What is organizational structure and why does it matter? We can think of organizational structure as the set of formal arrangements that determine how tasks are carried out within an organization. These arrangements usually take two forms: (1) groups or units, which are formed around highly interdependent activities, knowledge sets, or strategic points of focus, and (2) linkages or ties, which connect units in different ways and establish how the organization’s workflow will progress.
In simple terms, structure sets the rules of the game in terms of roles, accountability, and authority within an organization: it specifies who does what and who reports to whom so that the organization can operate in a coordinated fashion. More subtly, structure provides a context for communication and knowledge generation and transfer. By grouping and linking people together, structure sets the stage for learning to take place, which can offer a competitive advantage when learning processes and outcomes are difficult to imitate by competitors. Even more fundamentally, however, organizational structure is conducive to identity formation. Individuals identify at different levels with their role in an organization, with their broader community of practice, with the unit in which they are embedded, and with the organization to which they belong. In this vein, structure affords people a sense of belonging, a sense of self.
Ever since large organizations rose to become a prevailing phenomenon in our economy and society, scholars have attempted to conceptualize the “optimal structure.” Seminal 20th century studies tried to identify the different types of structures organizations were using (e.g. by function, by geography, by product, etc.) and to establish the set of contingencies to which those structures responded (for example, the size of the organization, the nature of their primary tasks, the technology available, the characteristics of their environment, etc.).1 These studies seemed to promise that, under X circumstances, organizing like Y would lead to superior performance.
In the 21st century, however, the sheer number of contingencies organizations face make such a proposition virtually impossible to sustain: global competition, disruptive technologies, shorter product life cycles, and more sophisticated and knowledgeable customers are just some of the factors organizations deal with today. Add to this the fact that key processes such as innovation are happening across organizational boundaries, with organizations aggregating input from myriad contributors through global communications networks. How should organizations structure themselves in an age of extreme uncertainty, dynamism, complexity, and openness?
In response to these changes, the focus in academia has shifted to the notion of “amount of structure”.2 The question we are now trying to answer is: To what degree does an organization need to formally specify units and linkages, roles and authority lines, tasks and responsibilities to deal with complexity? Modern organizations require structures that grant them the flexibility they require to reconfigure roles, communication lines, processes, and learning patterns on the go. More and more organizations are turning to organic structures that are tailored to their specific situations. These structures combine multidimensionality (simultaneously pursuing a variety of strategic goals), hybridity (combining and overlapping elements from different “pure organizational forms”), ambiguity (downplaying the role of formal structure while relying more heavily on informal structure), and fluidity (emphasizing transient rather than permanent design components). No two structures are alike, and no structure is fully specified or fully designed.
An excellent example of this trend is the commercial real estate services company Jones Lang LaSalle (JLL).3 In the mid-2000s, the company transitioned from a structure focused on vertical, semi-autonomous service lines (business units centered on delivering specific services) to a system relying on several interdependent groups. Each group referred to a specific dimension of the business JLL deemed worthy of tracking performance along: products, client segments, geographic markets, industries, etc. In working with clients such as Bank of America or Procter & Gamble, JLL’s groups overlap to create what is internally referred to as “intersections”: intra-organizational contexts where people, ideas, and resources come together to yield an integrated solution. There are minimum structural guidelines at these intersections; top management understood early on that too many formal rules might “tilt” the balance between groups and compromise the focus on the customer, which should prevail over the interests of particular groups. Executives lead by influence instead of formal authority, and individuals often collaborate before knowing which portion of the resulting profit will be allotted to them.
Communications and networking company Cisco has also been experimenting with organizational structure over the past decade. In the early 2000s, they created a structure that relied on myriad horizontally linked functional groups, each housing experts in Cisco’s technologies such as routing, switching, network management, and wireless. Linkages occurred via boards and councils, which constituted a network of cross-functional executive-level committees. By linking together different functional groups, councils and boards were used as a means for Cisco to explore business opportunities adjacent to its core business. CEO John Chambers commented in 2008, “Cisco is an example of how a global company can operate as a distributed idea engine, where leadership emerges organically, unfettered by central command.” Initiatives such as Cisco’s “connected stadiums” for sports and entertainment found their origins in this organizational structure. While the company recently transitioned to a matrix structure linking sales and engineering groups, the emphasis on cross-functional work continues.(a)
If organizational structure suddenly becomes a malleable construct, what are the consequences in terms of workflow? Individuals will have to define and redefine their roles in the organization as they discover new ways in which they are interdependent. Formal authority will be replaced by influence. Accountability will be horizontal instead of vertical. A more diluted sense of structure will also have implications in terms of how organizations learn: if learning and innovation are distributed, organizations will need to find ways to manage communities of knowledge that transcend asset ownership and property rights. Finally, less structure will prompt organizations and individuals to redefine their identities. The old-age elements that gave us a sense of belonging will no longer be salient, but replaced with others more suitable to the multi-dimensional world we live in. Structure will no longer be a set of constricting formal arrangements but a valuable cognitive tool to guide individuals and organizations toward multiple goals.
- A.D. Chandler Jr. (1962) Strategy and Structure: Chapters in the History of the American Industrial Enterprise, Cambridge, MA: MIT Press. H. Mintzberg (1979) The Structuring of Organizations, Englewood Cliffs, N.J: Prentice-Hall.
- J.P. Davis, K.M. Eisenhardt, and C.B. Bingham (2009) “Optimal structure, market dynamism, and the strategy of simple rules,” Administrative Science Quarterly, 54: 413–452.
- Ranjay Gulati and Luciana Silvestri (2011) “Jones Lang LaSalle 2005-2008.” Harvard Business School, Case Study
- (a) A matrix structure combines two or more dimensions, such as geography and product. By having different groups responsible for intersecting dimensions, the hope is that the friction created at the intersections will be beneficial along both dimensions. Matrix organizations rose to prominence in the 1970s and 1980s in response to increasing organizational size and complexity, and they continue to be popular today.