Organizational structure is...
How an organization is organized.
This is shown by an organization chart.
How are big companies
They have divisions normally based on:
- customers (e.g. by geographical area).
- has its own departments and
- often operates independently to achieve the company's strategic objectives set by head office.
How to get the best structure
1. Strategy and customers come first
Strategy must come before structure, the American economic historian, Alfred Chandler , advised.
First, work out your strategy to satisfy your customers and then build a structure to do it.
Have the simplest structure possible to speed up effective decision making and so give the
best and quickest possible service to customers.
Therefore, the layers of management must be reduced to a minimum (called delayering).
This will flatten the organizational structure and increase the number of people each manager is responsible for
(called the span of control).
This makes empowerment important, because employees will
have to look after themselves by taking responsibility for customer satisfaction (directly or indirectly).
3. Centralization and decentralization
A big company will have:
They centrally control things that are vital for the whole company like corporate strategy and financial
If the company has divisions, the chief executive will give them power (called delegation of
authority) to run their own businesses within the policy guidelines set by head office.
This is called decentralization and is important because it motivates people to achieve
the organization’s aims including (most importantly) customer satisfaction.
So any business must have a balance between:
• Centralization – for achieving co-ordinated purpose (i.e. all employees working together
to delight customers and achieve other organizational objectives).
• Decentralization – for autonomy, motivation and empowerment.
This balance is what Tom Peters (pictured right) and
Robert Waterman (pictured right below) called
“loose-tight properties” in their book, In Search of Excellence.
4. Structure for change and innovation
The structure must enable the organization to change and innovate continuously to satisfy changing customer
So an organization’s structure must be:
(emphasizing performance not position).
Small business units and small multi-functional groups with open communication and loosely defined roles.
(a hatred of unnecessary paperwork and useless meetings).
d) knowledge driven
(giving people knowledge and encourage them to share it).
This knowledge driven structure was called:
5. The boundaryless organization
This means removing communication barriers between different parts of the organization, so that
everyone works together to achieve customer satisfaction.
Therefore, information sharing and multi-functional/divisional
teams result from a boundaryless organization.
6. The inverted pyramid
This is turning the organization structure upside down, so that employees who deal directly with
customers (or front line employees) are placed at the top of the organization.
The inverted pyramid is only a useful ideal, if employees are truly valued (e.g. with better pay) relative to
7. Authority with responsibility
If people have the power (or authority) to do something, they must also have the responsibility for
it (i.e. be accountable for results).
Both authority and responsibility must be clearly defined.
Someone must also have the authority to make the final decision in a given area, whilst the chief executive has
power over the whole organization via a clear chain of command (the line of authority from
the top to the bottom).
This occurs when a boss gives someone the power (or authority) to do something.
Delegation motivates people by increasing trust, freedom and job satisfaction.
Strictly speaking, bosses can’t delegate responsibility, because they remain ultimately responsible for their
9. Structure is for people
The structure should
- make it as easy as possible for employees to delight customers.
To avoid conflicting orders, every employee should only have one boss (or superior) – called the “unity
of command” principle by the French management writer, Henri
Fayol(pictured right) .
But people can have more than one boss in a matrix structure that combines two different
structures e.g. a school has a pupil structure (e.g. head of sixth form) and teaching structure (e.g. head of
Companies may also combine product divisions with geographical trading regions (e.g. Europe and America).
10. Separation of line and staff
Line activities are concerned with producing the organization’s products (e.g. production) and are helped by
staff specialists (e.g. human resources and IT).
Key quotes explained
- Alfred Chandler
(pictured right), Strategy and Structure
Decide on your customer driven strategy and then work out a structure to best
“Keep it simple, stupid (KISS)”
Peters and Robert
Waterman (pictured right), , In Search of Excellence (1982)
The best companies have:
- a “simple form” (i.e. structure)
- “lean staff” (the minimum number of employees to deliver the best possible customer
“Crazy times call for crazy organizations”, Tom
Peters (American management writer).
In times of high change (crazy times), an organization (including its structure) must continuously find new and
better ways of achieving creativity, customer satisfaction and empowerment.
“Maximize creativity...that means open
structures, so that accepted thinking can be challenged”, Anita Roddick (founder of the
Body Shop) said.
To be creative and innovative an organization’s structure must encourage open, constructive debate and
“You need to set up and organize, so that you can do as many experiments per unit of time as possible”,
Jeff Bezos, Amazon’s founder and boss, said.
Henri Fayol (pictured right), General and Industrial Management (1916)
Employees should have only one boss (“unity of command”) and their activities co-ordinated to
achieve a single objective (“unity of direction”).
(pictured right) , My Years With General Motors
Sloan made General Motors the world’s top car company with:
- great products (e.g. the Chevrolet and Cadillac)
- “federal decentralization”, a multi-divisional structure.
Divisions were co-ordinated to achieve customer satisfaction (“co-ordinated
(pictured right) , Managing On The Edge
Structure must encourage creativity and change.
Three things are necessary:
• Fit – all the 7 S’s (structure, strategy, systems, staff, skills,
style and shared values) should work towards the same objective of customer satisfaction.
• Split – splitting the organization up into smaller sections and
teams to give people the freedom and power to be creative.
• Contend – encouraging constructive conflict, or creative argument,
between employees with the same objective of customer satisfaction (called “harmony within
(For more detail see Managing On The
Edge in the Business Books section).
Mintzberg (pictured right), The
Structure of Organizations (1979)
Structure requires the specialization of jobs and co-ordination between them, so they achieve an organization’s
objectives. There are five ways to achieve this co-ordination:
a) mutual adjustment
Co-ordination through informal communication and people changing jobs.
One person telling other people what to do.
c) standardization of work processes
(making them the same throughout the organization).
d) performance standards – to maintain the same levels of employee performance throughout
e) knowledge and skills
(through training and recruitment).
The more an organization has to change (because of changing customer requirements), the more it will need a
decentralized structure to motivate and empower its employees.
This confirms the conclusion of Paul Lawrence and Jay Lorsch in their book,
Organization and Environment (1967) that structure depends on an organization’s
Tom Burns and G.M. Stalker, The Management of
There are two types of structure:
- mechanistic – hierarchical with clearly defined tasks (what Max Weber called a
bureaucracy). This is best suited to situations where there is little change.
- organic – informal, continually changing tasks, open communication and
multi-functional teams. This is best for innovation and creativity.
Schumacher (pictured right), Small Is Beautiful (1973)
People will work better in smaller units, because they don’t get lost in a big structure i.e. “small is
(For more detail see
Small Is Beautiful in
the Business Books section)