A guide to organisation design approaches, the types of organisational structures, and the factors which influence the choice of organisation design
Organisation design shapes people processes and is a key HR competency. HR practitioners need to understand how organisation design shapes an organisation’s structure. Although there is overlap between organisation design and organisation development, the factsheet highlights the distinction between the two.
This factsheet defines organisation design within the context of organisation design theory and considers the common types of organisational structures. It concludes by examining the factors influencing the choice of organisation design, including business objectives, culture, and people processes.
HR practitioners must be fully aware of the role organisation design plays in shaping people processes. Firstly, they need to make sure that organisation design is aligned with the business strategy and that various interventions aren’t conflicting. For example, in a matrix structure individuals need clarity on how and by whom their performance appraisals will be conducted. Secondly, HR practitioners should use organisational design as one of the instruments for shaping the culture necessary to achieve the business strategy and to improve the quality of jobs for people. Responding to the changing nature of work, some organisations use physical space to encourage people from different teams to communicate and collaborate more.
Our research shows that organisation design is particularly important to SMEs who may need to review structures and processes as they grow. Many start-ups begin with a ‘spider web’ structure where a network of individuals work towards the vision of a single entrepreneur or a group of founders, but develop a greater hierarchical separation between the senior and the junior members of staff over time. In turn, larger companies may be working towards removing redundant levels of hierarchy to achieve greater individual autonomy and speed up decision-making.
What is organisation design?
Organisation design is the process and the outcome of shaping an organisational structure, to align it with the purpose of the business and the context in which the organisation exists. To be effective, it requires familiarity with the external environment and the business needs, as well as an understanding of people behaviours and people processes.
Organisation design is sometimes considered together with, or as part of, organisation development. Organisation development is concerned with improving the overall organisational effectiveness over a period of time with a strong emphasis on change in an organisation’s culture and behaviours, rather than structures, systems and processes. Organisation (re)design can be used as an intervention in the organisation development process.
Approaches to organisation design
Organisation design and organisation development approaches may appear to blur partly due to the way organisation design theory has evolved. While early approaches adopted a mechanistic take on structuring organisations with little consideration to people behaviours and attitudes, later models considered how people work together.
Early thinking about organisation design stemmed from Max Weber's ‘bureaucratic’ approach, prescribing that effective organisations are characterised by robust and consistent processes and clear hierarchical structures. This type of structure is associated with tight management control and supervision, with little individual autonomy over roles and tasks.
Complementing this approach is ‘scientific management’ developed by Frederick Taylor, outlining specific principles of designing a bureaucratic structure. Through analysing the time taken to complete tasks, as well as the optimal sequences of the task, Taylor proposed how workers and structures could be ‘scientifically’ selected to achieve organisational efficiency. Taylor’s studies had a significant influence on work organisation and job design in the early twentieth century and have been widely applied to assembly lines (for example, in the Ford Motor Company). Work organisation combining top-down control and efficiency measurements is still popular in industries dependent on standardisation of work tasks, for example call centres and assembly lines.
From the 1960s, the need for organisations to be adaptive to the changes in the external environment has been acknowledged, giving rise to the ‘organic’ or systems approach which shifts focus onto the organisational culture and its people, rather than structure only, But it’s accepted that a fluid take on design might only suit some organisations, with the traditional work processes relying on the hierarchical and structured design. Within this organic focus new forms of organisation (inevitably combined with new forms of management) have been developed and tested, for example, matrix organisation, network organisation, and co-operatives.
Types of organisational structures
Common types of organisational structures include:
- functional or divisional (by the different functions present in the organisation, for example, sales, production, HR)
- customer-based (by specific customer group, market, geographical location of operation)
- product-line based
- matrix (combining hierarchical and functional approaches, typically with multiple reporting lines).
- network (decentralised and flexible, includes internal and external stakeholder relationships).
New forms of organisation
More recently new forms of organisation have been described, largely enabled by the technological advances in virtual working, the rise in ’non-standard’ work (for example, flexible working and zero-hour contracts), and the idea of empowerment, or devolving decision-making down the organisational hierarchy. These new approaches to work have challenged the traditional hierarchical structure, focusing on increasing organisational agility, enabled by more flexible organisational structures. Examples of collaborative, non-hierarchical ways of organising include Wikipedia, the Occupy movement, the Engage for Success movement, and, famously, Zappos.
Another trend is working ‘beyond the organisation’ or collaboration between organisations for mutual benefits. This is widespread in sectors such as pharmaceuticals, car manufacture, advertising, marketing and media and consulting. For example, large-scale construction projects, such as Terminal 5 at London Heathrow Airport and the London Olympic Park, have been designed, developed and put in operation by several organisations working in partnership towards the same goal. Our report Innovative forms of organising: networked working examines one such case study.
HR has a particular role to play in supporting these new forms or organisation, working across organisational boundaries to manage relationships with external stakeholders and partners. Our report Organising HR for partnering success explores the implications of partnership working for HR.
Factors influencing the choice of organisation design
Organisation design and business objectives
Alignment of the business purpose is an essential feature of organisational design, as illustrated by the purpose of the various types of structure outlined above. Importantly, the structure may have to evolve with the changes in the corporate strategy, enabling the ways of working necessary for fulfilling that strategy.
Similarly, the external environment has an impact on how an organisation is designed, with stakeholder analysis (typically PESTLE) conducted to establish how the structure may fit their varying needs.
Although business strategy is usually set by senior managers, they require input from HR to take into account people behaviours and people management processes. For more information on the HR involvement in strategic business decisions see our HR Outlook series.
Organisation design and culture
An association between different types of organisation design and organisational culture has also been observed. It’s important to consider these relationships when using organisation design as an organisational development intervention, for example in cultural change. Handy‘s cultural typology in Understanding organizations provides a useful framework for understanding parallels between organisation design and culture.
- Power cultures are dominated by one individual or a small group, and are characteristic of many start-up organisations.
- Role cultures correspond to the functional structure, where parts of organisations are clearly separated by their functional purpose, and, therefore, heavily rely on senior managers to direct the operations of each of the functions, as well as to co-ordinate between themselves. The disadvantage is that these cultures (and structures) can breed ‘silos’ which impede agility.
- Task cultures are related to matrix organisations which rely on a network of connections, corresponding to tasks or projects at hand. While this culture enables collaboration and knowledge-sharing, it also requires clarity of the main vision, as well as consistency of processes, including performance management, to avoid conflicting priorities placed on employees through multiple reporting lines.
- Person cultures are found in parts of organisations where authority is associated with expertise. This can be true of clusters of specialists or consultants, for example, legal professionals, architects or academic groups. The structure of such an organisation must support and enable individual interests.
The variety of cultures within a single organisation can justify a mix of organisation design approaches, depending on which ways of working are effective in achieving business objectives in a particular part of the organisation. Our report Developing organisation culture: six case studies looked in detail at organisations undertaking culture change and, based on their experiences, includes a practical checklist of some of the important issues to consider for effective culture transformation
It’s important to consider global cultural differences and the resulting idiosyncrasies of organisational cultures when designing global corporations, with a need to think about the ‘organisation within an organisation’. Our International culture factsheet outlines various approaches for understanding cultural differences.
Maturity of people processes
The sophistication and effectiveness of the existing people processes and systems are important elements contributing to the organisational design. A classic example is the increased use of technology for recruitment and performance management, remote working, and communicating (for example, intranet and social media). Depending on the uptake and effectiveness of these tools organisations may consider different structures, for example, moving from a functional to a network way of organising. Similarly, higher levels of trust in an organisation can justify a transition towards a flatter organisational structure.
Our report Achieving sustainable organisation performance through HR in SMEs considers evolution of organisational structure and HR processes in SMEs.
In HR: Getting smart about agile working we showed that many organisations focus on several areas of job and organisation design to improve productivity and performance:
- freedom to act
- virtual teams or work groups
- outcome-based performance measurement
- flexible working practices
- technology-enabled work environments
- high-trust working relationships.
Useful contacts and further reading
CANNON, J.A., MCGEE, R. and STANFORD, N. (2010) Organisation design and capability building. CIPD toolkit. London: Chartered Institute of Personnel and Development.
CICHOCKI, P. and IRWIN, C. (2014) Organization design: a guide to building effective organizations. 2nd ed. London: Kogan Page.
CONNOR, G., McLEAN, I. and McFADDEN, M. (2012) Organisation design. In: STEWART, J. and ROGERS, P. Developing people and organisations. London: Chartered Institute of Personnel and Development.
FRANCIS, H., HOLBECHE, L. and REDDINGTON, M. (2012) People and organisational development: a new agenda for organisational effectiveness. London: Chartered Institute of Personnel and Development.
GARROW, V. and VARNEY, S. (2013) The palace: perspectives on organisation design. Brighton: Institute for Employment Studies.
LANCASTER UNIVERSITY MANAGEMENT SCHOOL. Centre for Performance-Led HR (2009) Integrated organisation design: the new strategic priority for HR directors. Lancaster: Lancaster University Management School.
WILSON, C. (2015) Designing the purposeful organization. London: Kogan Page.
Visit the CIPD and Kogan Page Bookshop to see all our priced publications currently in print.
HICKMAN, A. (2014) Build your own matrix. Human Resources. January. pp36-39.
NEILSON, G.L., ESTUPINAN, J. and SETHI, B. (2015) 10 principles of organization design Strategy+Business. No 79, Summer. pp28-33.
ROOK, J. W. (2016). Transforming industrial R&D into an entrepreneurial organisation: implications of organisational design on enabling innovation. International Journal of Organisational Design and Engineering. Vol 4, No 3-4, pp213-237.
SOPELANA, A., KUNC, M., and HERNAEZ, O.R. (2014). Towards a dynamic model of organisational flexibility. Systemic Practice and Action Research. Vol 27, No 2. pp165-183.
TOLCHINSKY, P.D. and WENZL, L. (2014) High engagement organization design. People & Strategy. Vol 37, No 2. pp34-38.
CIPD members can use our online journals to find articles from over 300 journal titles relevant to HR.
Members and People Management subscribers can see articles on the People Management website.
This factsheet was last updated by Ksenia Zheltoukhova.
Ksenia Zheltoukhova: Head of Research
Ksenia is responsible for leading research innovation and capability development at the CIPD. She joined in 2013 as a Research Adviser, leading a number of projects, including a major research programme, Profession for the Future, investigating principles-based approach to professional standards as a way of driving ethical and sustainable decision-making by the business.
Prior to the CIPD, Ksenia was a researcher at The Work Foundation, working on Future of HR, Leadership, and Health and Well-being streams. With a background in organisational psychology, she holds a PhD in Management from Lancaster University, where her research examined the effects of leaders’ sacrificial behaviours on followers.
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