Organizational design can be defined narrowly as the strategic process of shaping organization structure and roles to create or optimize capabilities to compete in a given market. This structural approach to defining organizations underlines the importance of identifying the factors of the organization that determine the ideal structure, most specifically the size, scope, and operational initiatives of the company.
Company size in particular plays a substantial role in determining the ideal structure, as the increasing size of a company will correlate with the necessity for increasing complexity and divisions in order to achieve synergy. The organizational structure should be designed specifically to be adaptive to process requirements in pursuit of optimizing the effort and input ratio as it pertains to the output deliverable. Larger companies, with a wider range of operational initiatives, subsequently require careful structural considerations in achieving this. There are six organizational structures companies can consider based upon company size and the diversity in scope of operations:
- Pre-bureaucratic - Ideal for smaller companies, the pre-bureaucratic structure deliberately lacks standardization of tasks and strategic division of responsibility. Instead, this is an agile framework aimed at leveraging employees in any and all role to optimize competitiveness.
- Bureaucratic - Alternatively, a bureaucratic framework functions well in large corporations with relatively complex operational initiatives. This structure is rigid and mechanic, with strict subordination to ensure consistency across varying business units.
- Post-bureaucratic - This structure is a combination of bureaucratic and pre-bureaucratic, where the individual contribution and control is coupled with authority and structure. This is effective in non-profits and community organizations where the importance of the decisions made outweigh the importance of efficiency, and is therefore a system better suited for smaller or medium sized companies/organizations. In this structure, consensus is the driving force behind decision-making and authority.
- Functional- A functional structure focuses on the development of highly efficient and specific divisions which perform specialized tasks. This structure works well for large organizations pursuing economies of scale through producing a large quantity of homogeneous goods at the lowest possible cost and highest possible speed. The downside is that each division is generally autonomous, limited communication across business units.
- Divisional - A divisional structure is also a framework best leveraged by larger companies, but instead of economies of scale they are in pursuit of economies of scope. Economies of scope simply mean a high variance in product or service. As a result, different divisions will handle different products or geographic locations/markets. Disney, for example, may have a division for TV shows, a division for movies, a division for theme parks, and a division for merchandise.
- Matrix - A matrix structure is for the largest companies with the highest level of complexity, combining functional and divisional concepts to create a product specific and division specific organization. To continue on the Disney example, the theme park division will also have functional structure within it (i.e. 'theme park accounting', 'theme park sales', 'theme park customer service', etc.).
Understanding which specific structure will function best within each specific company environment is an important early step for the management team, as structure grows more difficult to change as companies evolve. Smaller companies function best as pre-bureaucratic or post-bureaucratic, pre-bureaucratic being particularly effective for small companies aspiring to expand as the structure is inherently adaptable and flexible. Larger companies, on the other hand, achieve higher efficiency through functional, bureaucratic, divisional, and matrix structures (depending on the scale, scope, and complexity of operations).