Considerations for Reorganizing a Company

What is Organizational Structure?

An organizational structure includes the “…lines of authority, 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.”[1] A company’s organizational structure formally allocates expectations and requirements of accountability and authority so the company may meet its short and long-term objectives. It is a diagrammatic representation of which position does what and at what level. The structure should optimize the leverage in a company, with as much work being pushed down to the lowest paid resource as possible without impacting quality. It should also facilitate working relationships among the various departments of an organization, and be sufficiently scalable for growth over the mid-term.

Companies that have outgrown their organizational structure tend to show consistent under-performance relative to their expectations.

Poor organizational design and structure results in a bewildering morass of contradictions: confusion within roles, a lack of coordination among functions, failure to share ideas, and slow decision making bringing managers unnecessary complexity, stress and conflict. Often those at the top of an organization are oblivious to these problems, or worse, pass them off as challenges to overcome or opportunities to develop.[2]

It is common in poorly structured environments for workloads to be unbalanced among the different roles, and the reporting systems, lacking sufficient detail further mask this imbalance. Exclusive reliance on lagging performance indicators also plagues measurement systems and reduces their effectiveness.

Of course, structure is only one facet of overall company strategy (see the System for a System model, Bellrock, 2011). Further, there is no perfect organizational structure. What it can do, however, is provide an operational roadmap that sets the path for the company to achieve its goals, by prescribing the responsibilities of each position in the organization. Companies with effective structures typically have employees who understand their specific role in the company, know how their performance will be measured, and are aware of their potential career paths. Their priorities are clear – while conflicts may still happen, they can be managed through other systems.

When reorganizing a company, the value of an outside perspective cannot be over-emphasized. People working within the company cannot help but bring their own biases and agendas to the conversation, but this doesn’t make the insider’s perspective any less valuable. People working in the organization know the challenges of the current structure better than anyone, and they can anticipate the potential roadblocks to the other structures being considered.

Types of Organizational Structure

Pre-Bureaucratic / Flat / Horizontal

Most common in smaller organizations, this informal structure relies on one leader to make all strategic decisions and communicate them through conversations with individual staff.

Divisional

Groups employees based on product or service offerings, ensuring that each grouping has the skills to meet the market demands for that product or service.

Functional

Groups employees based upon the functions of specific jobs within the organization (i.e. sales, marketing, production, finance, etc.).

Matrix

Groups employees by both function and division. This structure may combine the best of all structures, but may also weaken accountability. A matrix organization frequently uses teams of employees to accomplish work. Some forms of Matrix structure include:

• Weak/Functional Matrix: A project manager is assigned to oversee the cross-functional aspects of the project, and has authority over only that aspect. Functional managers maintain control over their resources and project areas.
• Balanced/Functional Matrix: A project manager is assigned to oversee the project. Power is shared equally between the project manager and the functional managers. It connects the best aspects of functional and divisional organizations; however, this is the most difficult system to maintain, as the power conflicts among managers are inevitable.
• Strong/Project Matrix: A project manager is primarily responsible for the project. Functional managers provide technical expertise and assign other human resources as needed.

Restructuring Principles

Positions:

• Design positions around functions rather than people. Positions are created to achieve company goals, and individuals are hired and trained into those positions.
• Use position titles, not existing employees’ names, when creating the structure. People change, but positions usually don’t).
• The boxes on an organizational chart represent positions, not people. This means that the same person may fill more than one role (eg: the Division Manager may also act as a Project Manager).
• Positions may shift from part-time to full-time as an organization grows, even as the structure remains the same. (eg, the Division Manager role expands and the person in that box can no longer act as Project Manager).

Duties and Authorities:

• Each position has its own duties, which are distinct from other positions.
• Authority (what a position can do without permission) must allow the duties (what a position does) to be performed.
• An organization chart indicates how authority and duty are allocated.
• Dual, shared and overlapping duties should be eliminated wherever possible.
• Related tasks and operations are grouped into positions.
• Related positions are grouped into major operating functions or divisions.
• Position descriptions are written for each function and sub-function based on the tasks involved – typically starting from the top of the organization.

Span of Control:

• Consider whether a position can manage the number of direct reports assigned to it.
• As a general rule, 5-8 direct reports are appropriate for senior management, but this can vary widely depending on the complexity of the work in the reporting positions and the degree of formal processes installed in the organization.

Delegation:

• Maximize formal assignment of duties to make full use of the energies in the organization.
• Delegation of responsibility requires the authority to coordinate, direct and decide.

Growth:

• A chart is typically designed from a forward-looking perspective (where the company wants to be in the next 2-3 years), and not for where the company is today.

Title Management:

• Ensure that titles match actual functions. Inflated titles can influence employees to shop titles, or cause replacements to demand remuneration that is not in line with the position’s actual duties.

Career Planning and Succession:

• A properly engineered organizational structure will demonstrate clear career paths for team members and subsequently increase motivation.
• At least one successor should be in development for each key position.

[1] “What is organizational structure.” Business Dictionary. November 18^th 2012. http://www.bussinessdictionary.com/definition/organizational-structure.html.

[2] Gill Corkindale, “The Importance of Organizational Design and Structure.” HBR Blog Network, 11 February 2011. Web. 6 November 2012. http://blogs.hbr.org/corkindale/2011/02/the_importance _of_organization.html.