Strategic Management

Chapter 5 - Dealing with Management and Operations Issues

Designing Organizations for Advantage

- The process of designing an organization's structure and operations is known as
Organization Design. It covers a wide range of areas of working life, including as team
structures, work schedules, reporting lines, decision-making processes, communication
routes, and more.
- Organization Design – and redesign – can help any type of organization to achieve its
goals. Sometimes, a large-scale reorganization is necessary. At other points, more
subtle shifts in structures and systems can ensure that an organization continues to
thrive.

Impacts of Organization Design

- Organizational design involves implementing organizational structures and systems that
align to an organization's core strategies.
- Often organization redesign happens because a business is growing or needs to
downsize. However, it may also be because of a change in leadership, strategy, or due
to changes in the organization's wider environment in which it operates.

When organizational design is effective it can have a number of benefits, including:

● Increased effiency.
● Faster and more effective decision making.
● Improved quality of goods and services.
● Higher profits.
● Better customer relations.
● Safer working conditions.
● A happier, healthier and more motivated workforce.
● Greater preparedness for future challenges.
Reference : https://www.mindtools.com/aiydadc/organization-design

However, if there are flaws in its design, an organization can suffer serious problems, including:

● Ineffective problem solving.

● Wasted time.

● Lack of coordination between different parts of the business.

● Inconsistent quality of work.

● Failures of legal compliance.

● Reputational damage.

● Low morale, leading to high staff turnover.

● Missed targets and poor performance.

Additional Info:

Even if a particular setup was successful in the past, that doesn't mean it will remain so for ever.

As businesses develop, and as the world around them changes, it's vital that they keep a close

eye on the way they're organized.

And when it's no longer fit for purpose, that's the time to put a new phase of Organization

Design into action.

What triggers Organizational Design?

1. Changes in the Environment.

Changes here could refer to internal or external changes. Perhaps you've bought some new
technology, or a rival has entered your territory. Maybe an important piece of legislation
affecting your business has changed.

Some changes may be exciting, but some are worrying. However, they all require a response –
and that likely means some alterations to the way you operate.

2. You’ve launched a new strategy.

An organization might take the strategic decision to approach its work in a different way for any
number of reasons. It might also change the ways it measures success.

For example, a publishing company might decide to produce less in print, offer more free
content online, and aim to generate more of its profits from advertising. In which case, it would
have to set new goals for website engagement and advertising revenue, which would in turn
trigger a need to redesign its organization and structure so that it could successfully achieve its
new strategic goals.

3. Your Current Design Is Not Fit for Purpose.

Change is often gradual, but at some point in time, a "tipping point" is reached at which the
organization recognizes a need to adapt to such changes.

Perhaps you're organization has continued to uphold a very strict, hierarchical structure and has
so far been unwilling to offer flexible working options, but recently its noticed that this has
negatively affected recruitment and staff retention. Absences are also up and engagement is
low. Enough's enough: your organizational design needs to change if you are to continue to
attract and retain the talent you need to stay competitive.
Reference: https://whatfix.com/blog/organizational-structure/

Types of Organization Design

1. Functional structure

A functional structure groups employees into different departments by work specialization. Each

department has a designated leader highly experienced in the job functions of each employee

supervised by them.

Most often, it implements a top-down (centralized) decision-making process where department

managers report to upper management. Ideally, leaders of different teams communicate

regularly and coordinate their strategies while lower-level employees have little idea of the

processes taking place outside their department.

The main challenge companies with a functional structure face is the lack of coordination

between departments. Employees may lose the larger company context when focusing on very

specific tasks and failing to interact with members of other departments. 

To create a functional organizational structure that works, you’ll need to train leaders to foster

collaboration across departments.

2. Divisional structure

A divisional structure organizes employees around a common product or geographical location.

Divisional organizations have teams focused on a specific market or product line.

Examples of companies applying a divisional structure are McDonald’s Corporation and Disney.

These brands can’t help but split the entire organization by location to be able to adjust their

strategies for audiences representing different markets.

These smaller groups are relatively independent and mainly follow a decentralized framework.

Still, the leaders of each department are likely to operate under centralized corporate

management. It means that company culture is dictated by top management, but operational

decisions can be made by each division independently.

Giants such as McDonald’s and Disney also add functional units to their structure for better

3. Matrix structure

Within a matrix organizational structure, team members report to several managers at once.

Wait, what’s the point?

Having multiple supervisors allows for company-wide interaction and faster project delivery. For

instance, when answering to functional managers and project managers, employees have a
chance to collect experience outside their team. While functional managers can help to solve

job-specific issues, project managers can bring in knowledge or talents from other departments.

If you go after a matrix organizational structure, you’ll need to find a way to avoid authority

confusion and prevent conflicts between managers. 

4. Team structure

A team-based organizational structure creates small teams that focus on delivering one product

or service. These teams are capable of solving problems and making decisions without bringing

in third parties.
Team members are responsible for managing their workload and have full control over the

project. Team-based organizations are distinguished by little formalization and high flexibility.

This structure works well for global organizations and manufacturers.

5. Network structure
A network structure goes far beyond your internal company structure. It’s an act of joining the
efforts of two or more organizations with the goal of delivering one product or service. Typically,
a network organization outsources independent contractors or vendors to complete the work.
In a network organization, teams are built from full-time employees as well as freelance
specialists – this way, in-house workers can spend most of their time focusing on the work they
specialize in. Such an approach allows companies to adapt to market changes and obtain the
missing skills fast.
Working with individuals that aren’t integrated into your company culture results in lower
formalization and higher agility.

6. Hierarchical structure
You must already have an idea of what a hierarchical structure is. It’s the most common
organizational structure type that follows a direct chain of command.
A chain of command, in this case, goes from senior management to general employees through
a range of executives on the departmental and team level. The highest-level executive has the
highest power over the decision-making process.
On one hand, this structure enables organizations to streamline business processes, develop
clear career paths, and reduce conflicts. A company hierarchy leaves no place for challenging
managers’ authority, which can be good in some cases. 
On the other hand, a hierarchical structure slows down decision-making and may hurt employee
morale.

7. Flat organization structure

In a flat organizational structure, there are few middle managers between employees and top
managers. The structure requires less supervision, increases employee involvement, and
boosts trust in the workplace.

Due to its simple nature, a flat organization structure, also called a “flatarchy”, is typically used
by small businesses and startups.

Key Points
Organization Design is a process for shaping the way your organization operates, to help you to
pursue your strategies and meet your goals. It involves setting up structures and systems, as
well as helping people to adapt to new ways of working.
Typically, there are three key triggers for Organization Design: a change in the environment, a
change in strategy, or a current design that is no longer fit for purpose.
Organization Design is generally divided into two main approaches:
 Hierarchical. Usually very rigid and complex, with a top-down management approach.
 Organic. A more flexible, flat structure, where collaboration and two-way participation is
encouraged between leaders and team members.
There are three key steps that can help you to implement a new organization design. These are:
1. Considering the impact.
2. Creating a collaborative plan of action.
3. Communicating and providing support.