Do you remember the last time your organization had to redesign or change its overall workflows and processes? Any modern HR leader will tell you that redesign or restructuring is a continuous process now, but this wasn’t the case earlier.
Before, organizations could define and implement processes for the next few years, needing only minor pivots to keep up with trends. Today, this change happens rapidly and impacts both the process and the morale of the teams.
As per Capterra’s report, 71% of employees experienced high stress levels due to continuous change. Plus, 93% of these employees blame the organization, which has backtracked on at least one change implemented during the COVID-19 crisis.
To prevent the leadership and overall organization from making rash decisions, we need to understand organizational design. By focusing on clarity of purpose, the HR team can ensure that the chosen structure or workflow supports long-term business goals and cultivates a productive work environment.
Let us understand organizational design, its key principles, and a step-by-step approach to effectively using it for your future growth.
What is Organizational Design?
Organizational design shapes how a company structures itself to reach its aims. This process involves key choices about work organization, role definitions, and information flow within the firm.
A well-planned organizational design creates a structure to boost productivity, encourage teamwork, and adjust to the continuously evolving business requirements.
The key elements of organizational design include:
- Hierarchy: Does the company make decisions from the top or spread them across teams?
- Job Roles & Responsibilities: Jobs with clear outlines of tasks, duties, and power for each position.
- Workflows & Processes: The company’s structure also covers how to put a business process into action. This includes the workflow of the tasks, how different roles or departments hand off work, and how efficiently the whole operation should run.
- Communication & Reporting Structures: Who answers to whom, how people share updates, and how different departments work together.
Importance of Organizational Design
An organization with a well-planned structure achieves more than just business goals; it also has a real, quantifiable influence on how a business runs. HR experts need to grasp and mold organizational design to build a workforce that can adapt, stay motivated, and work towards company objectives.
Here’s why the way an organization is set up matters:
1. Efficiency & Effectiveness
A straightforward structure eliminates mix-ups, cuts down on doing the same work twice, and ensures the right people do the right jobs in the right way. It helps speed up how things get done and how fast decisions are made.
2. Accountability
When hierarchy is spelled out, including who reports to whom, it encourages people to take charge. When everyone understands their role and who they report to, it becomes easier to track progress, identify bottlenecks, and ensure tasks are completed effectively.
3. Innovation
When teams are set up to work together across different parts of a company and barriers are removed, innovation is easier. Flatter structures, in particular, often promote faster decision-making and greater agility in responding to market changes.
4. Employee Engagement
A well-defined structure gives employees clarity on what’s expected. When the entire team sees how their work fits into the bigger picture, they feel more connected and happy in their jobs.
5. Adaptability
Organizational design is not just about defining a workflow that will last for ages. A design that allows for pivots or changes allows companies to grow, shift, or handle changes, whether it’s market shifts, new tech, or worldwide shake-ups, without losing their cool.
To sum up, a well-thought-out company structure is a key tool HR can use to ensure the business is ready for whatever comes next.
Types of Organizational Structures
Just as workflows and processes change depending on the unique needs of every organization, there isn’t one type of organization design that can fit everyone. There are several models based on size, industry, strategic goals, operating style, and complexity of operations.
Let us look at the six widely adopted organizational structures that you can leverage for your needs:
1. Functional Structure
A functional structure groups employees according to their specific jobs or duties. Typical divisions include Human Resources, Marketing, Finance, Operations, and IT.
These distinct chains of command in each function help standardize processes within functions and offer clear paths to advance in specific fields. However, it might create barriers between departments, slow down decisions due to many layers, and cause poor teamwork across functions.
2. Divisional Structure
A divisional structure splits a company into separate business units or divisions. These divisions focus on different products, services, geographic areas, or customer groups. Each division works on its own with its own set of departments that handle various tasks.
This enables sharper concentration on particular markets or product ranges and speeds up decision-making in each division. However, it might cause resource overlap across divisions (for example, each division could have its own HR or marketing team), poor teamwork and dialogue between divisions, and the risk of unhealthy rivalry among divisions.
3. Matrix Structure
In the matrix structure, workers answer to multiple bosses, which could include a department head, a project lead, or more. Companies often use this approach for tasks that need teamwork across different areas.
While it boosts teamwork and info-sharing between departments, it might cause mix-ups and clashes due to having several bosses.
To make this setup work well, having a well-defined workflow, division, and hierarchy is key.
4. Flat Structure
A flat structure, also called a horizontal structure, doesn’t have many levels of middle management between workers and top bosses. This setup means decision-making is spread out more.
Managers oversee many employees, top management talks to staff, and employees have more freedom to make decisions.
This allows decisions to happen faster, people communicate better, and employees feel more responsible and in control. However, managing gets harder as the company grows, as it creates complex workflows.
This setup works better for smaller, quick-moving companies.
5. Hierarchical Structure
The hierarchical structure is a traditional top-down management approach with clear levels of authority and responsibility. Information and decisions move from the top down.
This offers clear career paths, sets well-defined roles and responsibilities, and helps control and coordinate in large, complex organizations.
However, it can cause slow decision-making because of multiple approval layers, create communication bottlenecks, and hinder new ideas and employee initiative due to the top-down approach.
6. Network Structure
A network structure depends on outside partnerships, strategic alliances, and outsourcing relationships to carry out certain functions. The main organization concentrates on its core strengths and contracts out other activities.
Working with external partners enables specialization and access to worldwide capabilities, cuts overhead costs, and allows quick scaling and adjustment.
However, it can be tricky to handle due to reliance on outside partners, and needs a strong understanding by the internal team to handle partnerships effectively.
How to Design an Effective Organizational Structure (Step-by-Step)
Setting up a strong company structure isn’t something you do once and forget. It’s an ongoing job that needs careful thought and lots of data. Here’s a guide for HR leaders to follow:
Step 1: Set Business Goals
The first step is understanding its strategic goals. To set a long-term goal, make sure you can answer specific questions like:
- What key business targets does the company aim to hit in the next one to three years?
- Is the focus on growth, productivity, new ideas, market growth, or a mix of these?
- Are we in sync with the latest business trends and demands?
- Can we reduce costs while implementing new workflows and processes?
The organizational structure you pick needs to help achieve these goals. Depending on your specific needs, you might choose a flatter or matrix structure to help teams work together and make decisions fast.
Step 2: Look at the Current Structure
Before you make any changes, it’s essential to examine your organization’s current structure and existing HR policies.
Figure out what’s working well and what’s not. Where are things getting stuck? Are there places where people aren’t talking to each other enough, or is it hard to make decisions?
Ask your employees what they think, get groups together to discuss it, and examine how work is done now. This will give you some useful information.
When you understand what’s causing problems in your current setup, you’ll be better positioned to create a new one that works better.
Step 3: Pick the Right Way to Organize
Now, to determine which organizational design model (or a mix of models) best fits the company’s needs.
Think about how big the company is, how complex its operations are, what industry it’s in, and what it values. For example, a big company with offices all over the world might split into divisions based on where they are, while a smaller tech startup might do well with a flatter structure.
Step 4: Outline Roles & Responsibilities
After settling on the overall structure, it’s crucial to spell out the roles and duties of each position and team in the company. This involves creating in-depth job descriptions that lay out tasks, reporting lines, needed skills, and what’s expected in terms of performance.
Using a futuristic HR tech stack can be a big help in documenting these roles and making sure everyone in the company is on the same page. When roles are well-defined, it reduces confusion, encourages people to take responsibility, and helps the business processes work smoothly.
Step 5: Put Communication & Collaboration Tools into Action
Structure is about lines on an org chart and how people interact. A good design must enable seamless communication and cross-functional collaboration.
HR tech solutions like PeopleStrong allow teams to work across departments with unified messaging, task tracking, and knowledge sharing. It also includes a super app for all your teams to manage resources, processes, and communication in one place.
Step 6: Set Up How to Make Decisions
Well-defined decision-making processes are essential to prevent delays and ensure quick action. The organizational design should outline the authority levels for different decision types and the steps to escalate when needed.
This clarity enables staff to make decisions within their scope and guarantees that more important issues are handled at the right level.
Step 7: Train & Support Employees Through the Transition
Putting a new organizational design into action can shake things up for employees. Thus, it is crucial to have a solid plan for change management.
This means telling people why the change is happening, giving them enough training for new jobs and ways of doing things, and keeping support going to help workers get used to the new setup.
To cut down on pushback and get people on board, it’s also smart to listen to what employees are worried about and involve them in making the switch.
Step 8: Monitor and Optimize Regularly
Organizational design isn’t set in stone. After you put the new structure in place, you need to keep an eye on how well it works and tweak it when necessary.
Use HR data to measure important things like how much employees get done, how well they talk to each other, and how happy they are at work. Ask employees and managers what they think to spot areas that need work.
You can even ask each team to have specific KPIs for managing their workflows and output, and look at OKR design patterns to ensure everything is on track.
If HR leaders follow these steps, they can plan and set up an organizational structure that fits with business goals, boosts productivity, helps people work together, and in the end, helps the whole organization succeed.
Conclusion: Organizational Design Has an Impact Beyond Hierarchies
Since business processes and technology are constantly evolving, your company’s organizational design must adapt and change accordingly. This change can affect performance, flexibility, and employees’ feelings about their work.
A well-designed organization matches people with goals, makes decision-making easier, and builds a base for growth that can keep evolving as business demands. HR leaders are uniquely positioned to lead this change.
But creating a good structure isn’t just about drawing boxes on a chart—it’s about connecting strategy, jobs, culture, and tech.
This is where PeopleStrong steps in to help.
Whether you’re changing your company’s structure to grow bigger, moving to flexible teams, or joining with other companies, PeopleStrong’s HR Tech platform gives HR leaders the tools and knowledge to create smarter, future-ready structures. From showing org charts to matching goals, handling changes, and seeing results, our platform helps you keep people at the center of every structural decision.
Want to create a company that keeps up with your plans? Request a demo today and discover how our HR solutions can help you design a future-ready organization.
