The design of the organization’s structure is a critical factor in how effectively the organization will achieve its strategic goals. Edgar Schein has suggested four elements that must be present for the design of an organization to be effective: common goals, division of work, coordination of effort, and authority structure. The careful development of each of these elements is essential for the organization to function effectively.
A number of models for designing organizations have emerged over the course of the twentieth century. One of the first models of organizational design was bureaucracy, which the German sociologist Max Weber described almost a century ago.
Weber’s bureaucracy included four important characteristics:
A clear-cut division of labour to ensure efficiency. Individuals were to be trained to perform specific tasks so that they could perform them well.
Staffing and promotion on the basis of tests to ensure that these decisions would be made on the basis of what individuals know, rather than who they know.
A formal system of well-defined rules and policies to ensure fairness and consistency, and to reduce bias and subjectivity in decision-making.
A clearly identified hierarchy of authority to ensure that rules and policies are followed.
The organizational structure that emerged to implement the specialization strategy is called the functional organization. The organization is divided into units, with each unit performing one of the specialized functions essential to the operation of the business. The functional model is most effective for organizations producing a single product or service for a single market. For organizations producing more than one product or service and/or operating in more than one market, a different model is typically used as a basis for structuring the organization. This model is called the divisional structure.
In the divisional structure, the work of the organization is divided according to the geographic areas in which the organization competes. For many complex organizations providing many kinds of products and/or serving many markets or customer categories, the structure might actually combine the functional and divisional models.
During the 1980s, there was a significant increase in what has come to be known as the conglomerate structure. Organizations with a conglomerate structure have separate divisions operating in entirely different industries. The conglomerate model provides organizations with the ability to expand themselves almost indefinitely.
The functional, divisional, and conglomerate models are all bureaucratic, and each has specific advantages.
As the rate of change has accelerated in organizations’ environments, management has been challenged to develop organizational designs that are faster to respond and more flexible than the traditional bureaucratic models.One of the early forms of flexible organization was the matrix organization, in which specialists are assigned to a specific project or product or customer account.
In a traditional organization, a marketing or accounting specialist, for example, works only with other marketing or accounting specialists in a marketing or accounting department. In a matrix organization these specialists work directly with specialists from other areas in finance, for example, or with specialists from computer information systems as part of an ongoing group or team assigned to a long-term project or to develop a new product.
A second form of flexible organization is the horizontal organization. The objective of the horizontal corporation is to expand the focus of everyone in the organization beyond their own narrow area of functional expertise, and even beyond their specific product or project team.
To minimize the number of disconnectors – the problems that occur whenever work moves from one department to another or from one functional specialist to another – the horizontal organization attempts to reduce the levels of management in the organization, and to eliminate the boundaries between departments. To accomplish this, the horizontal, or ”flat” organization begins by identifying the three to five key processes necessary for the success of the organization, and by defining performance goals in each of these areas.
A third design option for meeting the organization’s need for speed and flexibility is the network organization. The network organization is not really an organization in the traditional sense, but rather a temporary alliance of organizations that come together to take advantage of a strategic opportunity. Most organizations do not have all the in-house expertise needed to respond to every opportunity or challenge – and by the time they developed the necessary expertise, it might be too late to take advantage of the opportunity. The network organization brings together independent companies with different areas of expertise to function as a temporary organization.
Finally, there is no one best way to design or structure organizations. The best way always depends on the situation. Each of Schein`s elements for effective design must be satisfied, and there is need for adaptability as well. But the specific design of a particular organization should ultimately reflect a range of variables. The manager’s responsibility, as in any design task, is to satisfy the design requirements in the most effective structure possible to enable the organization to pursue its strategic goals.
It is highly unlikely that the bureaucratic organizational structure will ever disappear. Within every organization there is today a difficult tension. On the one hand there is the need for the kind of rules and clear authority structure that bureaucracy provides. On the other there is the need for speed and flexibility. It is management’s responsibility to recognize both these needs, and to exercise creativity and judgment in structuring the organization for optimum performance and for effective response to change.