A traditional hierarchy is not always the most effective structure.
Financial services firms are known for having tight procedures and rigorous control systems. Staff in design agencies, on the other hand, can sometimes seem to operating as free agents. Big organizations merge to achieve "synergies", but they sometimes also split divisions out into separate, more agile companies.
So why are these organizations so different?
The reason for this variety is that an organization's structure can make a real difference to the way it performs. That's why some companies achieve success through strict controls and systems, but others that try to duplicate that structure may suffer terrible results. It's also why a start-up company has to evolve its structure over time as it grows, and as its strategy and its environment change.
Successful organizations are those that have figured out the best way to integrate and coordinate key internal and external elements. And they understand the importance of reviewing and redesigning their structures on an ongoing basis.
But with so many factors and combinations, how do you determine the best structure for your company at any given time?
According to renowned management theorist Henry Mintzberg, an organization's structure emerges from the interplay of the organization's strategy, the environmental forces it experiences, and the organizational structure itself. When these fit together well, they combine to create organizations that can perform well. When they don't fit, then the organization is likely to experience severe problems.
Different structures arise from the different characteristics of these organizations, and from the different forces that shape them (which Mintzberg calls the "basic pulls" on an organization). By understanding the organizational types that Mintzberg defines, you can think about whether your company's structure is well suited to its conditions. If it isn't, you can start to think about what you need to do to change things.
The main successful organizational structures that he identifies are as follows:
We'll look at each of these in more detail.
This type of organization has a simple, flat structure. It consists of one large unit with one or a few top managers. The organization is relatively unstructured and informal compared with other types of organization, and the lack of standardized systems allows the organization to be flexible.
A young company that's tightly controlled by the owner is the most common example of this type of organization. However, a particularly strong leader may be able to sustain an entrepreneurial organization as it grows, and when large companies face hostile conditions, they can revert to this structure to keep strict control from the top.
The entrepreneurial organization is fast, flexible, and lean, and it's a model that many companies want to copy. However, as organizations grow, this structure can be inadequate as decision-makers can become so overwhelmed that they start making bad decisions. This is when they need to start sharing power and decision-making. Also, when a company's success depends on one or two individuals, there's significant risk if they sell up, move on to new entrepreneurial ventures, or retire.
The machine organization is defined by its standardization. Work is very formalized, there are many routines and procedures, decision-making is centralized, and tasks are grouped by functional departments. Jobs will be clearly defined; there will be a formal planning process with budgets and audits; and procedures will regularly be analyzed for efficiency.
The machine organization has a tight vertical structure. Functional lines go all the way to the top, allowing top managers to maintain centralized control. These organizations can be very efficient, and they rely heavily on economies of scale for their success. However, the formalization leads to specialization and, pretty soon, functional units can have conflicting goals that can be inconsistent with overall corporate objectives.
Large manufacturers are often machine organizations, as are government agencies and service firms that perform routine tasks. If following procedures and meeting precise specifications are important, then the machine structure works well.
According to Mintzberg, the professional organization is also very bureaucratic. The key difference between these and machine organizations is that professional organizations rely on highly trained professionals who demand control of their own work. So, while there's a high degree of specialization, decision making is decentralized. This structure is typical when the organization contains a large number of knowledge workers, and it's why it's common in places like schools and universities, and in accounting and law firms.
The professional organization is complex, and there are lots of rules and procedures. This allows it to enjoy the efficiency benefits of a machine structure, even though the output is generated by highly trained professionals who have autonomy and considerable power. Supporting staff within these organizations typically follow a machine structure.
The clear disadvantage with the professional structure is the lack of control that senior executives can exercise, because authority and power are spread down through the hierarchy. This can make these organizations hard to change.
Our article on Professional Services Organizations tells you more about working within this kind of structure.
If an organization has many different product lines and business units, you'll typically see a divisional structure in place. A central headquarters supports a number of autonomous divisions that make their own decisions, and have their own unique structures. You'll often find this type of structure in large and mature organizations that have a variety of brands, produce a wide range of products, or operate in different geographical regions. Any of these can form the basis for an autonomous division.
The key benefit of a divisional structure is that it allows line mangers to maintain more control and accountability than in a machine structure. Also, with day-to-day decision-making decentralized, the central team can focus on "big picture" strategic plans. This allows them to ensure that the necessary support structures are in place for success.
A significant weakness is the duplication of resources and activities that go with a divisional structure. Also, divisions can tend to be in conflict, because they each need to compete for limited resources from headquarters. And these organizations can be inflexible, so they work best in industries that are stable and not too complex.
If your strategy includes product or market diversification, this structure can work well, particularly when the company is too large for effective central decision-making.
The structures discussed so far are best suited to traditional organizations. In new industries, companies need to innovate and function on an "ad hoc" basis to survive. With these organizations, bureaucracy, complexity, and centralization are far too limiting.
Filmmaking, consulting, and pharmaceuticals are project-based industries that often use this structure. Here, companies typically bring in experts from a variety of areas to form a creative, functional team. Decisions are decentralized, and power is delegated to wherever it's needed. This can make these organizations very difficult to control!
The clear advantage of adhocracies is that they maintain a central pool of talent from which people can be drawn at any time to solve problems and work in a highly flexible way. Workers typically move from team to team as projects are completed, and as new projects develop. Because of this, adhocracies can respond quickly to change, by bringing together skilled experts able to meet new challenges.
But innovative organizations have challenges. There can be lots of conflict when authority and power are ambiguous. And dealing with rapid change is stressful for workers, making it difficult to find and keep talent. However, given the complex and dynamic state of most operating environments, adhocracy is a common structural choice, and it's popular with young organizations that need the flexibility it allows.
Mintzberg's classification is just one way of looking at the ways in which organizations are structured. You can find out more about other aspects of structuring – and its relationship to strategy and growth – in our articles on Miles and Snow's Organizational Strategies , Porter's Generic Strategies and The Greiner Curve . And read our article on Organization Design to learn more about how to design your organizational structure, and which common elements to consider.
When it comes to changing organizational structure, this can be a very challenging task! See our Manage Change! learning stream for an introduction to the skills and techniques you'll need to do this successfully.
There's no one "right" organizational structure, so it's important to understand how structure relates to the variety of attributes in a company. Mintzberg gives us a useful description of common structures that are appropriate in different circumstances. None of these is necessarily ideal, and they're very simplified versions of what exists in real life. In fact, it's common for a company to have a combination of elements of each structural type.
When considering your organizational structure, analyze the environment, assess your internal needs and capacities, and then make sure your structure is a good fit with your strategy and environment.
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