Q: "Why has organizational design zoomed to the top of the list as the most important trend in the Global Human Capital Trends survey for two years in a row?”
A: The answer is simple: The way high-performing organizations operate today is radically different from how they operated 10 years ago. Yet many other organizations continue to operate according to industrial-age models that are 100 years old or more.
Exhibit 1a.1. Mechanistic and Organic Organizations (Attribution: Copyright Rice University, OpenStax, under CC-BY 4.0 license)
Early organizational theorists broadly categorized organizational structures and systems as either mechanistic or organic. This broad, generalized characterization of organizations remains relevant today.
Not every organization or every part of most organizations may require an organic type of structure. Understanding different organizational designs and structures is important to discern when, where, and under what circumstances a type of mechanistic system or part of an organization would be needed.
The following section discusses five types of structures with variations.
Within the context of mechanistic versus organic structures, specific types of organizational structures in the United States historically evolved over at least three eras, as we discuss here before explaining types of organizational designs.
Communication and coordination between and among internal organizational units and external customers, suppliers, and other stakeholders required higher levels of integration and speed of informational processing. Personal computers and networks had also entered the scene. In effect, the so-called horizontal organization was born, and emphasized “reengineering along workflow processes that link organizational capabilities to customers and suppliers.
Contributing factors:
During this period, further extensions of the horizontal and organic types of structures evolved:
Exhibit 1a.2. Evolution of Organizational Structure Adapted from: Daft, R., 2016, Organization Theory and Design, 12th edition, Cengage learning, Chapter 3; Warren, N., “Hitting the Sweet Spot Between Specialization and Integration in Organizational Design”, People and Strategy, 34, No. 1, 2012, pp. 24-30.
In the following discussion, we
Note that in many larger national and international corporations, there is a mix and match among different structures used. There are also advantages and disadvantages of each structure.
Again, organizational structures are designed to fit with external environments. Depending on the type of environments from our earlier discussion in which a company operates, the structure should facilitate that organization’s capability to achieve its vision, mission, and goals.
The functional structure, shown below, is among the earliest and most used organizational designs. This structure is organized by departments and expertise areas, such as R&D (research & development), production, accounting, and human resources. Functional organizations are referred to as pyramid structures since they are governed as a hierarchical, top-down control system.
Exhibit 1a.3: “Functional Structure” by Rice University & OpenStax, licensed under CC BY 4.0.
Small companies, start-ups, and organizations working in simple, stable environments use this structure, as do many large government organizations and divisions of large companies for certain tasks.
Advantage: The functional structure excels in providing for a high degree of specialization and a simple and straightforward reporting system within departments, offers economies of scale, and is not difficult to scale if and when the organization grows.
Disadvantage: includes isolation of departments from each other since they tend to form “silos,” which are characterized by closed mindsets that are not open to communicating across departments, lack of quick decision-making and coordination of tasks across departments, and competition for power and resources.
Divisional structures, seen in the chart below, are, in effect, many functional departments grouped under a division head.
Each functional group in a division has its own marketing, sales, accounting, manufacturing, and production team. This structure resembles a product structure that also has profit centers.
These smaller functional areas or departments can also be grouped by different markets, geographies, products, services, or other whatever is required by the company’s business.
Exhibit 1a.4: Divisional Organization Structure (Attribution: Copyright Rice University, OpenStax, under CC-BY 4.0 license)
Advantages
Disadvantages
Another option aimed at moving from a mechanistic to more organic design to serve customers faster and with relevant products and services; as such, this structure is organized by locations of customers that a company serves. This structure evolved as companies became more national, international, and global. Geographic structures resemble and are extensions of the divisional structure. The advantages and disadvantages of the geographic structure are similar to those of the divisional structure
Exhibit 1a.5: “Geographic Structure” by Rice University & OpenStax, licensed under CC BY 4.0.
In effect, matrix structures initiated horizontal team-based structures that provided faster information sharing, coordination, and integration between the formal organization and profit-oriented projects and programs. Matrix team members have been and are a growing part of horizontal organizations that cut across geographies, time zones, skills, and traditional authority structures to solve customer and even enterprise organizational needs and demands.
This structure has lines of formal authority along two dimensions: employees report to two bosses simultaneously:
The matrix structure actually originated at a time in the 1960s when U.S. aerospace firms contracted with the government. Aerospace firms were required to “develop charts showing the structure of the project management team that would be executing the contract and how this team was related to the overall leadership structure of the organization.” As such, employees would be required to have dual reporting relationships—with the government and the aerospace company.
To work effectively, employees (including their bosses and project leaders) who work in dual-authority matrix structures require good interpersonal communication, conflict management, and political skills to manage up and down the organization. Members of matrix structures must “learn how to collaborate with colleagues across distance, cultures and other barriers.
Different types of matrix structures, some resembling virtual team designs, are used in more complex environments.
For some matrix team members this may be the first time they have been given accountability for results that are broader than delivery of their functional goals. Some individuals relish the breath and development that the matrix team offers and others feel exposed and out of control. To succeed in these types of horizontal organizational structures, organizational members “should focus less on the structure and more on behaviors.
Advantages
Disadvantages
Exhibit 1a.6. “Matrix Structure” by Rice University & OpenStax, licensed under CC BY 4.0.
Networked team structures are another form of the horizontal organization. Networked teams are more informal and flexible than matrix teams. They are connected together by informal networks and the demands of the task, rather than a formal organizational structure. The network organization prioritizes its ‘soft structure’ of relationships, networks, teams, groups and communities rather than reporting lines
There is not one classical depiction of this structure, since different companies initially design teams to solve problems, find opportunities, and discover resources to do so. A networked organizational structure is one that naturally forms after being initially assigned. Based on the vision, mission, and needs of a problem or opportunity, team members will find others who can help—if the larger organization and leaders do not prevent or obstruct that process.
Networks have two salient characteristics:
Exhibit 1a.7. Networked Team Structure (Attribution: Copyright Rice University, OpenStax, under CC-BY 4.0 license)
As organizations continue to transition from vertical structures to more organic ones, networked global designs are being adapted to larger companies that require more reach and scope and quicker response time with customers.
Whatever a hierarchical organization chart says, real, day-to-day work gets done in networks. This is why the organization of the future is a ‘network of teams.’
Advantages
Disadvantages
Virtual structures are related to so-called modular and digital organizations, and are dependent on information communication technologies (ICTs). Virtual structures and organizations emerged in the 1990s as a response to a need for:
Exhibit 1a.8. “Virtual Structure” by Rice University & OpenStax, licensed under CC BY 4.0.
These organizations move beyond network team structures in that the headquarters or home base may be the only or part of part of a stable organizational base. Otherwise, this is a boundaryless organization. Increasingly, organizations are using different variations of virtual structures with call centers and other outsourced tasks, positions, and even projects.
Examples of organizations that use virtual teams are Uber, Airbnb, Amazon, Reebok, Nike, Puma, and Dell.
Advantages
Disadvantages
