Examining International Organisational Design25th November 2021 0 By indiafreenotes
Organizational design is the administration and execution of an organization’s strategic plan. This means that the organization’s strategy determines the optimal organizational design. In addition, it also means that there aren’t really any organizational design best practices. As we discuss in our Organizational Development Certificate Program, organizational design is more about creating the best fit between the strategic choices of the organization and the organizational setting.
This is represented in the figure below. Organizational design is determined by the strategic direction of the company, a.k.a. the vision, mission, and goals of the company. These lead to strategies that the company competes on which are enabled through the organizational design.
Types of Organizational Structure
Companies may adopt one of six organizational structures based upon company size and diversity of scope of operations.
Ideal for smaller companies, the pre-bureaucratic structure deliberately lacks standardized tasks and strategic division of responsibility. Instead, this is an agile framework aimed at leveraging employees in any and all roles to optimize competitiveness.
A bureaucratic framework functions well in large corporations with relatively complex operational initiatives. This structure is rigid and mechanical, with strict subordination to ensure consistency across varying business units.
This structure is a combination of bureaucratic and pre-bureaucratic, where individual contribution and control are coupled with authority and structure. In this structure, consensus is the driving force behind decision making and authority. Post-bureaucratic structure is better suited to smaller or medium-sized organizations (such as nonprofits or community organizations) where the importance of the decisions made outweighs the importance of efficiency.
A functional structure focuses on developing highly efficient and specific divisions which perform specialized tasks. This structure works well for large organizations pursuing economies of scale, usually through production of a large quantity of homogeneous goods at the lowest possible cost and highest possible speed. The downside of this structure is that each division is generally autonomous, with limited communication across business functions.
A divisional structure is also a framework best leveraged by larger companies; instead of economies of scale, however, they are in pursuit of economies of scope. Economies of scope simply means a high variance in product or service. As a result, different divisions will handle different products or geographic locations/markets. For example, Disney may have a division for TV shows, a division for movies, a division for theme parks, and a division for merchandise.
A matrix structure is used by the largest companies with the highest level of complexity. This structure combines functional and divisional concepts to create a product-specific and division-specific organization. In the Disney example, the theme park division would also contain a functional structure within it (i.e., theme park accounting, theme park sales, theme park customer service, etc.).
Strategic Organizational Design
Structure becomes more difficult to change as companies evolve; for this reason, understanding which specific structure will function best within a given company environment is an important early step for the management team. Smaller companies function best as pre-bureaucratic or post-bureaucratic; the inherent adaptability and flexibility of the pre-bureaucratic structure is particularly effective for small companies aspiring to expand. Larger companies, on the other hand, achieve higher efficiency through functional, bureaucratic, divisional, and matrix structures (depending on the scale, scope, and complexity of operations).
McDonald’s fast-food restaurants departmentalize varying elements of their operation to optimize efficiency. This structure is divisional, meaning each specific company operation is segmented (for example, operations, finance/accounting, marketing, etc.).
Specialization principle. This principle states that boundaries should exist to encourage the development of specialist skills. The test here is if any specialist cultures, which are entities that have to be different from the rest of the organization, have sufficient protection from the influence of the dominant culture.
Co-ordination principle. This principle states that activities that are done should be coordinated in a single unit. This unit can be a business unit, business function, (horizontally coordinating) overlay unit, sub-business, core resource unit, shared service unit, project unit, or parent unit. The test here is if there needs to be coordination between departments that is hard to do. These ‘difficult links’ are links where normal networking will not provide coordination benefits. In that case, coordination should be made easier, or responsibility should be put in within a single unit. There are many different units that can be used in organizational design, as we will show below.
Knowledge and competence principle. This principle states that responsibilities should be allocated to the person or team best fit to do them. This means that tasks are retained by higher levels based on their knowledge and competitive advantage. If this is not the case, they should be positioned lower in the organization.
This means that the CEO should not be involved in every decision especially not decisions that involve specialists with much more subject-matter knowledge. The CEO is there for the big picture and to balance complex decisions that impact the organization and strategy.
Control and commitment principle. This principle is about having effective control on the one hand while maintaining engagement and commitment on the other hand. This is always a balance. The test here is to have a control process that is aligned with the unit’s responsibility, cost-efficient to implement, and motivating for the people in the unit.
This means that the CEO is not giving the ‘go’ on the purchase decision for a Rs. 3000/- keyboard this would be highly demotivating and control on such small expenditures should be put lower in the organization to be adaptive anyway.
Innovation and adaptation principle. This principle states that organizational structures should be sufficiently flexible to adapt to an ever-changing world. The test here is that the organizational design will help the development of new strategies and to adapt to future changes. Later in this article, we will give a case study of an organization that was unable to adapt to a rapidly changing environment, hurting its internal processes and bottom line.