Business 101: Principles of Management

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Choosing an organizational structure is an ongoing design process. In this lesson, you will learn to identify types of contemporary organizational designs, including matrix, team and network designs.

Review of Organizational Design

In some previous lessons, we discussed the fact that organizational structure refers to the type of framework a company uses to distinguish power and authority, roles and responsibilities, and the manner in which information flows through the organization. Once an organization has chosen its structure, it can move on to selecting the design. Organizational design is the process by which managers assess the tasks, functions and goals of the business, allowing them to make decisions about how to group people together to best and most efficiently achieve their objectives.

If you recall, the six most common approaches to organizational design include simple, functional, divisional, matrix, team and network designs. In this lesson, you will learn to identify types of contemporary organizational designs, including matrix, team and network designs. To learn more about other design structures, make sure you also watch the lesson on traditional organizational designs, which include simple, functional and divisional designs.

Matrix Design

In an organization there may be several different projects going on at any given moment. This is certainly true at Santa's workshop. Many of these projects require a number of functional or specialized areas within the organization to work collaboratively with one another. In order to make these collaborative efforts successful the company might use the matrix organizational structure that groups employees by both function and project. The purpose of the matrix structure is to maximize the use of cross-functional teams to get work done. In this diagram, you can see how the matrix organizational structure of Santa's workshop pulls employees from each department to work on various projects.

Each employee in a matrix structure will report to two different supervisors: their standard manager (of the functional department which they work in) and the project manager (who is in charge of the particular project). Project managers will essentially recruit project team members and their individual skills and expertise from various functional areas to form their project team. Members of the project team are consequently exposed to the skills and expertise of their fellow team members. This creates a unique opportunity for training across functional areas that may lead to higher productivity, better cooperation, increased flexibility, heightened accountability and improved strategic management. Once the project is completed, the project team might get dissolved, and workers from different functional areas either return to their respective area or they may get reassigned to other projects and tasks.

Team Design

There are times when things go badly at Santa's workshop and most other organizations. In this situation, an organization might adopt a team organizational design, whereby groups of employees are formed from various functional areas for the purpose of solving problems and exploring possibilities. Teams can be both horizontal and vertical. The objective of a team structure is to break down functional barriers among departments to strengthen working relationships and improve efficiency. Having a group member from each department ensures that everyone's interests are being represented during the problem-solving and decision-making processes.

Unlike the matrix structure, group members brought together under a team structure only report to their department head; that is, team structures are designed to award a high level of autonomy with no formal management overseeing their work. This allows teams to work the way they want to with a high level of accountability for their performance. Teams are considered temporary and disband once the problem is solved. The team is believed to be one of the fastest ways to solve problems among various departments. The team structure represents a very collaborative way for organizations to respond quickly to customer demands without needing multi-level management approval but still ensure the representation of the best interests of all departments.

If we go back to Santa's workshop, we can see how the team structure design can be used. Clearly, each of these departments needs to have a strong working relationship with one another for the smooth execution of Christmas. But, let's say for a moment that there was a breakdown in communication between the mail and shipping departments. Letters from children were coming in, but the mail department was not inputting the correct information on the shipping labels to ensure that the right toys went to the right children. As you can imagine, this would be a Christmas disaster. By using a team structure as you see now, the breakdown in communication can quickly be discussed and resolved, ensuring that both the mail department and shipping department are able to work collaboratively on a solution.

Network Design

The final contemporary structure is network. The network design structure, also known as a lean structure, keeps the core functions of the business internal, but subcontracts or outsources non-core functions to other companies. Depending on the type of business, non-core functions could include things such as manufacturing, sales, distribution, marketing and other functions. As long as the organization can handle relinquishing some level of control, the network design structure can allow organizations to take advantage of shorter time commitments, lowered costs and greater flexibility. All of these factors, theoretically, would allow an organization to better adapt to customer demands almost immediately.

If Santa's workshop was facing an approaching deadline with the likelihood of not being able to produce all of the toys it needed to fill all of the children's wish lists, Santa might choose to outsource some responsibilities to another company. One area Santa might need help with is distribution. However, Santa feels his personal delivery of gifts is a core function, making it unlikely that Santa will choose to sub-contract out that responsibility. Another area that Santa might consider outsourcing is toy building of certain types of toys - electronic ones, for example. Santa can easily send toy orders with specific design specifications to an alternative toy builder to get help in meeting the demands for this Christmas season without compromising any core functions of the organization. This diagram illustrates what it would look like if Santa used a network design structure.

Lesson Summary

Let's review. Organizational design is the process by which managers assess the tasks, functions and goals of the business to make decisions about how to group people together to best and most efficiently achieve those objectives. There are several forms of organizational design. This lesson covered contemporary designs, including matrix, team and network design structures.

• The matrix organizational structure groups employees by both function and project. The purpose of the matrix structure is to maximize the use of cross-functional teams to get work done. Project managers recruit project team members and their individual skills and expertise from various functional areas to form their project team. The employee will have two supervisors while working on a project team: the project manager and their standard manager of the functional department they work in.
• The team organizational design arranges groups of employees from various functional areas for the purpose of solving problems and exploring possibilities. Teams can be both horizontal and vertical. The objective of team structures is to break down functional barriers among departments to strengthen working relationships and improve efficiency.
• The network design structure, also known as a lean structure, keeps the core functions of the business internal, but subcontracts or outsources non-core functions to other companies. The network design structure can allow organizations to take advantage of shorter time commitments, lowered costs and greater flexibility.