Organizational design is a formal process where people, technology, and information are integrated to achieve specific objectives. Organizational designs are structured to indicate the authority and power lines as well as employee roles. There are four main organizational designs; functional, matrix, network, and virtual organization.
Functional Organizational Design
A functional structure is the typical organizational design used by businesses in achieving their goals. In a functional organization, employees are grouped according to their specialty, skills, and related roles. The grouping is designed in hierarchy levels and in departments where each level has a designated leader (Bai et al., 2017). These groupings include the finance department, information technology department, production department, and marketing department. Most businesses prefer to operate under a functional structure as it groups people with similar knowledge together. This grouping is most effective when applied in a team environment and enables companies to meet their goals. With organizational structure, the companies can easily decide how authorities to relay information and how it is communicated.
One company that uses functional design is Airtel. Airtel is a telecommunication company that has branches in various countries, including India. Airtel has applied functional organization by having directors in each department. There is a director for marketing, chain supply, customer care, technology, legal work, human resource, etc. Directors control their respective departments and are answerable to the decisions of their departments.
A matrix structure is preferred by companies that aim to distribute workers and resources across multiple operations. In a matrix organization, employees report to more than one manager. An employee can have a primary manager where he/she usually report to and one or more project managers to report to still (Mietzner & Reger, 2005). Matrix structure enables the companies to share skills across departments utilizing the various talents and strengths they have among the employees.
Starbucks’ coffee is one example that applies a matrix structure for its success. In Starbucks’s matrix organization, different organizational structures are combined to form one working organizational design. These organizational structures are functional structure, team-based structure, and divisional structure.
There is a combination of more than one organization to provide service or produce goods in the network structure. These combined organizations can be in partnership for a specific venture; it can be outsourcing where one organization hires another to manage one of its functions (Burton,Obel & Håkonsson, 2020). The network structure is flatter and not hierarchical since management is cut from functions passed to different organizations.
One organization that has effectively applied network structure is H&M (Hennes & Mauritz). In H&M, production and processing are outsourced to different companies in different countries. These hire companies are found in Australia, Singapore, New Zealand, and Malaysia. In network structure, the managers control internal and external relationships playing a vital role in network structure success.
A virtual organization is a network joining independent firms to produce a product or provide a service temporarily. In virtual organizations, there are virtual offices, virtual leadership, and virtual teams. By assembling various firms’ resources virtually, a virtual organization appears to be more capable than its actual capability (Piercy et al., 2015). The virtual organization’s goal is to respond instantaneously to customer demands by providing innovation, producing high-quality products, and exceptional services.
Apple Computer and Sun Microsystems have successfully implemented virtual organizations. Apple Computer linked its modern software to Sony’s manufacturing skills in miniaturization. This way, Apple could take its product to the broader market and quickly gain market share in the PC industry and notebook segment.
Comparing Organizational Designs
Organizational structures are significant in a company in resource management and employee treatment. The four prominent organizations, functional, matrix, network, and virtual organization, comes in varying structures with different strategies and face various challenges in the current world. This section compares the organizational designs in strategies and structural terms.
The matrix structure is designed to enable employees to report to more than one manager or director. The matrix structure has its features derived from different structures, which are functional, divisional, and team-based ((Mietzner & Reger, 2005).). The virtual organization structure is made up of partners with specific market goals, usually temporarily. When the goal is achieved from the alliance formed, partners are free to develop new collaborations and partnerships. In virtual organizations, independent firms are joined together virtually to create one virtual structure with capabilities virtually higher than in separate forms. Resources and costs are shared in a virtual organization.
The functional structure divides the major company’s functions into specialty groups under a designated leader in each group. These groupings are set into independent departments. These departments can be information technology, finance, production, and marketing department. The network organization structure is designed to combine different organizations to produce goods and provide services. This combination can be either partnership or outsourcing. Outsourcing involves one company hiring another to perform one of its core functions, such as production. In network structure, the organizations can be located in different geographical areas influenced by labor, availability of resources, and market.
A distinct strategy guides each organizational design. The strategy determines each structure’s working and implementation in terms of resource and employees’ management and interaction between different departments and organizations (Burton,Obel & Håkonsson, 2020). Changing the organization’s strategy equates to changing the overall structure of the organization.
The matrix strategy is to spread the company’s main functions across a different geographical area. Depending on the cost of operating, a company is selected and assigned a function. For instance, due to China’s cheap labor, an outsourcing company in China can be assigned a production function. A functional organization strategy is to keep employees with similar skills in their respective departments. Each department is appointed as a leader. The flow of information and decision is from top management to department leaders and employees. This strategy makes the functional organization most preferred.
A virtual organization works on the urgency of satisfying customer demands instantaneously. It combines organizations with a particular goal and forms virtual teams with virtual leaders to see it through. The strategy here is to join efforts, share individual company’s resources for one more significant purpose. The network organization strategy is to join organizations to produce goods and services. To achieve this, firms can be in partnership or outsourcing.
Challenges Organizational Designs face in Today’s Environment
In today’s environment, organizational designs face various challenges. The main difficulties are balancing differentiation and integration, balancing centralization and decentralization, and balancing standardization and mutual adjustment (Burton,Obel & Håkonsson, 2020). With each organization having different structures and strategies, they face other challenges, respectively.
The Organization Design I Would Prefer to Work With
Among the four, I would choose to use a matrix organization. Set head of operations in a convenient geographical area where the internal and external organizations will be conducted. Determine the organizational goals and set the main functions. In the main headquarters, I would follow the functional structure informing the department and then in each department outsource its main functions in a convenient location. For production, the outsourced company would be in a country with cheap labor for marketing the company to be in an international market hub, and so on.
By choosing the most effective organizational design, companies can easily manage their resource to yield significant profits. The selected method should have its structure and strategies tailored to meet its goals and bring profits and growth. Each of the above organizational designs has set the order of operations, decisions, and information flow from senior management to employees.
Bai, W., Feng, Y., Yue, Y., & Feng, L. (2017). Organizational structure, cross-functional integration and performance of new product development team. Procedia engineering, 174, 621-629.
Burton, R. M., Obel, B., & Håkonsson, D. D. (2020). Organizational design. Cambridge University Press.
D’Urso, P. A., Graham, D., Krell, R., Maul, J. P., Pernsteiner, C., Shelton, D. K., & Piercy, G. W. (2015). An exploration of organizational structure and strategy in virtual organizations: A literature review. Journal of Perspectives in Organizational Behavior, Management, & Leadership, 1(1), 25-40.
Mietzner, D., & Reger, G. (2005). Advantages and disadvantages of scenario approaches for strategic foresight. International Journal of Technology Intelligence and Planning, 1(2), 220-239.