What Is Organizational Design and Structure and Why Is It Important?

By Indeed Editorial Team

Published June 1, 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Knowing your position in the hierarchy of an organization is essential to understanding your roles and duties. Individuals who understand their roles and tasks are likely to be more productive and produce high-quality work. Understanding the concept of organizational design and structure can help you discern your level in a company hierarchy. In this article, we discuss organizational design and structure, its importance and effect on businesses, define its elements, and look at different types of organizational structures.

What is organizational design and structure?

Organizational design and structure is a combination of organizational structure and organizational design, which are two individual concepts with distinct definitions. Organizational structure is the fixed hierarchical model of an organization. It establishes levels of command, distribution of tasks, allocation of roles, and the upward mobility of employees. It also determines the decision-maker, the people to whom employees report, and the relevance of every part of the system.

In contrast, organizational design is the dynamic model of that structure. It consists of the processes involved in structuring the company and the employees' procedures to fulfil their job descriptions. It's the unification of company resources to actualize its needs based on factors such as customer requests, market forces, and government regulation.

Related: Definition of an Organization Type (With a List of Benefits)

Why is organizational design and structure important to businesses?

Here are some reasons organizational design and structure is vital to businesses and how it affects them:

Display of hierarchy

Having a well-defined organizational structure makes it easier for employees to understand the hierarchy of authority. This promotes productivity, as employees know where to submit tasks, seek guidance or permission, and receive feedback on their work. Establishing a clear hierarchy of authority prevents workplace conflicts because employees understand who makes the final decisions, helping promote a healthy work environment.

Discovery of team results

An organized design in a business highlights teams with positive results and those with subpar results. Efficient teams get rewards, while the teams that could improve get re-allocations or assistance. Analyzing team results promotes productivity because the teams undergo performance reviews per their organizational design.

Clear delegation of duties

The organization of roles dictates a reasonable flow of tasks. Each position possesses its obligations, and each employee knows what to do. This clear delegation prevents duplication of functions and ensures that employees don't perform tasks that aren't assigned to them.

Efficient use of employees

An organized design ensures that employees face their duties with their best concentration. The design dictates the shuffling of managers, allocating tasks, and using company resources to achieve the best results from employees. An organized design enables the business to get the optimal value from its employees and human resources.

Related: Guide To Organizational Behaviour Principles

Promotion of accountability

An orderly design of workflows creates a culture of accountability in a business. The command structure directs the lower levels to report to the higher levels. Employees are accountable for their performance while giving reports to the managers. The managers also account for the tasks under their supervision to the central authority.

Related: 8 Essential Tips for Leading by Example in the Workplace

Types of organizational structure

Here's an overview of the different organizational structures a company can implement:

Matrix structure

This structure comprises horizontal movement between different departments of a company. It's a fluid model that allows for effortless reallocation of employees among tasks and responsibilities. Employees have the privilege of gaining skill sets outside their primary skill set because of the flexible structure. The heads of departments also benefit from choosing any team member, from any team, based on the required tasks.

Related: Understanding a Matrix Organizational Structure

Divisional structure

This structure comprises autonomous units of command that report to a central authority. Businesses with many departments in different territories primarily employ this structure. Each department possesses a hierarchical model that ends with an executive head. This head runs the department autonomously, sends reports to the central authority, and acts on directives from the centre. This organizational structure can efficiently operate on the perceived needs of the franchise's customers in that territory.

Network structure

This complex structure connects teams in an exact location with those in different places. The entire company is in a constant state of connectivity that helps quickly allocate tasks to the unit fit for a job. This structure is suitable for multi-national or multi-state companies with freelancers and third parties on their payroll. The streamlined structuring model stimulates better communication and information exchange among the company's employees.

Hierarchical structure

This structure consists of a vertical model of positions that defines the power flow from the top to the bottom. It's the most common organizational structure and most likely to come to anyone's mind when thinking about organizational structures. The centralized nature dictates that the central authority makes the major decisions for the entire company. Employees join specialized teams and move up the company hierarchy as they improve.

Related: What Does Seniority Mean at Work? Structures and Advantages

Team structure

This structure focuses on management flexibility, providing an ease of movement that enables managers to move from team to team, handling each team's tasks. It's a decentralized structure, favouring employees by leaving them in their comfort zones and only moving the managers. This system promotes accountability because a new manager scrutinizes the performance of the previous manager before starting their work. The teams are autonomous in task implementation and only give reports after performing their duties.

Functional structure

The structure comprises units of control based on specialization. For example, the company forms human resources, legal, administrative, sales, operations, marketing, press, research, and finance teams. Each team has its transparent chain of command, and the employees have their specialized roles. This system enables easy identification of the unit to actualize a company's needs. It also leads to faster growth because it connects people doing similar tasks, encouraging constant learning.

Projectized structure

It consists of a centralized focus on a company project where all managers supervise all employees until the completion of a project, repeating the cycle for every task. This structure encourages greater employee participation as it involves everyone. Such excellent participation leads to energetic procedures and quick results. Employees gain versatility due to working with everyone on a single project.

Flat structure

In this structure, most of the employees possess an equal level of authority, with only a few managers having higher levels of control. This structure is typical in start-ups or firms with few employees because it grants employees more autonomy in completing tasks and encourages interaction. There's less bureaucracy because almost everyone can communicate easily and comfortably.

Related: What Is a Flat Organizational Structure?

Simple structure

This structure consists of a business owner supervising several staff members, providing a broad scope of control over the staff. This model ensures quick decision-making and easy delegation of duties. Employees are also close to the central authority and can easily make suggestions. There's no department, only different employees for different roles.

Product-oriented structure

This structure comprises units of the company, each focusing on a separate set of products. This structure ensures healthy competition among the teams regarding revenue and social impact. The product-based units are autonomous, operating like mini-companies, and have typical company departments. All units also send reports to the central authority and receive general operational directives from the centre.

Related: What Is a Competitive Advantage? (Definition and Examples)

Elements of organizational design

These are the six essential elements of organizational design:

Spectrum of control

This factor determines the scope of supervision a manager possesses. A manager with a broad spectrum of control can be in charge of many employees and tasks at a time. Managers' scope of control typically gets broader the higher they rise in the company hierarchy.

Specialization of tasks

This element considers the delegation of duties. The managers distribute tasks based on the levels of specialization. Dividing work into specialized roles enables faster results and outstanding productivity. This element heavily involves managers because they understand employees' strengths and delegate the tasks according to observed strengths.

Formal or informal procedures

This element details the methods of initiating tasks in a business. An informal process dictates that the team member can perform the functions using their desired process. Conversely, a formal system defines the specific procedural rules for the employee. Small businesses generally employ informal procedures, while large companies use formal methods.

Chain of command

This element displays the flow of authority in the company. It shows the employees the hierarchy in the company and leads to a culture of striving for the top. This also helps the employees get to know their task-givers and direct supervisors.

Decision-making

This element considers whether a centralized body makes the decisions or decentralized bodies do. A centralized body is usually the chief executive officer, board of directors, or business owner. Decentralized bodies make decisions when the company comprises different autonomous units.

Compartmentalization

This involves the division of the business into specialized or non-specialized teams. Each technical department, such as legal, finance, sales, and marketing, may receive tasks in their sphere of specialization. A non-specialized team is a mix of employees from different specialized departments.

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