An Introduction to Organisational Design – Part 2

So, as a small or medium enterprise, you’ve been working hard at building your company, hiring the right people (hopefully) for various roles as you see you need them. Most of your employees will likely handle several jobs at once and may not have an exact role, perhaps a case of “all hands on deck” and “doing what your hands find to do”. It’s a common scenario for SME’s, particularly where they have started with one or two people at the outset —often called “organic growth”, or growth that happens without any real structure or clear intent – wild, if you like.

However, complications can arise when the growth style does not support the strategy of your business. A good organisational design must support the business strategy and the market environment in which the company operates. Therefore, it can be much more beneficial if it is thought about early on in its growth plan.

How do you go about choosing the right organisational design for your business?  Different organisational structures have different benefits in different situations, but the overall alignment between the organisation design and your company strategy matters.  It must then have the right business controls, flexibility, the right incentives, and the right people and resources.

SME’s might unknowingly employ organic growth structures such as the Simple Structure, Matrix Structure, and the Network Structure.

Simple structure – the simple organisation is flat, usually with only two or three levels.  Employees tend to work as a team, reporting only to one person.  The advantages of this type of structure are its efficiency and flexibility with clear role responsibility.  However, this structure can also hold back growth due to a bottleneck of decision-making by the CEO or founder.

Matrix Structure – Matrix structures usually employ dual reporting lines, e.g. an HR Business Partner might report to the HR Director and report to the Head of the Business area he/she services.  This type of structure focuses well on divisional performance whilst sharing specialist skills and resources; however, this complexity often leads to increased tensions between the two reporting hierarchies.

Network Structure – This type of structure has central, core functions around the strategic business operation and outsources, or subcontracts, its non-core functions.  Depending on the type of business, this could include marketing, IT, manufacturing, distribution, HR, and other functions.  Usually considered a “lean” structure, its advantage lies in its flexibility and ability to adapt to changing market conditions almost immediately. The inevitable loss of control and dependence on the outsourced third parties and the complexity of managing these parties can be a disadvantage.

Given these organic structures choices, how does one decide which is the best structure for your small business?  Some of the considerations you should think about are as follows.

Strategy – the organisation design must suit your strategy.  If your organisation is innovative, then a hierarchal structure may not work.  However, if your strategy is about low cost and high volume delivery, you may want a structure that provides tighter controls.

Size – the organisation design must take into account your company size.  Too much structure and specialisation could paralyse a small organisation. In contrast, a larger organisation may have more to gain on economies of scale by maintaining functionally specialised departments and teams.  A larger organisation also has more complex decision-making needs, and some of these responsibilities are likely to be devolved or decentralised.

Environment – if the market you work in is unpredictable or volatile, the organisation will need to be flexible enough to react to this.

Controls – what level of controls are right for your organisation?  Some organisations require tighter controls (financial services, mining), while others are more efficient when there are greater flexibility levels.

Incentives – often forgotten but very critical, is the alignment of rewards and incentives.  If, for example, a company’s strategy is on client acquisition and the sales unit incentivises for client retention, then the sales unit is serving only itself and is not aligned to the overall company strategy.

There is much more to organisation design than just deciding on its structure, and the above shows just a few of the things that should be taken into account when thinking about it.  With each stage of growth or change within your business, the organisation design should be re-assessed and tweaked or re-aligned as often as necessary.

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