What is organisational design and why does it matter?

Start-ups often have a clear idea what they want to achieve and why – they have purpose.


But sometimes in the rush to get going the organisation’s design is forgotten. And even when it is considered at the outset, organisations often fail to evolve the design as they grow and change.


This can seriously impact on organisational effectiveness; limiting it in a number of ways including restricted growth, poor financial performance and in the worst situation financial failure.


Organisational design is the second area discussed in the previous introduction to organisational development blog and involves optimising and aligning the design of the organisation’s structure, processes and systems so that it can achieve the organisations objectives – objectives described in missions, visions, strategies or purpose.


The primary process for most businesses from marketing to sales to delivery typically cuts across functional departments such as sales & marketing, operations and finance. The structure, processes and systems therefore need to be considered as a whole since a change in any area can impact on others; a change in departmental structure could, for example require a change to the processes or vice versa.



Start-ups typically have little in the way of formalised structure, roles or processes. The founders often have a clear sense of purpose and work closely together with a wide span of control.


But as they grow and take on more people they structure themselves in different ways. These structures have typically involved a limited number of types of hierarchical departmental structures but there has been an increasing trend towards a range of flatter structures.


The more traditional structures are as follows:


1. Functional structure: This is the most common first step in structure as organisations grow and involves grouping people according to their functions or technical expertise e.g. sales, production, finance or HR. This has the benefit of economies of scale and improved performance of each department but they typically cut across the flow of client orders and can therefore cause issues such as lack of client focus and silo mentality.


2. Divisional structure: As organisations grow they often adopt divisional structures based on a number of factors including geographic area, product/service type or market type. While this approach does require duplication of functional departments it can be more client focused and effective at delivering its products or services. As each division is largely self-contained silo mentality can become more of an issue.


3. Matrix structure: Some larger organisations try to get the benefit of both the functional and divisional structures by supporting a number of product lines or divisions with one set of functional departments. This can theoretically be very efficient but requires people to report in two directions; ultimately to functional and product/divisional heads at the same level. This can generate significant power struggles and politics if not managed carefully.


In recent years there has been increased interest in flatter structures where there is less reliance on hierarchies and centralised command and control. Many of these approaches such as Holacracy and Frederic Laloux’s “teal” organisations are based on increased levels of trust in people and involve greater distribution of authority throughout organisations which are often split into small self-governing teams of approximately 10 to 30 people.


Central administrative teams including senior roles such as CEO are often significantly reduced and exist to serve the organisation rather than command it. The generation of ideas and initiatives therefore often shifts from top down to bottom up.


While these flatter approaches can have a number of benefits such as a more engaged work forced and more agile / adaptable organisations they can be challenging to develop and maintain and some organisations that have tried it have reverted back to more traditional structures.


An increasing number of businesses are however taking a more pragmatic approach; using a mix of structural approaches to get the best solution for their situation.


Processes / Systems

The approach to documenting organisational processes and implementing them using electronic systems depends to some degree on the organisational structure which is in turn related to the organisational culture.


More traditional hierarchical structures tend to rely on a significant depth of policies and processes to ensure compliance and repeatability. Flatter structures, on the other hand, often have a more fluid approach to process, allowing the self-governing teams to evolve their processes.


Each approach has its benefits with increased depth of documented processes potentially offering greater control, greater efficiency and repeatability, which can be particularly important in some areas such as manufacturing. The down sides however can include demotivated staff and reduced agility as any changes require significant bureaucratic effort.


In order to maximise the efficiency and effectiveness of processes an increasing number of organisations are using enterprise resource planning (ERP) systems. While this approach used to be restricted to larger organisations there are now a number of cost effective and powerful systems for smaller organisations developed by companies such as Xero.


ERP systems are databases that automate organisational processes or workflows. The large systems from companies such as SAP, Microsoft and Oracle offer very powerful functionality but require considerable investment to adapt the system to an organisation’s needs.


There are now an increasing number of online systems for small companies that are typically based on a core accounts or customer relationship management (CRM) systems with bolt on apps to manage various aspects of organisational activity. The adoption of these systems is likely to be accelerated in countries such as the UK where government initiatives such as Making Tax Digital (MTD) will require all businesses to adopt electronic systems.


While these systems can offer a number of benefits the adoption of the larger systems in particular are plagued with difficulties; the majority failing to achieve the most of their expected benefits or over running on budget and/or time.


A well-considered and implemented organisational design can have a significant impact on organisational performance and should therefore be reviewed periodically, and particularly when organisational direction is changed, to ensure alignment and effectiveness.


This blog is the second in a series of three on the key areas of focus of organisation development that was introduced in an earlier blog.


What do you think? If you have any thoughts or comments, please share below or send me a LinkedIn connection request.

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