What Is Organizational Design? 4 Organizational Structure Types

Organizational design, also known as org design, is the process of shaping an organization’s workflows and structure. Organizational design defines the responsibilities and requirements of each job and department and how it assists the company in achieving its goals. Organizational design initiatives focus on resource allocation, establishing strategic priorities, streamlining workflows, and implementing an organizational chart.

New organizations can optimize their business strategy by focusing on organizational design initiatives such as resource allocation, establishing strategic priorities, streamlining workflows, and implementing an organizational chart (or org chart). In an existing company, org design can include using performance tracking metrics to identify where inefficiencies exist and realigning structures to better focus on the company’s core strengths and priorities.

The goal of organizational design is to create an efficient and well-functional organization where the company’s organizational structure aligns with its core competencies and strategy. A well-executed organizational design process creates more efficient workflows, a better customer experience, and higher profit margins. It also prevents many of the problems that occur with misaligned business structures, including cash flow shortages, workforce decreases, and damage to customer loyalty and product development.

Here is a step-by-step look at how to execute a holistic organizational design process.

1. 1. Initiate the design process. Determine what your organization hopes to achieve from the organizational design process. Goals could include product differentiation, higher employee engagement, fewer silos, or an optimized leadership team. Whatever your specific goals are, be sure to include a communication strategy for informing all key stakeholders of the goals of the reorganization.
2. 2. Assess your current organizational structure. Consider performing a SWOT analysis to assess the strengths, weaknesses, opportunities, and threats of your current operating model. This will help clarify what areas need to need improvement, and what strengths to build upon.
3. 3. Design the new organizational structure. When designing an organizational structure, consider work specialization, departmentalization, delegation, span of control (how many employees or departments a manager will oversee), and chain of command.
4. 4. Implement a change management plan. A change management plan is an organizational process that guides how a business prepares and supports its employees as it transitions from its current state to an improved future state. Following a change management model ensures that changes are executed seamlessly and maximizes the advantages gained from those changes.

To best execute an organizational design process and align key competencies with business goals, a company’s leadership may choose to structure the organization following one of these common models:

1. 1. Bureaucratic organizational structure: The bureaucratic structure, also known as a functional structure, is one of the most common organizational structures, particularly in large organizations. The bureaucratic structure is a top-down structure, meaning that information flows from senior executives down through heads of departments like the sales and marketing department or human resources. The next level involves the senior leaders in various departments, who oversee project managers and department employees.
2. 2. Divisional organizational structure: A divisional structure gives decision-making authority to a company’s divisions, which allows them to act like smaller, individual companies with their own resources and departments. Companies often organize these divisions by market, industry, location, or product lines.
3. 3. Horizontal organizational structure: Also known as a flat organizational structure, a horizontal structure reduces the number of levels between executives, management, and staff. The horizontal structure encourages greater self-management and more open communication by staff but can also lead to confusion because employees are unclear about their specific supervisor. A flatarchy structure combines a flat structure with a hierarchical structure, with a few managers between executive and employee levels.
4. 4. Matrix organizational structure: A matrix structure assigns multiple reporting relationships to its employees. For example, an employee may work in one department and report to a different department’s project manager. A matrix organization’s structure is more flexible and allows more open communication between divisions but is also more complex.

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