Evaluating Your Organizational Structure

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Digital Library > Building and Inspiring an Organization > Organizational structure"Evaluating Your Organizational Structure"

Evaluate your company's mission and strategy, and then use that to determine whether your organizational structure needs changing.

OVERVIEW [top]

A company's organizational structure is a road map of its communication patterns. A well-designed structure can also make it easier to identify inefficiencies and new problems as the organization grows. Reviewing your organizational structure on a regular basis will help ensure that you are set up for optimal growth well into the future.

The biggest factor in any organizational structure is communication. In fact, that's really what an organizational structure is all about: creating formal paths of communication. Think about how you want employees to communicate, and then create a structure that reinforces your vision.

Does your organizational structure inhibit change and put your company at a competitive disadvantage? Should you consider changing it? If yes, how?

In this Quick-Read you will find:

  • The fundamentals of organizational structure.
  • How to decide if and when your structure needs to change.

SOLUTION [top]

There is no single organizational structure that fits every company. You have to evaluate your company's mission and strategy, and then build your organizational structure from there. There isn't one right way to organize the members of your staff, but some structures seem to work better than others, depending on your goals.

There are three basic philosophies around which most organizational structures are built:

  1. The functional organizational structure, in which hierarchical roles are divided by business function. This traditional organization structure provides for units in the strictly hierarchic line structure (for example, production, marketing) to be supported by centrally controlled staff units outside the line structure (for example, human resources, data processing).

  2. The departmental structure that has job roles divided by department (for example, by individual product line or plant), each having its own parallel HR, marketing and finance functions.

  3. The matrix organization that has a combination of the two. The matrix organization provides greater flexibility and cross-functional opportunities, but it has the disadvantage of making workers report to more than one boss — one functional and one departmental — who may have contradictory objectives.

Other organizational structures are usually variations of these three styles. Which is best? It depends on what your organization is trying to accomplish and the management philosophy to which you subscribe.

Let's look at some of the policies to consider when evaluating organizational structure:

  • How do you want your staff to communicate? Do you want frontline workers talking to your president? Do you want finance talking to marketing?

  • How much freedom and creativity should your employees have to accomplish their jobs? If the frontline employees work on an assembly line, a top-down hierarchy may be effective. If creative teams make your product, then a more autonomous departmental structure may fit the bill. How much specialized expertise is needed in most jobs? Are workers interchangeable? Should they be?

  • Is this a service or a manufacturing organization? Manufacturing organizations can benefit from having certain levels of autonomy and creative decision making, but this is offset by the need for consistency and quality in production. A Subaru made in Japan should be the same as a Subaru made in Indiana.

  • Which qualities are more important to your market share: product stability and long-term continuity, or flexibility and rapid change?

A growing company has special considerations regarding organizational structure. Realize that as you grow and the market changes, your organizational-structure needs will change. Size erects barriers to group interaction and performance. Where once everyone did a little of everything, now people specialize. Increasing your staff can result in misdirected, thin-spread and impersonal communication. Consider putting formal structures in place to clarify lines of communication and responsibility so workers get the information they need when they need it.

"The best thing for an entrepreneur to do is accept that the dilemma between freedom and structure can never be solved. It won't go away," says Rick Maurer, author of Beyond the Wall of Resistance: Unconventional Strategies That Build Support for Change.

Ask yourself up front, "How can we grow yet maintain the spirit that made this place such a great place to work?" Strive to remove the barriers to communication, but acknowledge that the more people you have, the harder it is to maintain a loose structure without having details fall through the cracks.

One way to change your organizational structure is to reduce the dependence on the top level of the pyramid. Having all decisions flow through the president creates a bottleneck that constrains growth. Delegate the responsibility to trusted employees. By creating self-contained business units with expanded individual responsibility for those separate units, you increase the organization's ability to adapt and respond to change.

There is a clear trend at the start of the 21st century to avoid complex organizational structures by focusing employees on the company's core mission and outsourcing anything else. Outsourcing is a widely accepted and smart approach to avoiding the cost of creating and managing service and support departments.

REAL-LIFE EXAMPLE [top]

NBBJ, founded in Seattle in 1943, and now the second-largest architectural firm in the United States, went back to the drawing boards in the early 1980s and turned its organizational structure inside out to create an environment that would attract, motivate and retain top-quality architects.

NBBJ decided that workplace structure reinforces their organizational structure. Instead of having executive offices with fancy desks and plush chairs, executives sit at the same type of desks as everyone else, out in the open, where they can be approached and engaged. CEO Scott Wyatt's desk sits at the top of a stairwell.

To further break down hierarchies, NBBJ created independent design "studios" of 25 to 40 people. Each studio carries sole responsibility for a given project.

Wyatt suggests that the smaller scale of the studio helps people feel safe more quickly. The sense of intimacy generated by working with a smaller group lets a new employee see his/her impact more quickly than a larger group would allow.

DO IT [top]

  1. Define your company's existing structure. Is it functional, departmental or matrix?

  2. Does that structure work well, or does it need to be changed? Examine market reports and competitors' 10-k reports to determine:

    • Is your product and its marketing superior or inferior to that of competitors?

    • Is your production more or less cost-effective?

    • What competitive strengths and weaknesses can be identified in the existing system? How much of each is dependent on structure, and how much is dependent on procedures and policies, not structure?

  3. Involve the entire staff in every stage of the evaluation project. The lowest-level employees not only have a different perspective on the strengths and weaknesses of the present system, their team membership and support will make or break the present system, as well as any new one. The management-labor relationship is by far the most important element in the success or failure of any organizational structure.

  4. Consider inviting an outside team to evaluate the strengths and weaknesses of the existing operation. The outsiders will have fewer reasons to pull punches than staff members you can promote or fire. Valuable criticism may come from specialized consultants, owners or board members other than the president or CEO, and even customers.

  5. Recognize from the start that, by analyzing your options, you may conclude that changing the organizational structure would harm, not help, the company. DO NOT HURRY. The existing system has gotten your company where it is. Don't plan to change it unless there is strong evidence that the change will make a very significant improvement in your company's competitive position.

RESOURCES [top]

Books

Boundaryless Organization: Breaking the Chains of Organizational Structure by Ron Ashkenas, et al. (Jossey-Bass Publishers, 1998).

Classics of Organization Theory, 4th ed., edited by Jay M. Shafritz and Steven J. Ott (Wadsworth, 1997).

20% Solution: Using Rapid Redesign to Create Tomorrow's Organizations Today by John J. Cotter (John Wiley & Sons, 1995). The first half of the 20% Solution features examples of how fast business-environment changes occur. The second half is on organizational redesign.

Designing Organizations: An Executive Briefing on Strategy, Structure, and Process by Jay R. Galbraith (Jossey-Bass Publishers, 1995). Jay Galbraith may be the most influential contemporary organizational design theorist.


Internet Sites

"Management Issues for Growing Businesses," by Jack L. Bishop. U.S. SBA, 1991. First, select the format (Word, Text, or PDF); then scroll to the 3-page section on "Structural Issues."


Article Contributors

Writer: Stu Watson

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