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The advantage is that the organization focuses on divisional performance whilst also sharing functional specialist skills and resources. The often serious downfall is its complexity — effectively with two hierarchies, and with the added complexity of tensions between the two.
Network Structure — Often known as a lean structure, this type of organization has central, core functions that operate the strategic business. This structure is very flexible and often can adapt to the market almost immediately. The disadvantage is inevitable loss of control, dependence on third parties and the complexity of managing outsource and sub-contract suppliers.
Making Organization Design Decisions Given the many choices of structure, how do you go about making organization design decision for your business?
Different organization structures have different benefits in different situations. What matters is the overall organization design is aligned with the business strategy and the market environment in which the business operates.
It must then have the right business controls, the right flexibility, the right incentives, the right people, and the right resources. Here are just some of the many things that you can consider when thinking about the structure of your organization. Strategy — The organization design must support your strategy.
If your organization intends to be innovative then a hierarchical structure will not work. If however, your strategy is based on low cost, high volume delivery then a rigid structure with tight controls may be the best design. Size — The design must take into account the size of your organization.
A small organization could be paralyzed by too much specialization.
In larger organizations, on the other hand, there may be economies of scale that can be gained by maintaining functionally specialist departments and teams. A large organization has more complex decision making needs and some decision making responsibilities are likely to be devolved or decentralized.
Environment — If the market environment you work in customers, suppliers, regulators, etc. Controls — What level of control is right in your business?
Some activities need special controls such as patient services in hospitals, money handling in banks, and maintenance in air transport whilst others are more efficient when there is a high degree of flexibility. Incentives — Incentives and rewards must be aligned with the business's strategy and purpose.
When these are misaligned, there is a danger that units within the organization become self-serving. Using the earlier example of a company that wants to grow by acquiring new customers, the sale team is incentivized on customer retention, and therefore is self-serving rather than aligned with the business purpose.
There is much more to organization design than deciding on its structure. This list shows just some of the facets organization design that can be taken into account in thinking about this.
With each stage of growth or each change, the organization design needs to be reassessed and realigned as necessary.
The list can also help you identify issues that might be causing team problems or holding back your business. To learn more about organization design, we recommend three excellent books on the subject available at Amazon.
Further articles at Mind Tools on the subject include: RACIfocusing on responsibilities and accountabilities ; and the Greiner Curve more on the stage of business growth. This site teaches you the skills you need for a happy and successful career; and this is just one of many tools and resources that you'll find here at Mind Tools.
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