Factors to Consider When Designing an Organization Structure

An organization's structure amounts to its strategy for deploying talent throughout the company. Whether that deployment accomplishes a business' aim depends in part on the strength of the organizational design. Organizational design creates operational relationships between people, lays out boundaries of responsibility and sets out who is accountable to whom. There are a several ways to structure an organization. The right design arises from a company's needs and aspirations, deploying people accordingly.

The best approach to organizational design tailors it to a company's strategic plans. The plans, meanwhile, follow from a company's vision, which itself follows from the company's mission. Mission is a business' reason for being -- its purpose. Vision is a company's ultimate accomplishment, the realization of the mission. All strategy tries to fulfill the vision, and the organizational structure should support that effort. For instance, a company that has decided to expand to overseas markets might organize itself into geographical divisions. Changes in strategy call for an updated structural design.

The business environment that employees work within cannot be ignored by organizational designers. An unpredictable, rapidly changing environment demands flexibility, adaptability and interdepartmental cooperation. In such a situation, a rigid, mechanized structure would stifle the agility and responsiveness of staff. Designers can instead build an organic, horizontal structure, which flattens management levels and decentralizes decision-making. A stable environment, meanwhile, allows for the controls, well-defined tasks and centralized authority found in the mechanistic structure with its vertical tiers of increasing power.

Small businesses with few people often have an overlap of roles, behave informally and don't write a lot of rules. Since this organization arises organically, it would be a mistake to try to overlay a formal, mechanistic structure on it. Doing so would be an exercise in futility. Also, the unnecessary bureaucracy could get in the way of operations. Large organizations need more control and oversight. A mechanistic structure creates clear accountability and responsibility and is, therefore, suitable for companies with many employees.

At the beginning of a company's life, its small size allows the organic structural qualities that encourage flexibility and responsiveness. As it matures and expands, a company begins to mechanize, adding rules, policies and procedures; closely defined tasks; extensive internal systems of control and command chains. In short, maturity gives rise to bureaucracy. The older the company, the more likely the bureaucracy has become unwieldy, presenting a barrier to innovation, adaptability and quick reactions. Organizational design should factor in the extent to which an older company needs to restructure itself to reduce its mechanized structure.

Structural designs have pros and cons, so designers should consider the structural design carefully. Two common structures are the functional and divisional structures. The functional structure creates departments according to business activities, such as production, marketing and finance. Having activities so grouped increases efficiency but can lead to barriers between departments. The divisional structure groups people according to product, customer or geography, in effect creating small companies with their own marketing, finance and production capabilities. This makes divisions focused and responsive, but duplicates business activities between divisions and within the company as a whole.