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Having the appropriate organizational structure is critical to the success or failure of a company. The right structure will enable the business to compete effectively while the wrong structure could make it difficult for the business to survive.
TL;DR (Too Long; Didn't Read)
The factors influencing organizational design are strategy, environment, size, age and technology.
Strategy to Achieve Objectives
Organizational structure follows strategy. Structures are designed to achieve the objectives as defined by the organization's strategy. For example, businesses that want to be the first in the market with new products need organizational structures that let them respond quickly to changes in the market. They need to have the ability to quickly identify rising consumer demands and be able to develop and bring new products to the marketplace before the competition has a chance to react.
Companies that are selling essentially the same products as their competitors have organizations that focus on making products more efficiently and at less cost. Their structures are more mechanical and routine. Repetition breeds efficiency.
Understanding the Environment
Structures must be able to adapt to making decisions in uncertain and unpredictable environments. Departments need better coordination and communication in unstable environments for quicker responses to changing conditions. Adaptability must be a priority.
Stability and predictability affect the effectiveness of an organizations' structure. Companies in stable, mature markets can pursue more formalized structures. Diversity of operations affects organizational design. Companies with broader product lines and more geographic spread need more decentralized decision-making chains of command. Businesses with discount pricing strategies benefit from simple and standardized operations that focus on lowering the costs of production.
One of the factors affecting organizational design for international business is geography. In this case, employees are spread across the globe and operate in environments with different business cultures and ethics. The organizational structure has to accommodate these differences.
Size of Companies
Larger organizations have more complicated structures. Small companies may not even have a formal structure; everyone performs tasks as needed without formal communication of responsibilities.
Larger organizations are more difficult and complex to manage. They need more formal job descriptions and specific delegation of authority. Organizational influences on job design lead to more specialized tasks. Work procedures are more detailed with rules and guidelines.
Larger organizations need more structure, rules and specialization of tasks. They have more division of labor, different standards for performance appraisals and more budgets.
Understanding the Age of Companies
As companies age, systems become more standardized, have more procedures and regulations. During the early years, the organization has few rules and regulations. Decisions are centralized with the owner. Tasks are general, not rigid and not specialized. There is very little delegation of authority.
With growth, the organizations begins to focus more on the needs of the customer. Delegation of authority begins to flow downward from the owner. A company at midlife has more managerial levels in the chain of command as the owner relinquishes responsibility and control.
Importance of Technology
Technology affects organizational design by enhancing the methods of communication. An example is the growth of the "virtual organization." No longer is it necessary for employees to be on site or physically located at a central office. Managers have the ability to communicate more quickly and effectively with email, shared calendars and online conferences and presentations.
Organizational structures are dynamic. The method that worked in the past will not necessarily work for the future. The business grows, markets change, prices fluctuate and competition gets tougher. All of these factors mean that the organization must adapt to meet these challenges and find the best methods to utilize employees' skills.
James Woodruff has been a management consultant to more than 1,000 small businesses. As a senior management consultant and owner, he used his technical expertise to conduct an analysis of a company's operational, financial and business management issues. James has been writing business and finance related topics for National Funding, bizfluent.com, FastCapital360, Kapitus, Smallbusiness.chron.com and e-commerce websites since 2007. He graduated from Georgia Tech with a Bachelor of Mechanical Engineering and received an MBA from Columbia University.