have economies of scale that can be gained by maintaining functionally specialist departments and teams
	large organization has more complex decision making needs and some decision making responsibilities are likely to be devolved or decentralized
Environment	the organization needs to be flexible enough to react
Controls	Some activities need special controls (such as patient services in hospitals, money handling in banks and maintenance in air transport)
Incentives	must be aligned with the business's strategy and purpose