learning resources

Evaluating different types of organisational structure part two - newer structures

Overview

These learning resources explore some of the newer types of organisation structure and build on learning from the first part. Three newer forms of structure are outlined, including their respective advantages and disadvantages. In the audio clip (right) your HR tutor Andrew gives an overview of the purpose and content of this learning, and below is a summary of how this fits with the relevant CIPD unit.

Version 1.0 – published March 2024.

Listen to "Evaluating different types of organisational structures part two - introduction" on Spreaker.

Associate (level 5)

This learning relates to unit 5CO01 – Organisational performance and culture in practice.

LO1 – Understand the connections between organisational structure, strategy and the business operating environment.

AC 1.1 – Evaluate the advantages and disadvantages of different types of organisational structures, including the reasons underpinning them.

Newer structures

Three trends gaining ground in business and society make traditional structures less suitable now:

  1. The rapid pace of change and dynamic context shifts requiring employees to respond more quickly than managerial controls and reporting relationships allow.
  2. The growth in knowledge-based work meaning that managers rarely have the full expertise needed to solve organisational problems. Rather, individuals at all organisational levels must contribute information and ideas for their organisations to succeed.
  3. The trend towards viewing work and organisations as places for personal meaning, where employees have control over their work and are not subjectives to managerial power.

Many organisations are moving towards more flexible, self-managing structures, based on collaboration and networks of shifting partners/alliances. In these structures, hierarchical authorities are less obvious and control is more diffused – leadership and management may be ties not to a hierarchy but to expertise or experience or specific attributes.

The coronavirus pandemic accelerated discussions on hybrid working, which puts more autonomy in the hands of employees and encourages growing numbers of organisations to experiment with less hierarchical, traditional structures and more self-managing ones.

Of these newer structures there any many recognisable types, the main ones being agile, holacratic and network structures. The section that follows outlines their main features, effective use and advantages and disadvantages. As in part one, much of the content has been adapted from Naomi Stanford’s book Designing Organisations: Why it matters and ways to do it well (reference details below), which is a great source for anyone looking for further information on organisational design.

Stanford, N (2022) Designing Organisations: Why it matters and ways to do it well, Economist Books, London.

Agile structure

Not to be confused with agile working, an agile structure is a non-hierarchical system that allows businesses to be flexible, adaptive and responsive to shifts and changes in the market environment. Although agile organisations reflect different practices and terminologies depending on their size, sector and cultures, they do share a set of underlying characteristics:

    • A common purpose – a move away from purpose based solely on delivering shareholder profit towards a purpose that gives consideration to social and environmental impact
    • A network of high-trust autonomous teams with team members valuing each other’s skills and seeking mastery in their own
    • Openness to experimentation and learning from failure
    • Strong sense of team accountability and community
    • Decision-making rights often allocated to the team
    • Customer is the central focus
    • Open and transparent communication flows
    • Flexible resourcing
    • Change viewed as continuous.

An example of an agile organisation is Spark, a New Zealand telecoms and digital services company, which made the journey from a traditional to an agile structure in order to:

  • Enable a better and faster service to its customers
  • Give employees the power and resources to make decisions
  • Improve the speed of developing, trialling and introducing new ideas to market.

Moving to an agile structure from a more traditional one it not an easy journey as it involves all system elements and a cultural shift. Possibly most significant is the required mental leap to give up hierarchical management structures and job titles and transition towards working in small, self-managing teams with colleagues from different backgrounds and with different skill-sets, who, in many cases, think differently.

Advantages

  • Allows organisation to be flexible to changes in market environment
  • Costs reduced by eliminating the need for layers of management
  • A common purpose, taking account of social and environmental impact
  • A positive work environment featuring trust, autonomy, valuing skills, open experimentation and learning, team accountability and community
  • Change viewed as continuous.

Disadvantages

  • Potential for unclear roles and responsibilities, particularly in times of change and flux, leading to lower productivity
  • Priorities of individual teams may inhibit collaboration, relating to challenges in seeing the bigger picture.
  • Decision-making can be difficult and timely decisions hard to come by
  • Implementation difficult, requiring culture shift and change to all system’s elements.

Holacratic structure

Holacratic is a standalone model of decentralisation, designed as an off-the-shelf model that firms can adopt without extensive work to tailor it to individual business needs.

Holacracy avoids the traditional patterns of hierarchy, eliminating managers and instead giving every employee the power to innovate, make changes and have a voice. Instead of managers, individuals are directed by formalised but flexible role definitions. Decision-making authority, priority setting and strategies are shared with multiple people organised into circles.

Put briefly, holacracy operates through a defined and integrated set of rules and processes, checks and balances, and guidelines that are embodied in a constitution. It is therefore not without a structure entirely, but is structured around circles, which operate within larger circles bound by the terms of the constitution.

The constitution does not say how people should do their tasks. It explains in a broad-brush way how circles should form and operate: how they should identify and assign roles, what boundaries the roles should have, and how the circles should interact. The circles do not just manage themselves within the rule and guidelines, they also design their roles and govern themselves.

Two examples of organisations that have embraced the move to holacratic structures are online retailer Zappos and Medium, an online publishing platform. Medium was attracted to the idea of the self-managing organisation and the principle that people have the ability to play multiple roles in a company. It did find, however, that it was difficult to co-ordinate efforts at scale – any initiatives that required co-ordination across functions took time and effort to achieve alignment.

Both Zappos and Medium found holacracy’s recommended governance approach too onerous. With every job to be done requiring a role, and every role requiring a set of responsibilities, having to codify responsibilities in explicit detail got in the way of the work. The experiences of both companies illustrate the value of not slavishly adhering to a method or structure and making changes to better suit specific company objectives.

Advantages

  • Accountability – each role is clearly defined with domains, purpose and accountability, leaving no room for ambiguity about who’s supposed to perform tasks of how they should do it
  • Adaptability – individuals and circles can pivot instantly based on their expert knowledge, market conditions and real-time data, leading to organisational agility, responsiveness and competitiveness
  • Role driven decision-making, with power and authority evenly distributed, meaning outcomes are more timely and informed. Also fosters a culture of innovation and initiative instead of hindering it.

Disadvantages

  • Implementation requires huge investment in process optimisation and employee training. A deeply ingrained hierarchical structure, in the sector and not just the organisation, can be difficult to move away from
  • Making people responsible for duties beyond their scope can lead to decision paralysis, resulting from overloading staff with responsibilities they’re not ready for
  • Holacracies aren’t for every business and the benefits can vary between different organisations. Safety and regulatory demand might make the flat organisational structure impossible to maintain.

(Indeed, nd.) https://www.indeed.com/hire/c/info/what-is-a-holacracy-model, accessed 19 February 2024.

Network structure

Compared with other structures, networked organisations do not have a hierarchical organisational chart where the chain of command runs through a cascading line of middle managers. Instead, networked organisations tend to feature clusters made up of different departments, business units, or local offices, and these clusters work together on an ad-hoc basis. The company rejects strict templates for workflows and reporting relationships and instead focuses on using its full resources to meet customer needs.

A network organisational structure is one in which organisations group certain types of employees together based around a common specialisation. These employees then form partnerships with other specialists throughout the organisation to take on new project and work toward a common goal. For example, a company may have a product development team and a marketing team, operating as separate divisions but with members of those teams pairing up to tackle projects together as they arise.

Network structures differ from traditional hierarchical structures in that they feature linking over leading, convincing over controlling, and dealing over doing. What typically ties a group within a designed network together are social relations and similarities of intention. Work is organised around team and unit delivery, often because units have distinctly different ways of working. However, as the units work in combination, the delivery to customers is seamless.

Network structures are a good choice if organisational requirements demand innovation. They also work well when organisations operate in an environment that requires speed, flexibility and high levels of customer focus.

An interesting example of a network structure can be found in UK consumer goods firm Unilever. Its management team emphasised that it wanted to shift away from hierarchies, reporting lines and inflexible resourcing, which dated from a model drawn from the military that had been in place for 100 years.

As an experiment to initiate the shift, in 2016 Unilever established U-studio. This is an in-house content agency designed as a network to produce informational and marketing content, including how-to videos, articles, infographics and product information across social media and digital platforms. The aim was to increase speed of product delivery, increase proximity to customers, and reduce external agency fees.

Within three years the experiment had proved successful, with U-studios operating in 20 countries where Unilever has a presence. Each study is focused on local requirements yet each is able to draw on other U-studio sites in the network for ideas, knowledge sharing, support and talent to generate the best results. U-studios share lessons and capabilities which help realise Unilever’s expectations around customer focus, savings and efficiencies. By designing its own network Unilever also changed its relationships with the external agencies it had traditionally worked with.

Advantages

  • Natural communication as workers have opportunities to interface with team members from different divisions
  • Openness to organisational change as employees are less likely to feel emotionally tethered to hierarchies and specific workflows
  • Versatility and adaptability with team members flowing freely from one project to another without having to worry about the limitations or a hierarchical organisational chart.

Disadvantages

  • Potential for duplication/redundancy resulting from multiple teams doing similar work. This can lead to inefficiencies rarely seen in hierarchical structures
  • Relatively weak leadership. Compared to functional or matrix organisations, network organisations have fewer checkpoints for management to exert control over the workforce. This may be seen as a positive or negative factor…
  • Unbalance workloads with some cohorts stretched to their limits and others doing the bare minimum. This is particularly the case when the organisation focuses on a particular project that only involves some members of the overall team.

(Masterclass, 2022) https://www.masterclass.com/articles/network-organizational-structure, accessed 15 February 2024.