What organizational structure is best for you?

This week, I’ve been discussing Organisational structure with a client, which has got me thinking of one of my favourite books; Clayton Christensen’s “The Innovator’s Dilemma.” The book deals directly with the idea of structure and how it affects a company’s ability to innovate. Over the years, I’ve used it as a guide multiple times, so if you haven’t read it already, then I urge you to do so. However, I thought I’d quickly write down the five key organisational designs he lays out here to “whet your whistle” before you do.

Hierarchical Structure:

The first approach to structure is hierarchical, which is common in many large organisations. Hierarchical structures tend to be rigid, with clear lines of authority and a focus on maintaining control and stability. However, this approach can also hinder innovation, as decision-making tends to be slow, and there may be resistance to change.

Functional Structure:

This is similar to hierarchical but with a greater emphasis on specialisation. In functional structures, departments are organised by their function, such as marketing, finance, or operations. While this approach can lead to more efficient operations, it can also create silos and hinder collaboration between departments, making it difficult to innovate. This structure dominates in the Facility Management industry, which is one of the reasons I believe the industry has struggled to innovate in recent years despite the technological advancements on offer.

Divisional Structure:

This involves organising a company into smaller, more autonomous units based on geographic location or product line, for example. This can be more flexible than hierarchical or functional structures, allowing for faster decision-making and innovation. However, it can also lead to duplication of efforts and a lack of standardisation across different units, so be careful, as costs could run away with you without any standardisation.

Matrix Structure:

A matrix combines elements of functional and divisional structures. In a matrix structure, employees have two reporting lines, one for their functional area and one for their project or product team. This approach can lead to more collaboration and cross-functional innovation, but it can also be complex and difficult to manage. If people are confused about reporting lines, then productivity can drop dramatically as employees continually switch focus depending on which line manager is causing the most noise.

Network Structure:

Building a flexible network of partners and suppliers to work on specific projects or initiatives. This approach can be effective for companies that need to respond quickly to changing market conditions, as it allows for more agility and innovation. However, it can also be challenging to manage and can require a high degree of trust between partners. It also needs a strong project management skillset within the business, as you will not have direct control over most of the outputs. If you are not very good at defining requirements or measuring success, I would tread carefully.

As a company, you need to be aware of the limitations of your current structure and be willing to experiment with new approaches to stay ahead and effectively innovate. The book dives further into practical frameworks and an assessment tool to know which style of structure would suit you in your company’s given situation. I’ll leave it there, as hopefully, you are intrigued enough to read the book. I will look forward to discussing organisational structure with you all in the future.

Adam Hoult