The organizational design should reflect an entity’s business strategy, model, and objective. The business strategy, model, and objectives, in turn, are influenced by the competitive environment, technology, and customer need.
When the organizational design and structure is aligned with the entity’s strategy, model and objective, it operates efficiently and can meet its goal. A dynamic organization should review its strategy periodically and make shifts to it as the external dynamics change. Let me illustrate this with the example of the Indian IT company TCS.
As the company grew in size and competition grew, it was forced to look at its strategy to keep its focus on its customers and enhance service delivery quality. The company moved from the then-prevailing structure of specialist groups and restructured itself into lines of business. Each line of business, called Industry Practice, was now made accountable for its profit and loss. An Industry practice now acquires specialist resources critical to service its customers. The individual specialist groups disappeared.
The restructuring brought increased customer focus and agility in service delivery. The new organizational structure helped the company move to the next cycle of growth and performance.
Organizations are living entities. They respond, react, and evolve with the external and internal environment. Any organization that fails to evolve with changing market conditions sees a depletion of growth and loss of market share. Fast-growing enterprises exhibiting sustained growth often adapt to changing market conditions. Periods of turmoil in the organization’s growth path also impact the organization.
According to Greiner’s organizational growth model, an organization goes through five phases. These five phases are creativity, direction, delegation, coordination, and collaboration. Each of these phases ends with a degree of turmoil. As it transits from one phase to another, it goes through the chaos and organizational change. Greiner claims that each phase ends with a period of turmoil followed by evolution as it moves on to the following phase.
The organizational design and structure of corporations may not follow the theoretical model described above.
The Airbnb organization, for instance, facilitates the rapid flow of information across the company. Decision-making powers are now available to operational managers. Power has been distributed throughout the organization, giving individuals and teams more freedom to self-manage while staying aligned with the organization’s purpose. It has a matrix structure that enables the exchange of information and deployment of skills between teams.
Walmart is a traditional organization. It has a clearly defined hierarchy. Directives are issued from the office of the CEO and go down the chain of command. Every employee has a direct superior. This structure emphasizes managerial control.
The Walmart organization is divided into marketing, information technology, etc. Employees are placed in a department with an assigned role and position.
This organizational structure has stood the test of time and has contributed to the outperforming of the company vis a vis its competitors like Amazon, Target, and others. Such a structure like that seen in Walmart makes monitoring and control easy. Individual managers are not free to make independent decisions, and requests for changes needed must be passed up the chain of command for a decision.
This organizational structure has effectively managed a large, globally distributed organization. In a hierarchical organizational structure like Walmart, a feeling emerges that the organization lays low priority on individual employee grievance redressal.
Apple has adopted a functional structure. Senior Vice Presidents oversee functions, not products. Design, engineering, operations, marketing, and retail functions report to the CEO. Besides the CEO, the company has no conventional general managers.
According to organizational theory, large and complex firms must shift from a functional to a multidivisional structure. It prevents decision-making congestion on the top and permits better command and control of business functions.
Apple has not moved to a multidivisional organizational structure. It continues with its functional organizational structure. It has helped it put design and product development center stage. It has chosen this structure because it needs expertise and experience in specific domains to continue innovating and disrupting the market.