Rethinking organizational structure

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As our companies grow and mature, we are forced to think and rethink organizational design several times over. Even more so right at this time when we are witnessing a profound change in the social paradigm, the way we function must be rethought for greater agility and flexibility.

We will be undergoing a decade of redefining organizational structures, driven essentially by three factors:

  1. Company growth and life cycle
  2. New technology-enabled forms of work, such as teleworking,
  3. A new paradigm for agility.

For many years, the level of change in organizations was very low and slow. Many companies even kept their initial structure throughout their lives. Today, organizations are under strong pressure to change and be responsive to these new scenarios. The traditional pyramid organization chart with hierarchies, fixed positions, and task descriptions symbolizing the much-sought organizational stability for attaining efficiency, no longer works for achieving organizational agility.

Should a company seek the perfect structure? No, because the perfect organization structure doesn’t exist. The most robust organizations won’t be the ones that simply have the best possible structure for a given moment, but the ones with the capacity for continuous adaptation.

Symptoms of structure failures

Organizational Design is a process through which the structure and functioning of an organization is defined, and in relation to how work is divided up, the decision-making process, supervision, and control. Why? So that the organization meets its goals.

In reality most structures result from evolution and not from careful planning. However, a time comes when several symptoms begin to reveal that the current structure is no longer adequate. These symptoms are reflected in the attitudes and working conditions that hinder the activities for running the business as usual and create unnecessary strains. Here are some of the symptoms revealing the deficiency of the current structure:

  • Lack of time for analysing strategic issues due to pressure from operating activities
  • Sluggish or poorly defined product offering and/or customer services
  • Failure in the coordination between sectors/divisions
  • Excessive duplication of functions between departments in the organization
  • A poor work climate, with tense relationships, and a stressed and/or overwhelmed workforce
  • Few workforce development opportunities
  • Performance and efficiency below expectations.

When one or more of these variables are present, then we need to rethink how we are functioning and how we should change this.

Parting with traditional hierarchical structures

A hierarchical structure is characterized by centralized decisions, with hierarchical levels and segregation between functions and departments Lower-level employees do not participate in decisions and information is trickled top-down. This is the world of what I call “manage and control”, where the focus is on measuring, in commanding—and not on agility.

In company evolution, the first “start-up” stage is typically characterized by an organic, non-hierarchical structure. What defines an organic structure? Participating in decisions, freely circulating information, polyvalence, flat or horizonal organization structures. When companies became professionalized, they adopted hierarchical, specialized structures with lines of command. However, we now face new challenges: we are in a new era that calls for agile organizations, embracing organic structures to enable participation, autonomy and interconnections in the organization. (See Figure 1. Difference between hierarchical and organic structures). Hierarchical structures are no longer as valued as they were before … they are sluggish. Nowadays the quest for control is more precisely achieved through technology, while also pursuing flexibility, agile responsiveness, and better interconnections with the ecosystem.

New structures for agility

Giving weight to greater participation and agility in organic structures, the organizational structures valued today are based on self-management and team empowerment.

This is not new; “Lean Structuring” started at Toyota in the seventies. Here the organizational design is based on the company’s core operating functions and it is also a highly flexible and adaptable design. This approach focuses on eliminating unnecessary steps and empowering whoever does the work, while supporting the value chain. Today we talk about Lean Management as a philosophy: it is not just for the automotive industry, for the industry sector, or for large companies: it is a customer-focused approach that seeks to simplify, while fostering responsible, quality management.

As heirs to the Lean approach, new structures emerging in the 4.0 world seek agility, based on the self-management of autonomous teams. These so-called working cells—Squads (e.g., in Spotify) or Pods (e.g., in Globant)—share the same features around two core elements: alignment and autonomy.

How to rethink structure

The elements that must be considered for rethinking the structure are as follows:

  1. Strategy
    If, for instance, your organization seeks to be innovative, a hierarchical structure will be a hindrance. If your strategy is based on efficiency and high-volume transactions, then perhaps a rigid, control-oriented structure will work better.
  2. Size
    Organizational designs should undergo transformation as organizations become larger.
  3. Context
    Is the environment in which the company operates not very predictable and highly volatile? Then what is required is an organizational design favouring flexibility.
  4. Controls
    How much need is there for control in your business?
  5. People and their skills
    Empowered teams work when people can be autonomous.

After considering these big sections along with others that you think are important to your business and culture, the next step is to analyse the big issues or pain points that must be resolved.

Most likely you will be able to think through the current organizational design and solve current operational problems. However, as always, “new solutions create new dilemmas,” and you will soon find yourself rethinking new transformations. As said earlier, the perfect organizational structure does not exist. The great challenge is to achieve a culture that encourages continuous adaptation.

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