Learning Outcomes
- Identify the factors that determine an organizational structure
What elements influence the design of an organization’s structure? Some organizations choose to be mechanistic, others choose to be more organic. Why is that the case?
For the most part, it’s about strategy, organization size, technology and environment. Let’s take a look at each of these elements and how they influence the organization’s structure.
Strategy
Every organization has one (or at least, every organization should). If an organization’s structure is a means by which that organization achieves its objectives, then strategy and structure should be closely linked.
An innovation strategy is one that emphasizes the introduction of major new products and services. A company like 3M or Apple could be characterized as organizations who would adopt innovative strategies. Ideally, an organic, loose organizational structure is more appropriate to support an innovative strategy.
An organization that is controlling costs and refrains from unnecessary innovation or marketing expenses is probably practicing a cost-minimization strategy. These companies sell a basic product and keep prices low. Wal-Mart employs this strategy. A mechanistic strategy allows for tight control, extensive work specialization, high formalization and centralization, and so it best fits this strategy.
An imitation strategy is one that seeks to move into new products or new markets after their viability has already been proven. They want to minimize risk and maximize profit, so they take successful ideas and copy them. A company like IBM might be considered one that uses an imitation strategy to its advantage. The best structural option here might be a mix between mechanistic and organic structure, which would allow tight control for current business and looser structures for new pursuits.
Organization Size
There is significant research supporting the idea that organizational structure is impacted by the size of the organization in question. Large organizations tend to have more work specialization, more vertical levels, rules, regulations, and so on. So they tend to be more mechanistic in nature.
Large organizations, those that have 2,000 or more employees, are likely to be more mechanistic, but as they increase in size, they do not become more mechanistic. If the organization increases to 2,500 people, the mechanistic-ness of the organization’s structure doesn’t necessarily increase. But if you were to add 500 employees to an organization that only had 300 to start, the percentage increase in size is likely to make that smaller organization more mechanistic.
Technology
In this instance, the word technology refers to how the organization transfers its inputs and outputs. Every organization has at least one technology for converting their resources into products or services. For example, the technology Ford Motor Company uses to produce cars is the assembly line.
There is not a strong association between technology and organizational structure, but studies have found that there is some correlation between the degrees of routine-ness of the technology the organization employs, and the structure that best supports it. By “degree of routine-ness” we mean that the technology tends either toward routine (automated and standardized) or non-routine (varied operations) activities.
Routine tasks are often supported by organization structures that are taller and more departmentalized. Organizations that relied on routine tasks often had more manuals and formalized documentation, and decisions were more centralized. Non-routine tasks required decentralization of decisions to support the uniqueness of the tasks.
Environment
General Motors, as we noted earlier, doesn’t face a lot of environmental change. The car market fluctuates a bit here and there, but they basically make cars and sell them. Other organizations feature all kinds of uncertainty. Organizational structures can assist in helping the business withstand the external issues of environment.
There are three different dimensions to environmental uncertainty: capacity, volatility and complexity.
Capacity refers to the degree in which an environment can support growth. Volatility refers to the level of unpredictable change. Complexity refers to the degree of heterogeneity and concentration among environmental elements.
The higher degree of complexity and volatility in an environment, and the more dynamic the capacity, it stands to reason that the more organic the organizational structure should be. If there is constant change and competition, an organization should be flexible to the changing needs that those dynamics bring with it. A technology or internet-based company would be a good example of one that faces complex, scarce, and dynamic environments.
A tobacco company, though, may be on the other end of that spectrum. Phillip Morris or Brown & Williamson face very few competitors, and their industry is incredibly standardized. The only change they’ve faced over the years is the decreasing use of their product. These organizations lean toward mechanization.
Practice Question
So, how do these elements affect an organizational structure, especially when an organization might lean toward one direction where strategy is concerned and in another direction where technology and environment are concerned?
3M’s Structure
3M is a company that would seem to have an innovative strategy. The company that invented Post-it Notes, masking tape and the first waterproof sandpaper could hardly be anything else. But they’re also a very large company. They have a variety of manufacturing technologies that are probably pretty routine, but their innovation would be far less so. Their environment? They actually feature a variety of departments, from health to office products to construction. Let’s say, by averaging those different interests out, that they fall in the middle of the complexity, volatility and capacity scale.
Several of these elements suggest that 3M should lean toward an organic structure, but they are actually a hybrid. At a whopping 91,000+ employees, 3M is almost forced to be mechanistic, and is in fact highly structured in the corporate area. They’re otherwise organized by department, and areas where innovation is required often feature a matrix structure, which lends itself to a more organic feel. They keep lines of communication open between the departments with innovative communication methods.
