Organizational design

Organizational design is the deliberate process of configuring organizational structures, processes, roles, and systems to enable effective execution of strategy and achievement of objectives (Galbraith J.R. 2014, p.3)^[1]. How should we divide work among departments? Who reports to whom? Where do decisions get made? How do different units coordinate? These questions—and the answers organizations choose—constitute organizational design. The choices shape everything from innovation speed to employee satisfaction to strategic agility.

Design choices that work brilliantly in one context fail in another. A hierarchical structure enabling control and consistency in a utility company would strangle a technology startup requiring speed and flexibility. A decentralized structure fostering innovation might create chaos in a nuclear power plant requiring strict compliance. Effective organizational design matches structure to strategy, environment, and organizational capabilities.

Core elements

Design involves multiple components:

Structure

Reporting relationships. Who reports to whom? How many levels exist? How wide are spans of control?^[2]

Departmentation. How is work divided into units? By function? Product? Geography? Customer segment?

Processes

Coordination mechanisms. How do separate units work together? Through hierarchy, standardization, mutual adjustment, or information systems?

Decision processes. Where and how are decisions made? Centralized or decentralized?^[3]

Roles

Position definitions. What is each role responsible for? What authority does it have?

Boundaries. Where does one role end and another begin?

Systems

Support mechanisms. Information systems, reward systems, planning processes, and performance management that enable structure to function.

Design principles

Several principles guide effective design:

Strategy-structure fit

Strategy leads. Structure should follow strategy. Different strategies require different structures^[4].

Evolution. As strategy changes, structure must adapt.

Specialization and integration

Division of labor. Work must be divided into manageable units with clear responsibilities.

Coordination. Specialized units must be integrated to achieve organizational purposes.

Authority and responsibility

Alignment. People should have authority commensurate with their responsibilities^[5].

Accountability. Clear accountability for outcomes.

Common structures

Organizations choose among structural forms:

Functional structure

Specialist grouping. Departments organized by function—marketing, finance, operations. Efficient for single-product firms but can create silos.

Divisional structure

Product or market focus. Separate divisions for different products, regions, or customer segments. Each contains functional capabilities.

Matrix structure

Dual reporting. Employees report to both functional and product/project managers. Complex but can balance efficiency and responsiveness^[6].

Network structure

External relationships. Core organization coordinates external partners who provide capabilities. Flexible but requires coordination competence.

Design process

Redesigning organizations involves:

Diagnosis. Understanding current state, its strengths and limitations.

Strategy clarification. Ensuring clarity about what the organization is trying to accomplish.

Options development. Generating alternative design possibilities^[7].

Evaluation. Assessing options against criteria.

Implementation. Transitioning to new design, including change management.

Contemporary trends

Design practices are evolving:

Flatter structures. Fewer hierarchical levels, wider spans of control.

Agile organization. Flexible teams that form, dissolve, and reform around work.

Network forms. Ecosystems of partners rather than vertically integrated firms^[8].

Digital enablement. Technology enabling coordination without hierarchy.

Organizational design — recommended articles

Organizational structure — Strategic management — Management — Organizational change management

References

• Galbraith J.R. (2014), Designing Organizations: Strategy, Structure, and Process, 3rd Edition, Jossey-Bass.
• Mintzberg H. (1979), The Structuring of Organizations, Prentice-Hall.
• Kates A., Galbraith J.R. (2007), Designing Your Organization, Jossey-Bass.
• AIHR (2023), Organizational Design Guide.

Footnotes

1. ↑ Galbraith J.R. (2014), Designing Organizations, p.3
2. ↑ Mintzberg H. (1979), Structuring of Organizations, pp.67-92
3. ↑ Kates A., Galbraith J.R. (2007), Designing Your Organization, pp.45-62
4. ↑ AIHR (2023), Organizational Design
5. ↑ Galbraith J.R. (2014), Designing Organizations, pp.112-128
6. ↑ Mintzberg H. (1979), Structuring of Organizations, pp.178-204
7. ↑ Kates A., Galbraith J.R. (2007), Designing Your Organization, pp.134-148
8. ↑ AIHR (2023), Contemporary Trends

Author: Sławomir Wawak