Organizational Design: The Must-Know Basics

July 14, 2023
Organizational Design: The Must-Know Basics
Organizational Design: The Must-Know Basics

What is Organizational Design?

In simple terms, an organizational design can be defined as a structure that defines how work gets delegated in an organization. It is the administration and execution of a company’s strategic plan. It can also be defined as a step-by-step approach to achieve different yet connected things such as:

  1. Identifying underperforming components of workflow, procedures, structures, and systems
  2. Realigning them to match current business realities/goals
  3. Developing strategies to implement the new changes

This method aims to improve both the technical and human aspects of a company.

But that's all theory - in the real world, there is no one-size-fits-all model we can label as the best design for an organization. It's all determined by the organization's strategy.

Take, for example, a company that operates in a well-defined market. Customers know what they want and competitors have established businesses, too. In this case, a company would try to follow a low-cost leadership strategy with an eye for efficiency. Such a company's organizational design would have a centralized structure with tight controls.

Another company operating in a newer market might opt for a more flexible design. A decentralized structure would help such a company foster creative thinking and risk-taking.

Our point is - organizational design isn't an exact science; That being said, there are a few well-known structures that companies can look up to when designing their own. Let's look at a few.

Organizational Design Structures

In broad stroke, here are a few common organizational designs that you can consider when planning your company's structure:

Functional Organizational Structure

Employees are divided into groups depending on their responsibilities or expertise within the company.

For example, an organization based on this structure would have a finance department, a marketing department, and a research and development department — each with specialist groups reporting to the department manager.

Divisional Organizational Structure

This form of structure, which splits people into teams based on certain products, projects, or locations, works great for larger organizations.

A bank, for example, may have three divisions — retail banking, investment banking, and private banking.

Matrix Organizational Structure

The matrix organizational structure retains departments but establishes project groups that incorporate people from other departments. Each employee may have two supervisors such as a project manager and a functional or department manager.

A company developing a new product would form a project team that includes individuals from the R&D, marketing, and finance departments.

Traditional vs. Modern Organizational Design

A point worth noting in the organizational design discourse is traditional versus modern design. Organizational designs have shifted dramatically during the last two decades owing to the growing pace of development. Changes that used to take a decade or longer now take months or weeks.

With the business upheavals of the past two years, these changes have only sped up. The gap between classic or ‘traditional’ organizational design and modern, contemporary design has grown even broader.

Let's look at some key differences between traditional and modern organizational design.

Traditional Organizational Design
  • Decision-making: decision-making power tends to be concentrated at the top of the hierarchy with power and responsibility trickling down through the levels.
  • Communication: top-level employees have limited and rare communication with lower-level, front-line employees; traditional communication methods are preferred (emails, newsletters, meetings).
  • Flexibility: employees usually have set roles and responsibilities.

Quick disclaimer here - none of these things are bad! Take the flexibility element, for example. When employees have clearly defined and rigid responsibilities, they can get really good at the few things they do.

Don't knock traditional organizational design entirely. But modern design may be what you need in this day and age.

Modern Organizational Design
  • Decision-making: non-management personnel tends to have a lot of leeway over what tasks they choose to work on and how they accomplish them. Management takes employee feedback into consideration when making decisions.
  • Communication: fewer departmental and hierarchical boundaries, making communication easier and more uninhibited. Employees can speak with higher management without having to go through intermediary managers.
  • Flexibility: a high degree of flexibility allows employees to collaborate in innovative ways. This makes problem-solving a more organic process and innovation gets a boost.

In the modern age of the internet, a modern organizational design might be better. People expect freedom and flexibility. And, when your organizational design process takes their expectations into account, employee satisfaction goes through the roof.

Interested? Learn More

We hope this article gave you a quick primer on the vast subject that is organizational design.

Looking to learn more? Keynotive will be holding a masterclass just for you. The Organizational Design at Pace 2.0 is a hands-on virtual masterclass for anyone interested in learning how to engage in effective organizational design. The course will be delivered by Graham Dalton. He is the definitive expert on the topic, with more than 18,000 hours of client-facing organizational design experience under his belt. Learning from him is an opportunity you don't want to miss out on.

Click here to check out the Organizational Design at Pace 2.0 masterclass.