Organizational structure and performance go hand-in-hand. The organizational structure is the system a business uses to determine how rules, roles, relationships, and responsibilities flow to achieve the organization's goals. It also dictates how information flows throughout the different company levels while defining how each position fits within the system. Essentially, it's the framework that dictates how everything from information to responsibilities to approvals flow throughout the company.
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All organizational structures fall into two categories: centralized and decentralized. Centralized structures are very traditional. They have a central leadership and a chain of command with a hierarchy of superiors and workers, all with clear responsibilities outlined for their individual roles.
Decentralized structures have been steadily rising in popularity. Although there's still somewhat of a hierarchy, these structures empower individual teams to make decisions without having to get approval.
Choosing the right structure is essential to ensuring everything works effectively and efficiently. With any misalignment, the business won't be properly supported. There could be gaps in work processes and blockages in the flow of critical information. Further, a misaligned organizational structure can lead to reduced workforce engagement, lagging customer loyalty, and diminishing capabilities. Understanding the benefits and drawbacks of each is a good starting point to deciding which organizational structure will work best for your company.
The Traditional Hierarchy
Many experts predict that this organizational structure is on its way out. At the height of its popularity, the traditional hierarchy offered reliability and the ability to keep operations status quo. While that might have served organizations well a few decades ago, today’s business landscape largely demands a different approach.
The perfect example of a traditional hierarchy at work is the military. There’s a clear chain of command and a robust management structure. Information and communication generally flow from the top down. Although that may be effective for military operations, in most businesses it creates conditions that stifle innovation, makes collaboration nearly impossible, and diminishes employee engagement. That makes it mighty difficult to attract, attain and retain top talent. Additionally because there’s typically a significant amount of bureaucracy, reaction time is sluggish, leaving organizations vulnerable to competitors taking over the market.
Flatter Organizations
The second type of organization is what Jacob Morgan, author of “The Future of Work: Attract New Talent, Build Better Leaders and Create a Competitive Organization” calls the “flatter” structure. Instead of the one-way communication that’s typical of traditional hierarchies, this organizational structure simplifies the hierarchy with fewer layers of bureaucracy and a stronger emphasis on opening up communication and facilitating collaboration.
This model doesn’t neglect the employee experience. While it does rely on a loose hierarchy, it’s mostly centered around technology, which provides employee access and collaboration across time, space, and devices. It also is more responsive to the changing conditions, including flexible work arrangements, giving employees more autonomy and freedom to work how, when, and where is best for them.
Flat Organizational Structures
There aren’t usually any job titles or seniority in a flat organization. Instead, everyone’s looked at as an equal. Organizations that employ this type of structure are often called “self-managed.” every employee can see the projects that are in progress and they can join in on those that pique their interests or skill sets. When employees have an idea for a project, they’re charged with forming teams, securing funding, and following through with results. As Morgan notes, ‘I don’t see this as something that’s practical or scalable as larger organizations.” But it can be a dream for some, independent-minded employees. For others, it’s their worst nightmare. That’s why this type of organization isn’t right for every business. Even those that begin as flat often need to incorporate some type of structure down the line.
Flatarchies
Somewhere between hierarchies and flat organizations, this organizational structure is a dynamic option that combines a bit of both for a flexible option. Unlike flat structures, a flatarchy can include hierarchical elements while also allowing the company to break out into structured teams as needed. As Morgan describes it, this organizational structure is kind of like an amoeba because it lacks the rigid, constant structure of a hierarchy. Although it’s typically considered a temporary solution, it’s equally effective when used in companies large, small, and in between.
Some of the cases use include organizations that are striving to develop new services or products. Because it allows for a robust focus on innovation while allowing employees to create special, task-specific teams as needed, most experts agree that it provides a competitive edge with its disruptive power and its ability to go beyond the programs typically found in a company’s research and development department. It also gives departments and employees a bit more autonomy while allowing the organization to adapt more readily to customer needs.
Holocratic Organizational Structures
This is a relatively new and exciting organizational structure created by Brian J. Robertson, author of “Holocracy: The New Management System for a Rapidly Changing World.” The term really took off after Zappos announced that they were adopting it in early 2014, moving to what many refer to as a “bossless” organization. There’s still a structure in place, but its goal is to distribute the responsibility for making decisions and to provide more opportunities for each employee to work on tasks and projects that they excel in. Information flows freely, with issues tackled during ongoing meetings and special gatherings. This type of decentralized structure is probably best for small to mid-sized companies or larger companies that want to adopt it in part without completely overhauling what they already have in place.
Ultimately, no single structure will work for every business. Instead, each organization is tasked with considering the importance of innovation, the size of the company and the amount of power it wants employees to have. As you think about those points, you may start leaning toward a specific structure. And if you choose one that doesn’t work out, you can always switch things up down the road.