Eddy’s HR Mavericks Encyclopedia
The world's largest free encyclopedia of HR, with 700+ HR articles and podcasts.
Created by Eddy and our HR Mavericks community.
Organizational Design
Do you want to rapidly grow your organization or maintain your competitive edge in an ever changing market but are not sure where to begin? Look first to your organizational design! Read on to learn more about how an effective organizational design can set you up for success.
What Is Organizational Design?
To truly implement something, you must first understand it. Organization design is the process of taking a company structure and ensuring it’s in line with the company objectives. If you want an exact science formula for organizational design to be used across all companies and fields, you’re going to be sadly disappointed. Before you dive into the ins and outs of organizational design, know it is extremely individual for each company and can be difficult to structure generally.
Why Is Organizational Design Beneficial?
While the specific organizational designs will vary from company to company based on their needs and pain points, the benefits are profound for all.
- Opens the door for dialogue. When an organization takes the time to clearly detail the desired structure and design of the company, they leave the door open for employees to communicate about the process. Perhaps employees are experiencing issues due to the organization’s structure and the clearly defined organizational design allows them to pinpoint the issue and communicate it effectively.
- Takes out the guesswork. As an HR professional, there is nothing worse than trying to explain the culture and organization’s direction to employees when you don’t understand them yourself. Having a clear organizational design that includes the desired strategy for moving forward takes the guesswork out of “where are we going” and “how do we get there” for everyone.
- Boosts morale. One of the most important things in a company is maintaining a positive morale for all employees. Ensuring there is no confusion and the doors of communication are open when it comes to your organizational design is a tried and true way to boost morale and keep it positive long term.
- More efficient decision making. As a team of leaders in your organization, if your design is laid out clearly, there won’t be a number of confusing routes just to ensure you get approval on a new document. The design will be clearly defined and understood by all so you know how to get things done effectively and efficiently.
Common Organizational Design Models
There are common approaches to organizational design that you should take into consideration when you evaluate models for your organization.
Functional
One of the most widely used for small-to-medium-sized businesses is the functional organizational design structure. This improves productivity through clearly defined authority and responsibility by establishing a hierarchy for the organization and sticking to it. When an organization is designed this way, it often has direct line managers who report to department managers who report to corporate managers who then directly report to the vice president. While this is the simplest model because most roles in the organization are already clearly defined, it does create a separation from group to group. This makes anticipating the needs of the organization as a whole more challenging. It can also require many layers and “hoops to jump through” for approvals, because authority and decision making ability is centralized at the top.
Divisional
Whether your organization separates everyone into categories like marketing and operations, or by location like the California section and the Texas section, they are examples of divisional organizational structure. This structure is helpful for large organizations to effectively keep track of specialized department outputs. Having a divisional organizational design may enable your company to more easily monitor performance as divisions are categorized so that benchmarks can be established and consistently maintained. While this method may work for your organization, as with every organizational design method, it has its downfalls. Keeping managers in their respective departments with no interaction with other divisions can create a cultural gap and a disconnect across departments.
Matrix
The best of both worlds is the matrix structure of organizational design. With this structure, you combine some of the functional and some of the divisional structure to create one blended model for your organization. You’ll still have employees focusing on the functional part of their role as a manager or team lead or employee, but they will also combine the divisional portion as well, like the operations department or the North American region. Typically this organizational design structure has employees cross training, maybe even reporting to two managers along the way, giving them a more diverse exposure to the organization and more interaction with different levels of management. Your organization may see more cooperation and problem solving skills utilized with a matrix structure. The drawbacks of this structure are inevitable power struggles as you may have two managers for one employee and increased cost facilitating this design.
Team
Taking the best of all three structures is the team organizational design. This design puts all employees, no matter their role, on a team for a common goal. You may have a manager of operations and a member of your European division with an employee from the marketing department together to create a new product to launch for your organization in the coming year. This design creates collaboration and crosses barriers as everyone is equal as they establish and conquer the goal they were assigned. This structure can prove difficult for power struggles within the team as managers find it challenging to be on the same level as employees while they complete the task at hand.
Flat
This type of organizational design is used most commonly in startup organizations and has proven to be beneficial when used appropriately. A flat organizational design does what it says and flattens the idea of hierarchy, providing employees a level of trust and autonomy right from the beginning which leads to high growth volume and lightning speed implementation. Both of these are desperately needed in a startup environment. As the company grows, a flat organizational design can be difficult to maintain if not done appropriately. Employees who started with the organization may feel more of a sense of ownership than those who are hired at different stages of the company, therefore blurring the lines of the flat hierarchy.
Networking
Not as common, but still a viable option depending on your organization, is a networking or network organizational design. In this structure, your organization outsources specific work that your organization may not be able to complete on a contractual basis . This could be anything from accounting to marketing to everything in between. Network organization design allows freedom for your company to focus on pressing tasks at hand without ancillary ones looming overhead. This structure can produce a lack of control as the workers who are contracted are not employees of the organization and therefore their output and productivity may not be sufficient for your company.
Factors That Affect Organizational Design
As you evaluate implementing an organizational design for your company, it’s important to note factors that may affect it so you can ensure you’re thoroughly vetting and implementing appropriately.
Objective or Strategy
The objective and strategy of your organization is extremely individual and can vary drastically between companies. A good way to establish this is to ensure you have the overall plan for your business and ensure your objective and strategy align with it directly. Whether your company wants to grow rapidly in 5 years or maintain a steady rate will affect the organizational design structure you select for your company.
Environment
Without question, environment evaluation is one of those everyday things you need to do to choose your organizational design. Consider the industry of your organization. Evaluate the long term environmental stability. Does your organization have a product or are you in a market that can withstand the test of time against any issue and keep its doors open during any global pandemic? As you evaluate these factors, environmental stability may be one of the most important things to consider.
Technology
Whether we like it or not, the global pandemic proved that technology is what separates us all. Organizations that were able to seamlessly adapt to remote work or a virtual way of life were the ones that sustained their business, while others who could not were forced to shut down. Consider the technology of your company as you evaluate organizational design structure because without it, you may not be sustainable during unprecedented change.
Organization Size
With the different organizational design structures above, you may have some clear winners depending on the size of your organization, so don’t overlook this important factor as you evaluate. Establishing a matrix structure for a small mom and pop startup may not be the best way to structure, but a flat idea may fit better. It’s important to establish a design structure that best fits the current needs of your company size but also can grow with you.
Culture
More and more, employees are looking for a specific type of culture when they consider job opportunities, so evaluate your culture substantially when choosing an organizational design strategy. Are you a culture that values employee beliefs, creates a safe place for open communication, and allows your values to propel you forward? Consider the type of culture you have and the one you would like to implement or maintain and establish your organizational design structure based on that.
Topics
Shalie Reich
Shalie has over 4 years of experience working in a variety of HR positions and organizations including: working as an HR department "of one", working with a start-up based in Europe, to working in a fully established robust USA based HR department. Shalie has experience in multiple states and countries with all aspects of the HR spectrum. She has a passion to share her knowledge and experience to benefit the HR profession!
Frequently asked questions
Other Related Terms
Eddy’s HR Mavericks Encyclopedia
Organizational Design
Do you want to rapidly grow your organization or maintain your competitive edge in an ever changing market but are not sure where to begin? Look first to your organizational design! Read on to learn more about how an effective organizational design can set you up for success.
What Is Organizational Design?
To truly implement something, you must first understand it. Organization design is the process of taking a company structure and ensuring it’s in line with the company objectives. If you want an exact science formula for organizational design to be used across all companies and fields, you’re going to be sadly disappointed. Before you dive into the ins and outs of organizational design, know it is extremely individual for each company and can be difficult to structure generally.
Why Is Organizational Design Beneficial?
While the specific organizational designs will vary from company to company based on their needs and pain points, the benefits are profound for all.
- Opens the door for dialogue. When an organization takes the time to clearly detail the desired structure and design of the company, they leave the door open for employees to communicate about the process. Perhaps employees are experiencing issues due to the organization’s structure and the clearly defined organizational design allows them to pinpoint the issue and communicate it effectively.
- Takes out the guesswork. As an HR professional, there is nothing worse than trying to explain the culture and organization’s direction to employees when you don’t understand them yourself. Having a clear organizational design that includes the desired strategy for moving forward takes the guesswork out of “where are we going” and “how do we get there” for everyone.
- Boosts morale. One of the most important things in a company is maintaining a positive morale for all employees. Ensuring there is no confusion and the doors of communication are open when it comes to your organizational design is a tried and true way to boost morale and keep it positive long term.
- More efficient decision making. As a team of leaders in your organization, if your design is laid out clearly, there won’t be a number of confusing routes just to ensure you get approval on a new document. The design will be clearly defined and understood by all so you know how to get things done effectively and efficiently.
Common Organizational Design Models
There are common approaches to organizational design that you should take into consideration when you evaluate models for your organization.
Functional
One of the most widely used for small-to-medium-sized businesses is the functional organizational design structure. This improves productivity through clearly defined authority and responsibility by establishing a hierarchy for the organization and sticking to it. When an organization is designed this way, it often has direct line managers who report to department managers who report to corporate managers who then directly report to the vice president. While this is the simplest model because most roles in the organization are already clearly defined, it does create a separation from group to group. This makes anticipating the needs of the organization as a whole more challenging. It can also require many layers and “hoops to jump through” for approvals, because authority and decision making ability is centralized at the top.
Divisional
Whether your organization separates everyone into categories like marketing and operations, or by location like the California section and the Texas section, they are examples of divisional organizational structure. This structure is helpful for large organizations to effectively keep track of specialized department outputs. Having a divisional organizational design may enable your company to more easily monitor performance as divisions are categorized so that benchmarks can be established and consistently maintained. While this method may work for your organization, as with every organizational design method, it has its downfalls. Keeping managers in their respective departments with no interaction with other divisions can create a cultural gap and a disconnect across departments.
Matrix
The best of both worlds is the matrix structure of organizational design. With this structure, you combine some of the functional and some of the divisional structure to create one blended model for your organization. You’ll still have employees focusing on the functional part of their role as a manager or team lead or employee, but they will also combine the divisional portion as well, like the operations department or the North American region. Typically this organizational design structure has employees cross training, maybe even reporting to two managers along the way, giving them a more diverse exposure to the organization and more interaction with different levels of management. Your organization may see more cooperation and problem solving skills utilized with a matrix structure. The drawbacks of this structure are inevitable power struggles as you may have two managers for one employee and increased cost facilitating this design.
Team
Taking the best of all three structures is the team organizational design. This design puts all employees, no matter their role, on a team for a common goal. You may have a manager of operations and a member of your European division with an employee from the marketing department together to create a new product to launch for your organization in the coming year. This design creates collaboration and crosses barriers as everyone is equal as they establish and conquer the goal they were assigned. This structure can prove difficult for power struggles within the team as managers find it challenging to be on the same level as employees while they complete the task at hand.
Flat
This type of organizational design is used most commonly in startup organizations and has proven to be beneficial when used appropriately. A flat organizational design does what it says and flattens the idea of hierarchy, providing employees a level of trust and autonomy right from the beginning which leads to high growth volume and lightning speed implementation. Both of these are desperately needed in a startup environment. As the company grows, a flat organizational design can be difficult to maintain if not done appropriately. Employees who started with the organization may feel more of a sense of ownership than those who are hired at different stages of the company, therefore blurring the lines of the flat hierarchy.
Networking
Not as common, but still a viable option depending on your organization, is a networking or network organizational design. In this structure, your organization outsources specific work that your organization may not be able to complete on a contractual basis . This could be anything from accounting to marketing to everything in between. Network organization design allows freedom for your company to focus on pressing tasks at hand without ancillary ones looming overhead. This structure can produce a lack of control as the workers who are contracted are not employees of the organization and therefore their output and productivity may not be sufficient for your company.
Factors That Affect Organizational Design
As you evaluate implementing an organizational design for your company, it’s important to note factors that may affect it so you can ensure you’re thoroughly vetting and implementing appropriately.
Objective or Strategy
The objective and strategy of your organization is extremely individual and can vary drastically between companies. A good way to establish this is to ensure you have the overall plan for your business and ensure your objective and strategy align with it directly. Whether your company wants to grow rapidly in 5 years or maintain a steady rate will affect the organizational design structure you select for your company.
Environment
Without question, environment evaluation is one of those everyday things you need to do to choose your organizational design. Consider the industry of your organization. Evaluate the long term environmental stability. Does your organization have a product or are you in a market that can withstand the test of time against any issue and keep its doors open during any global pandemic? As you evaluate these factors, environmental stability may be one of the most important things to consider.
Technology
Whether we like it or not, the global pandemic proved that technology is what separates us all. Organizations that were able to seamlessly adapt to remote work or a virtual way of life were the ones that sustained their business, while others who could not were forced to shut down. Consider the technology of your company as you evaluate organizational design structure because without it, you may not be sustainable during unprecedented change.
Organization Size
With the different organizational design structures above, you may have some clear winners depending on the size of your organization, so don’t overlook this important factor as you evaluate. Establishing a matrix structure for a small mom and pop startup may not be the best way to structure, but a flat idea may fit better. It’s important to establish a design structure that best fits the current needs of your company size but also can grow with you.
Culture
More and more, employees are looking for a specific type of culture when they consider job opportunities, so evaluate your culture substantially when choosing an organizational design strategy. Are you a culture that values employee beliefs, creates a safe place for open communication, and allows your values to propel you forward? Consider the type of culture you have and the one you would like to implement or maintain and establish your organizational design structure based on that.
Topics
Shalie Reich
Shalie has over 4 years of experience working in a variety of HR positions and organizations including: working as an HR department "of one", working with a start-up based in Europe, to working in a fully established robust USA based HR department. Shalie has experience in multiple states and countries with all aspects of the HR spectrum. She has a passion to share her knowledge and experience to benefit the HR profession!
Frequently asked questions
Other Related Terms
Eddy's HR Newsletter
Sign up for our email newsletter for helpful HR advice and ideas.
