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Is your organization well-designed?And how do you know? What does a well-designed organization look like, and how does it feel to work there? And how is it different from a poorly-designed one?
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. In fact, organizational design encompasses much more than simply the 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.
When it comes to good organization design, it's a question of getting the right balance - getting the right controls, the right flexibility, the right incentives; and getting the most from people and other key resources.
Types of Organization Structure
Characteristics of a hierarchical structure versus an organic structure:
Examples of hierarchical organization structures:
Functional Structure: The advantage can be efficiency and economies of scale where functional skills are paramount. The main disadvantage is that functional goals can end up overshadowing the overall goals of the organization.
Divisional Structure: The advantage here relates to local results, as each division is free to concentrate on its own performance. The disadvantage is that functions and effort may be duplicated.
Examples of organic structures include:
Simple Structure: The advantages are efficiency and flexibility, and responsibilities are usually clear. The main disadvantage is that this structure can hold back growth when the company gets to a size where the founder or CEO cannot continue to make all the decisions.
Matrix Structure: The advantage is that the organization focuses on divisional performance whilst also sharing functional specialist skills and resources. The (often serious) downfall is its complexity – effectively with two hierarchies, and with the added complexity of tensions between the two.
Network Structure: The advantage is this structure is very flexible and often can adapt to the market almost immediately. The disadvantage is inevitable loss of control, dependence on third parties and the complexity of managing outsource and sub-contract suppliers.
Here are just some of the many things that you can consider when thinking about the structure of your organization.
Strategy - The organization design must support your strategy. If your organization intends to be innovative then a hierarchical structure will not work. If however, your strategy is based on low cost, high volume delivery then a rigid structure with tight controls may be the best design.
Size - The design must take into account the size of your organization. A small organization could be paralyzed by too much specialization. In larger organizations, on the other hand, there may be economies of scale that can be gained by maintaining functionally specialist departments and teams. A large organization has more complex decision making needs and some decision making responsibilities are likely to be devolved or decentralized.
Environment - If the market environment you work in (customers, suppliers, regulators, etc.) is unpredictable or volatile, then the organization needs to be flexible enough to react to this.
Controls - What level of control is right in your business? Some activities need special controls (such as patient services in hospitals, money handling in banks and maintenance in air transport) whilst others are more efficient when there is a high degree of flexibility.
Incentives - Incentives and rewards must be aligned with the business’ strategy and purpose. When these are misaligned, there is a danger that units within the organization become self-serving. Using the earlier example of a company that wants to grow by acquiring new customers, the sales team is incentivized on customer retention, and therefore is self-serving rather than aligned with the business purpose.
There is much more to organization design than deciding on its structure. This list shows just some of the facets of organization design that can be taken into account in thinking about this. With each stage of growth or each change, the organization design needs to be reassessed and realigned as necessary. The list can also help you identify issues that might be causing team problems or holding back your business.
Sources:
- ‘What is Organizational Design’ – an article by Roy H. Autry, MBA, Ph.D; Inovus Inc
- www.mindtools.com/pages/article
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