Organizational Design and Structure – Meaning and Importance

Organizational Design and Structure

Organizational design  is defined as a process of reshaping organization  structure  and roles, or it can be more effectively defined as the alignment of the structure, process, rewards and talent with the strategy of the business. Amy Kates and Jay Galbraith have found (building on years of work by Galbraith) that attention to all of these organizational elements is necessary to create new capabilities to compete in the given market. This systemic view is referred to as the “star model” approach and is more likely to lead to better performance .

Organization design may involve strategic decisions, but is properly viewed as the path to execute strategies effectively . Many companies fall into the trap of making repeated changes in the organizational structure, with a little benefit to the business. This often occurs because the changes in the structure are relatively easy to execute while creating the impression that something substantial is happening. This may leads to confusion within the organization. More powerful change happens when the design objectives are clearly driven by the new business strategies or forces in the market that require a different approach to organizing resources .

The organizational design process is often defined in the phases. Phase one is the definition of a business case, including the clear picture of the strategy and the design objectives. This step is followed by the “strategic grouping” decisions, which defines the fundamental architecture of the organization — essentially deciding that which major roles will report at the top of the organization.

The most successful organizational design processes have the following three things in common;

  1. Focus on the excellence — create an organization that will respond to the customer needs today and in the near future, that will create a competitive advantage and will both reflect and encourage the values and culture you desire. Even if the cost cutting is a part of what is driving your change, do not start with the cost-cutting as an objective rather start with the organizational effectiveness as your objective .
  2. The people in the organization drive the process and not the organizational design consultant — clarifying roles at the beginning of the process is essential. Organizational design should be created by the human beings responsible for the organization’s success. Consultants should need to create a partnership where expertise is shared freely, but where those who know their own business should drive the process .
  3. Involve and Communicate — it has been found that when more people gets involved in the process, the more effective will be the outcome. Involve as many people at as many different levels as early as possible in the process. There should be a multiple team approach. They need to be addressed as they are working through the organizational design process, so that they can continue to include those people who knows the work the best .

Organizational Structure is a  framework, typically hierarchical, within which an organization arranges its lines of authority and communications, and allocates the rights and duties. Organizational structure determines the manner and the extent to which roles, responsibilities and power are delegated, controlled and coordinated and how information flows between different levels of management.

The structure depends entirely on the organization’s objectives and the strategies chosen to achieve these goals. In a centralized structure, the decision making power is concentrated in the top level of the management and a tight control is exercised over the departments and divisions. In a decentralized structure, the decision making power is distributed among different levels of management and the departments and divisions have varying degrees of autonomy.

Importance of  Organizational Design and Structure

Two important factors in the organizational development are the organizational design and structure. These two components help defining the corporate cultures, expectations and the management style. When the organizational design and   structure works together, they create a higher productivity and efficient working environment, where the employees are motivated and the customers are satisfied .

A good  organizational design and structure is necessary for an organization to accomplish the following aspects :

  1. Communication — The flow of information is always essential for the success of an organization. The organizational structure should be designed in such a way to ensure that the individuals and the departments need to coordinate their efforts and should have the lines of communication into their structure. The financial planning and the analysis department might report to the Chief Financial Officer and the Senior Vice President of the marketing, because both of these members of the top management team depends upon the information and the reports provided by the financial planning.
  2. Reporting Relationships — Reporting relationships should be clear so that all the members of the organization should understand what their responsibilities are and to whom they are accountable. These clear relationships make it easier for the managers to supervise those who are in lower organization levels. Each employee should know that whom they can turn up for direction or help. In addition to this , managers are aware of who all are outside the scope of their authority, so that they dont overstep their boundaries and interfere with some another manager’s responsibilities.
  3. Growth and Expansion — All those companies that grow rapidly are those that makes the best use of their resources, including management. A good organizational structure ensures that the company has the right people in the right positions. The structure may suggest some weak spots or the deficiencies in the company management team. As the company grows, the organizational structure must evolve with its growth. Many a times more layers of management are created, when one department head has too many individuals reporting to him at one time, to give each of the employee the attention and the direction needed for the employee to succeed .
  4. Task Completion  — A well designed organizational structure confirms the completion of the projects. Project managers can better identifies the human resources available to them, if the scope of each department’s responsibility and each team member’s capabilities are clear. A project to develop a new product requires market research. The project manager needs to know that who in the organization can provide this kind of research and whose permission should be needed for the research to be complete.
  5. Fits Company Needs  — Companies in different industries require different mixture of talent and relatively greater emphasis on the certain management functions. A software company often has a large staff for development. Companies often have to go through a re-organization phase in which the individual positions or even the whole departments are re-positioned on the organizational chart, in an effort to maximum utilize the company’s human resources and makes the operation runs more smoothly.

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