Organizational

Structure and
Design
BY: PROFESSOR NANCY CEBRIAN-OLAY
Organizational design refers to
how an organization is
structured to execute its
strategic plan and achieve its
goals. In practice, it’s not so
simple because people work
together to use information,
materials, systems, processes,
and each other to get human
work done.
This is represented in the figure
below. Organizational design is
determined by the strategic direction
of the company, a.k.a. the vision,
mission, and goals of the company.
These lead to strategies that the
company competes on which are
enabled through the organizational
design.
The 5 organizational design principles

1. Specialization principle. This principle

states that boundaries should exist to
encourage the development of specialist
skills. The test here is if any specialist cultures,
which are entities that have to be different
from the rest of the organization, have
sufficient protection from the influence of the
dominant culture.
2. Co-ordination principle. This principle states
that activities that are done should be
coordinated in a single unit. This unit can be a
business unit, business function, (horizontally
coordinating) overlay unit, sub-business, core
resource unit, shared service unit, project unit, or
parent unit. The test here is if there needs to be
coordination between departments that is hard to
do. These ‘difficult links’ are links where normal
networking will not provide coordination benefits.
3. Knowledge and competence principle. This principle
states that responsibilities should be allocated to the
person or team best fit to do them. This means that tasks
are retained by higher levels based on their knowledge
and competitive advantage. If this is not the case, they
should be positioned lower in the organization. This
means that the CEO should not be involved in every
decision – especially not decisions that involve specialists
with much more subject-matter knowledge. The CEO is
there for the big picture and to balance complex
decisions that impact the organization and strategy.
4. Control and commitment principle. This principle
is about having effective control on the one hand
while maintaining engagement and commitment on
the other hand. This is always a balance. The test here
is to have a control process that is aligned with the
unit’s responsibility, cost-efficient to implement, and
motivating for the people in the unit.
The Control and commitment principle
means means that the CEO is not giving the
‘go’ on the purchase decision for a $30
keyboard – this would be highly
demotivating and control on such small
expenditures should be put lower in the
organization to be adaptive anyway.
5. Innovation and adaptation principle.
This principle states that organizational
structures should be sufficiently flexible to
adapt to an ever-changing world. The
test here is that the organizational design
will help the development of new
strategies and to adapt to future
changes.
These five principles are affected by
different factors in the internal and
external environment of the organization.
These five principles enable an
organizational designer to (re)design and
align the organization with the key
factors that affect the organizational
design.
Five factors affecting
organizational design

There are five factors that greatly

impact organizational design. These
factors are:
1. Strategy. Strategy dictates the strategic
priorities of an organization. This is the most
important influencing factor of organizational
structure and design.

2. Environment. The environment a company

operates in influences its strategy but also
dictates how it positions itself. In a rapidly-
changing environment, the organization has to
design for more flexibility, or adaptability, while in
a stable environment the organization can
optimize for efficiency.
3. Technology. Information technology is a
key enabler for decision-making. The state
of IT impacts organizational design as well.
When systems are in place and decision
making is based on data, the organizational
structure and design – including the
potential for hierarchical control – will be
different from an organization where most
of the data is stored in unorganized Excel
sheets.
4. Size & life cycle. The organizational size
and life cycle also impact the organizational
structure and design. A 20-person company
has very different challenges when it comes
to design compared to a 200,000-person
company.

5. Culture. Organizational culture is

another key element that impacts
organizational structure and design – and,
vice versa, the design also impacts culture.
Organizational effectiveness

Once you have created an organizational design

appropriate for the five factors we mentioned earlier,
the result is an effective organization. This means an
organization that is able to reach its mission and
goals.
Organizational effectiveness is hard to
measure. However, when we
understand it well, the signals in the
organization can provide us with input
on improvements for the organization.
THANK YOU!!