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The Importance of Organizational Design & Structure

Business StrategyWhy is organizational design and structure important to the success of an organization? Good organizational structure and design helps improve communication, increase productivity, and inspire innovation. It creates an environment where people can work effectively.

What is Organizational Structure?

Organizational structure defines how activities are directed and provides the foundation for operating procedures within an organization.

What is Organizational Design?

Organizational Design (sometimes referred to as organizational architecture) provides the structure for business processes and the framework for an organization to deliver its core qualities.

Most productivity and performance issues can be attributed to poor organizational design. Poor organizational design often results in, among other things, confusion within roles, a lack of coordination among functions, and failure to share ideas. A company can have a clear mission, talented people, and great leaders, and still not perform well because of poor organizational design.

To be effective, the overall organization design must be aligned with the business strategy and the market environment in which the business operates. It must also have the right business controls, the right flexibility, the right incentives, the right people, and the right resources.

Important Factors in Organizational Structure and Design

Here are just a few of the many things that are important to consider when thinking about the structure of your organization adapted from Factors Affecting Organizational Design.

Strategy: No matter what strategy your organization pursues, the structure must support it to be successful.

Size: The design must take into account the size of your organization.  The larger an organization grows, the more need there is for formal structure, defined work assignments, and clear lines of authority.

Organizational Life Cycle: Organizations’ life cycles include four stages, and each stage connotes different structural needs.

  1. Birth, also known as Start-Up
  2. Youth, also known as Growth or Fast Growth
  3. Mid-Life, also known as Slow Growth or No Growth
  4. Maturity, also known as Decline

Environment, controls, and incentives are additional considerations when thinking about the appropriate structure of your organization.  Additional information on these considerations can be found at Organizational Design: Aligning Organizational Structure with Business Goals, as well as Factors Affecting Organizational Design.