7.6 Organizational Design Considerations

Mechanistic versus Organic Structures

Structural design generally follows one of the two basic models described in Table 7.3: mechanistic or organic. A mechanistic organization is characterized by a relatively high degree of job specialization, rigid departmentalization, many layers of management (particularly middle management), narrow spans of control, centralized decision-making, and a long chain of command. This combination of elements results in what is called a tall organizational structure. Hospital and government organizations are typical mechanistic organizations.

In contrast, an organic organization is characterized by a relatively low degree of job specialization, loose departmentalization, few levels of management, wide spans of control, decentralized decision-making, and a short chain of command. This combination of elements results in what is called a flat organizational structure. Colleges and universities tend to have flat organizational structures, with only two or three levels of administration between the faculty and the president. Exhibit 7.9 shows examples of flat and tall organizational structures.

Factors Influencing the Choice between Mechanistic and Organic Structures

Although few organizations are purely mechanistic or purely organic, most organizations tend more toward one type or the other. The decision to create a more mechanistic or a more organic structural design is based on factors such as the firm’s overall strategy, the size of the organization, and the stability of its external environment, among others.

A company’s organizational structure should enable it to achieve its goals, and because setting corporate goals is part of a firm’s overall strategy-making process, it follows that a company’s structure depends on its strategy. That alignment can be challenging for struggling companies trying to accomplish multiple goals. For example, a company with an innovation strategy will need the flexibility and fluid movement of information that an organic organization provides. But a company using a cost-control strategy will require the efficiency and tight control of a mechanistic organization. Often, struggling companies try to simultaneously increase innovation and rein in costs, which can be organizational challenges for managers. Such is the case at Microsoft, where CEO Satya Nadella cut more than 18,000 jobs in 2014 after taking the helm at the technology giant. Most of the cuts were the result of the company’s failed acquisition of a mobile phone business. The company eliminated additional jobs in sales and marketing (mostly overseas) as Microsoft shifts from a software developer to a cloud computing software delivery service. At the same time, Nadella also encourages employees and managers to break down barriers between divisions and increase the pace of innovation across the organization.¹⁴

Size is another factor that affects how mechanistic or organic a company’s organizational structure is. Much research has been conducted that shows a company’s size has a significant impact on its organizational structure. Smaller companies tend to follow the more organic model, in part because they can. It’s much easier to be successful with decentralized decision-making, for example, if you have only 50 employees. A company with that few employees is also more likely, by virtue of its size, to have a lesser degree of employee specialization. That’s because, when there are fewer people to do the work, those people tend to know more about the entire process. As a company grows, it becomes more mechanistic, as systems are put in place to manage the greater number of employees. Procedures, rules, and regulations replace flexibility, innovation, and independence. That isn’t always the case, however. W. L. Gore & Associates is a global materials-science company with over 10,000 employees and roughly $4–5 billion in annual revenue, but, as noted earlier, uses an organic organizational structure. Employees self manage, participate on teams, and the organizational structure evolves organically as employees create roles for themselves to fill functional gaps within the company.¹⁵

Lastly, the business in which a company operates has a significant impact on its organizational structure. In complex, dynamic, and unstable environments, companies need to organize for flexibility and agility. For example, companies in technology or creative industries such as marketing agencies need the flexibility to foster innovative thinking and to evolve to meet the needs of their clients. That is, their organizational structures need to respond to rapid and unexpected changes in the business environment. For companies operating in stable environments, however, the demands for flexibility and agility are not so great. The environment is predictable. In a simple, stable environment, therefore, companies benefit from the efficiencies created by a mechanistic organizational structure.