Factors Influencing Organizational Design

1. Strategy

Logically structure follows strategy because organizational structures are built to achieve objectives by implementing the strategies. When strategy changes, structures must change. At the corporate level, strategies are formulated based on the company’s mission and strategic goals or objectives.

Organizational structure follows strategy. Structures are designed to achieve the objectives as defined by the organization’s strategy. For example, businesses that want to be the first in the market with new products need organizational structures that let them respond quickly to changes in the market. They need to have the ability to quickly identify rising consumer demands and be able to develop and bring new products to the marketplace before the competition has a chance to react.

Companies that are selling essentially the same products as their competitors have organizations that focus on making products more efficiently and at less cost. Their structures are more mechanical and routine. Repetition breeds efficiency.

2. Understanding the Environment

Structures must be able to adapt to making decisions in uncertain and unpredictable environments. Departments need better coordination and communication in unstable environments for quicker responses to changing conditions. Adaptability must be a priority.

Stability and predictability affect the effectiveness of an organizations’ structure. Companies in stable, mature markets can pursue more formalized structures. Diversity of operations affects organizational design. Companies with broader product lines and more geographic spread need more decentralized decision-making chains of command. Businesses with discount pricing strategies benefit from simple and standardized operations that focus on lowering the costs of production.

In a stable environment, the customers’ desires are well understood and probably will remain consistent for a relatively long time. Examples of organizations that face relatively stable environments include manufacturers of staple items such as detergent, cleaning supplies, and paper products.

In a dynamic environment, the customers’ desires are continuously changing the opposite of a stable environment. This condition is often thought of as turbulent. In addition, the technology that a company uses while in this environment may need to be continuously improved and updated. An example of an industry functioning in a dynamic environment is electronics. Technology changes create competitive pressures for all electronics industries, because as technology changes, so do the desires of consumers.

One of the factors affecting organizational design for international business is geography. In this case, employees are spread across the globe and operate in environments with different business cultures and ethics. The organizational structure has to accommodate these differences.

3. Size of Companies

Larger organizations have more complicated structures. Small companies may not even have a formal structure; everyone performs tasks as needed without formal communication of responsibilities.

Larger organizations are more difficult and complex to manage. They need more formal job descriptions and specific delegation of authority. Organizational influences on job design lead to more specialized tasks. Work procedures are more detailed with rules and guidelines.

Larger organizations need more structure, rules and specialization of tasks. They have more division of labor, different standards for performance appraisals and more budgets.

4. Understanding the Age of Companies or Lifecycle

Organizations, like humans, tend to progress through stages known as a life cycle. Like humans, most organizations go through the following four stages: birth, youth, midlife, and maturity. Each stage has characteristics that have implications for the structure of the firm.

• Birth: In the birth state, a firm is just beginning. An organization in the birth stage does not yet have a formal structure. In a young organization, there is not much delegation of authority. The founder usually “calls the shots.”
• Youth: In this phase, the organization is trying to grow. The emphasis in this stage is on becoming larger. The company shifts its attention from the wishes of the founder to the wishes of the customer. The organization becomes more organic in structure during this phase. It is during this phase that the formal structure is designed, and some delegation of authority occurs.
• Midlife: This phase occurs when the organization has achieved a high level of success. An organization in midlife is larger, with a more complex and increasingly formal structure. More levels appear in the chain of command, and the founder may have difficulty remaining in control. As the organization becomes older, it may also become more mechanistic in structure.
• Maturity: Once a firm has reached the maturity phase, it tends to become less innovative, less interested in expanding, and more interested in maintaining itself in a stable, secure environment. The emphasis is on improving efficiency and profitability. However, in an attempt to improve efficiency and profitability, the firm often tends to become less innovative. Stale products result in sales declines and reduced profitability. Organizations in this stage are slowly dying. However, maturity is not an inevitable stage. Firms experiencing the decline of maturity may institute the changes necessary to revitalize.

Although an organization may proceed sequentially through all four stages, it does not have to. An organization may skip a phase, or it may cycle back to an earlier phase. An organization may even try to change its position in the life cycle by changing its structure.

As the life‐cycle concept implies, a relationship exists between an organization’s size and age. As organizations age, they tend to get larger; thus, the structural changes a firm experiences as it gets larger and the changes it experiences as it progresses through the life cycle are parallel. Therefore, the older the organization and the larger the organization, the greater its need for more structure, more specialization of tasks, and more rules. As a result, the older and larger the organization becomes, the greater the likelihood that it will move from an organic structure to a mechanistic structure.

5. Importance of Technology

Technology affects organizational design by enhancing the methods of communication. An example is the growth of the “virtual organization.” No longer is it necessary for employees to be on site or physically located at a central office. Managers have the ability to communicate more quickly and effectively with email, shared calendars and online conferences and presentations.

Organizational structures are dynamic. The method that worked in the past will not necessarily work for the future. The business grows, markets change, prices fluctuate and competition gets tougher. All of these factors mean that the organization must adapt to meet these challenges and find the best methods to utilize employees’ skills.