Organizational structures developed from the ancient times of hunters and collectors in tribal organizations through highly royal and clerical power structures to industrial structures and today’s post-industrial structures. The typical hierarchical arrangement for lines of authorities, communications, rights and duties of an organization. Organizational structure determines how the roles, power and responsibilities are assigned, controlled, and coordinated, and how information flows between the different levels of management. A structure depends on the organization’s objectives and strategy.
In a centralized structure, the top layer of management has most of the decision making power and has tight control over departments and divisions. In a decentralized structure, the decision making power is distributed and the departments and divisions may have different degrees of independence. A company such as Proctor & Gamble that sells multiple products may organize their structure so that groups are divided according to each product and depending on geographical area as well.
The Importance of Organization Structure
A number of writers have pointed out the importance of an organization’s structure and the relationship between it and an organization’s size, strategy, technology, environment and culture. Mintzberg (1989) has written extensively and significantly on the importance of organizational structure. Miller (1989) has explored the importance of configurations of strategy and structure. Burns and Stalker (1961) concluded that if an organization is to achieve maximum performance then its structure must fit with or match the rate of change in its environments. Handy (1990, 1993) has discussed the importance of culture in relation to organizational design and structure and the need for new organizational forms.
Pascale, Milleman and Gioja (2000, p.197) consider ‘design is the invisible hand that brings organizations to life and life to organizations.’ Further, organizational structure and design are closely entwined (Mabey, Salaman & Storey, 2001) with many aspects of human resource management. Thus structure has a key role in the all important human dimension of an organization.
Too often the importance of Organization structure is overlooked and Miller (1989) points to a gap in the literature whereby the content of corporate or business strategies has not been widely considered in relation to structure. One of the most important aspects of a manager’s role is the design of Organizational structures, yet this is often a neglected responsibility (Senge, 1994). McMaster (1996) argues that Organizational design is not well understood and traditional management education does not include the development of any understanding of the principles of corporate design. The impact of the floury of corporate restructures that took place in the 1980s and 1990s, discussed later in this paper, supports this view. I would suggest that this lack of genuine understanding is a serious shortcoming.
Definition of Structure
Mullins (1993) and Mabey, Salaman & Storey (2001) describe the structure of an Organization as the pattern of relationships between roles in an Organization and its different parts. They see the purpose of this structure as serving to allocate work and responsibilities in order to direct activities and achieve the Organization’s goals. Structure enables managers to plan, direct, organize and control the activities of the organization (Mullins, 1993, Mabey, Salaman & Storey, 2001). Here is a traditional view of Organizational design that uses principles derived from classical and scientific Management.
A non traditional approach is taken by Pascale, Milleman and Gioja (2000, p.197). They consider the role of architects and the principles they use to create buildings that provide ‘(1) structural integrity (sound buildings), (2) functionality (space appropriate for its intended use), and (3) aesthetic appeal.’ Using these principles an architect is able to work with the client in order to create a structure that is an integral and facilitating aspect of the life of the people who move in and around it. Thus architectural approaches can offer us a good model with which to consider Organization design principles.
I would define an Organization’s structure as the architecture both visible and invisible which connects and weaves together all aspects of an Organization’s activities so that it functions as a complete dynamic entity. One simple approach is to consider how an Organization’s structure is described when represented diagrammatically, which most is often shown in the Organization chart. This provides useful insights into the underlying design principles. It will not show informal structures, but this is not the focus of this paper, except where they are an integral part of the design, as in for example, design Principles derived from complexity.
The 20th Century –Traditional way
Henri Fayol is credited by many as being the founder of modern management theory and practice. Writing at the beginning of the 20th century he advocated an Organization structure that was centralized, functionally specialized and hierarchical, in which everything had its specific place. Management was viewed as being all about planning, organizing, forecasting, co-coordinating and controlling.
Others built on Fayol’s work, which Morgan (1986) claims provided the foundation of management theory in the first half of the last century, and which is still much in use up to the present day. Also in the early 20th century Frederick Taylor drawing on his understanding of traditional science and scientific method devised a theory of management – scientific management. He advocated the use of ‘scientific’ methods of measurement and analysis and broke all tasks down into small repetitive components. This was considered the most effective way of operating a production process and his methods achieved their apogee in the Ford motor car production line process.
Thus the basic structure of many large Organizations in the 20th century was founded on linear, segmented, hierarchical design principles as typified by Figure 1. The larger the Organization the larger the structure and the more sub divisions. It was an approach to Organization design that reflected the classical scientific worldview as did the early management theorists
Figure 1. Traditional Organization Chart / Structure
During the mid 20th century there was a trend for Organizations to create huge corporate structures, often composed of many varied and different businesses, for example, the Hanson Trust, Trafalgar House, Unilever, and GKN in the UK and General Electric in the USA (Mabey, Salaman & Storey, 2001). In the public sector too, huge bureaucracies were created with the nationalization of the public utilities after World War II and the creation of the NHS in 1948. The management of these huge Organizations required a complex multilayered structure with many sub divisions.
‘Tall structures were created with as many as 20 plus levels between the chief Executive and the shopfloor operative. Managerial control of employees at all the Multiple levels was based on a mixture of direct command and budgetary Responsibility. Hierarchy, command and control were the governing principles of Employee management.’
But by the last decades of the 20th century, however, the trend for larger and larger structures was over. Almost every Organization experimented with some kind of structural change process (Ashkenas et al, 1995). Large conglomerates were broken up and large bureaucracies slimmed down as Organizations sought to become more effective and flexible (Mabey, Salaman & Storey, 2001). Companies merged and demerged, made acquisitions or sold them off and experimented with a range of approaches designed to make them more effective and responsive to a rapidly changing world. During this period Organizations were awash with notions of delayering, right / downsizing and business process re-engineering and for a time returns to shareholders were at record levels (Willis,2001).
Downsizing was used by many companies as a way of adjusting their structures in order to be fitter and more effective. Large Organizations with many bureaucratic aspects like Kodak, IBM and General Motors restructured in this way (Mabey, Salaman & Storey, 2001). This and the often accompanying trend for outsourcing resulted in a wave of new problems particularly with employee insecurity and loss of expert knowledge. Coulson- Thomas and Coe (1991) report that in many of these slimmer Organizations there were issues
of work overload, increased work stress, lack of vision, poor decision making, corporate in fighting and so on.
Further, this approach proved to be an unsatisfactory one, not only because of the immediate social costs and the loss of experience and valuable skills, but because many Organizations failed to capitalize on the restructuring and implement new supportive systems (Mabey, Salaman & Storey, 2001). They changed the structure of the Organization but not in such a way as to improve its overall long term effectiveness. This apparent lack of insight concerning the importance of the relationship between structure and internal and external systems and human behaviours displays a restricted understanding of the principles of Organization design.
Business process re-engineering was another approach which many adopted during this period as an effective way of improving efficiency and removing bureaucratic structures. But, Mumford and Hendricks (1996) point out, many companies became obsessed with cost cutting and associated staffing reductions and did not consider how best to reorganize and restructure. Also some chief executives used the process to rid themselves of cumbersome bureaucratic chains of command but failed to cede control Mabey, Salaman & Storey (2001, p.158) describe this period as one of ‘apparent chaos’ as Organizations also tried out approaches based on networking, outsourcing and notions of virtual forms of Organization. However, they provide an analytical framework which I shall use to describe the different types of structure that still redominate. It offers four main types of structure: bureaucracy, divisionalized structures, strategic business units and ‘de-structured’ forms.
Organizational – 21st Century
At the end of the 20th century some less traditional forms of organization structure beganto emerge as evidenced by the ‘de-structured’ forms described by Mabey, Salaman & Storey (2001). Handy (1990) observes that the old mechanistic systems are everywhere breaking down. Mabey, Salaman & Storey (2001) talk of the emergence of a new paradigm for organizational form which seeks to replace the rigidity and cumbersome nature of the traditional form. Ashkenas et al (1995) report on a change in design principles that amounts to a major shift.