Applications of Structural Design
Each type of structure is applied in different situations and meets different needs. In describing the various structures, we touched briefly on conditions such as environmental stability or change and organizational size that are related to structure.
Each form of structure—functionalOpens in new window, divisionalOpens in new window, matrixOpens in new window, networkOpens in new window, and holacracy teamOpens in new window—represents a tool that can help managers make an organization more effective, depending on the demands of its situation.
Mix and Match
As a practical matter, many structures in the real world do not exist in the pure forms we have outlined in discussing each of the structures.
Most large organizations, in particular, often combine characteristics of various approaches tailored to different parts of the organization.
By mixing characteristics of functional, divisional, geographic, virtual network, or holacracy team structures, managers can take advantage of the strengths of various structures and avoid some of the weaknesses.
Mixing structural characteristics offers the organization greater flexibility in a shifting environment. One approach that is often used is to combine characteristics of the functional and divisional structures.
When a corporation grows large and has several products or markets, it typically is organized into self-contained divisions of some type. Functions that are important to each division are decentralized to the self-contained units.
However, some functions that are relatively stable and require economies of scale and in-depth specialization are centralized at headquarters. For example, StarbucksOpens in new window has a number of geographic divisions, but functions such as marketing, legal, and supply chain operations are centralized. In a huge organization such as General ElectricOpens in new window, WalmartOpens in new window, or Ford Motor CompanyOpens in new window, managers may use a variety of structural characteristics to meet the needs of the total organization.
Ultimately, the most important decision that managers make about structural design is to find the right balance between vertical control and horizontal coordination, depending on the needs of the organization.
Vertical controlOpens in new window is associated with goals of efficiency and stability, while horizontal coordinationOpens in new window is associated with learning, innovationOpens in new window, and flexibility.
Figures X-1 shows a simplified continuum that illustrates how structural approaches are associated with vertical control versus horizontal coordination.
The functional structureOpens in new window is appropriate when the organization needs to be coordinated through the vertical hierarchy and when efficiency is important for meeting organizational goals.
The functional structureOpens in new window uses task specialization and a strict chain of command to gain efficient use of scarce resources, but it does not enable the organization to be flexible or innovative.
At the opposite end of the scale, the holacracy team structureOpens in new window is appropriate when the organization has a high need for coordination among functions to achieve innovation and promote learning.
The holacracy team structureOpens in new window enables organizations to differentiate themselves and respond quickly to changes, but at the expense of efficient resource use. Figure X-1 also shows how other types of structure—functional with horizontal linkages, divisional, matrix, and virtual network—represent intermediate steps on the organization’s path to efficiency or innovation and learning.
The Figure does not include all possible structures, but it illustrates how organizations attempt to balance the needs for efficiency and vertical control with innovation and horizontal coordination. In addition, many organizations combine characteristics of various structural types.
Symptoms of Structural Deficiency
Top executives periodically evaluate organization structure to determine whether it is appropriate to changing needs. Manager try to achieve the best fit between internal reporting relationships and the needs of the external environment.
As a general rule, when organization structure is out of alignment with organization needs, one or more of the following symptoms of structural deficiency appear.
- Absence of collaboration among units
Organization structure should encourage collaboration when and where it is needed to meet organizational goals. It should enable resolution of conflicting departmental needs and goals into a single set of goals for the entire organization.
When departments act at cross-purposes or are under pressure to achieve departmental goals at the expense of organizational goals, the structure is often at fault. Horizontal linkage mechanisms are not adequate.
- Decision making is delayed or lacking in quality
Decision makers may be overloaded because the hierarchy funnels too many problems and decisions to them. Delegation to lower levels may be insufficient.
Another cause of poor-quality decisions is that information may not reach the correct people. Information linkages in either vertical or horizontal direction may be inadequate to ensure decision quality.
- The organization does not respond innovatively to a changing environment
One reason for lack of innovation is that departments are not coordinated horizontally. The identification of customer needs by the marketing department and the identification of technological developments in the research department must be coordinated. Organization structureOpens in new window also has to specify departmental responsibilities that include environmental scanning and innovation.
- Employee performance declines and goals are being met
Employee performance may decline because the structure doesn’t provide clear goals, responsibilities, and mechanisms for coordination and collaboration. The structure should reflect the complexity of the market environment yet be straightforward enough for employees to effectively work within.
- Organization Structures Opens in new window
- Functional Structure Opens in new window
- Divisional Structure Opens in new window
- Matrix Structure Opens in new window
- Geographical Structure Opens in new window
- Virtual Network Structure and Outsourcing Opens in new window
- Holacracy Team Structure Opens in new window
- Adhocracy Opens in new window
- Research data for this work have been adapted from the manual:
- Organization Theory & Design By Richard L. Daft