Organisational Restructuring: an Ingredient to Survival
By Anjali Tanwar
“To survive in modern times, a company must have an organisational structure that accepts change as its basic premise, lets tribal customs thrive, and fosters a power that is derived from respect, not rules. In other words, the successful companies will be the ones that put quality of life first. Do this and the rest – quality of product, productivity of workers, profits for all – will follow.”
- Ricardo Semler
From Fayol, father of modern management theory, organisation chart to network organisational structure, businesses and corporate entities have seen a huge transformation in the manner in which they define each employee’s job and direct the activities of the entity towards achieving its goals. The system that determines how certain activities should be orchestrated and how information should flow within the different levels of the company in order to accomplish the objectives of the company is called an organisational structure.
A successful organisational structure is crucial in determining a company’s efficiency, employee satisfaction and it indirectly affects the profits of the company. The choice of organisational structure is dependent on various factors such as the scale and size of the organisation, ownership and location.
It’s imperative to first understand the types of organisational structures before understanding the impact that they have on the organisation. Therefore, different kinds of organisational structures are given below:
Types of Organisational Structures:
- Hierarchical Organisational Structure: It’s the most common type of organisational structure in which each employee has a supervisor and the chain of command typically flows from upper levels to the lower levels of the organisation. This type of structure is usually represented by a pyramid with a person/group at the top handling the subordinates below them. Eg: Amazon, due to its large size, uses a hierarchical structure.
- Functional Organisational Structure: In this type of structure, the organisation groups employees based on their skills, knowledge and their corresponding function in the company. Each separate department is managed independently and reports to one person/group at the top level of management. Airtel is a brilliant example of functional organisational structure which has different directors managing different departments.
- Horizontal or Flat Organisational Structure: This type of structure is the one with less levels of management and a greater control over employees. This is usually chosen by small businesses or startups where the owners require considerably more control over their subordinates. Eg: Valve, a gaming company follows this kind of structure where all the employees make sure that the projects are being handled properly.
- Divisional organisational structure: It is the one where the company has various divisions which operate as smaller companies under the larger company. Most of the time, the division is based on the market, products or region in which the company is operating. Each division can have its own departments such as IT, marketing, finance, etc. PepsiCo is a good example of divisional organisational structure where there are different divisions based on each region and each division is handled by a regional manager who then reports everything to the CEO of the company.
- Matrix Organisational Structure: Matrix structure is the one in which there are multiple chains of command and the employees have to report to more than one leader. Starbucks coffee is one of the most popular examples of this kind of organisational structure where different organisational structures combine to form the Starbucks matrix structure.
- Team-Based Organisational Structure: In this type of structure, there’s no rigid chain of command per say and the team members have the right to make the decisions that affect them and create a successful synergy to achieve the goals of the company. Google and its parent company Alphabet are some examples where team based organisational structure can be seen. The employees have a great depth of talent across many specialities and make the decisions themselves.
- Network Organisational Structure: This type of structure is used by organisation(s) which collaborate with other organisations in the form of partnerships or outsourcing to produce goods or services. H&M is a good example of network organisational structure which has outsourced the production and processing of their products to Asian and south asian countries.
Impact of Change in Organisational Structure
The unpredictable and dynamic working environment of a company makes it difficult to follow just one organisational structure throughout the lifetime of the company. Changes in organisational structure are primarily a response to ever changing environments. The companies understand that it’s imperative to keep up with changing trends so as to not stay behind in the corporate race, thus, they keep on working towards improving their organizational structures. It is, therefore, quite essential to understand the dimensions that are affected by the change in the organisational structure. The following dimensions are affected by this change:
- Employee satisfaction
- Effective decision making
- Individual adaptive performance
- Job embeddedness
- Learning organisation
The impact that the change in organisational structure will have on the organisation can be both positive or negative and is dependent on a variety of factors such as size, change in environment, future plans of the company, etc.
For example, a flat organisational structure works best for a startup which has a positive impact on learning organisation but as the startup expands, it might start following a hierarchical structure which will have a negative impact on learning organisation since the employees would be learning a variety of skills in flat structured startups.
Employees are one of the most important assets of the company and when there’s a change in the organisational structure of the company, they start feeling insecure and stressed because they are used to working in the old environment. Therefore, employees respond negatively to the change in organisational structure. But, on the other hand, if a large company producing a variety of products changes its organisational structure from hierarchical to divisional structure, it’ll have a positive impact on the employees’ performance which in turn will help increase the profits of the company.
The objectives of the company also helps in determining which organisational structure the company wants to go with. For example, a company planning to expand its business globally would want to change its organisational structure to divisional structure to ensure efficiency and smooth functioning of all the activities performed by the company.
With various new technologies emerging along with an increasing competition in the market, The world is no longer the same as it was a few years ago. It’s not just technology that is evolving day by day but also humans as they continue to invent new ways to make themselves more efficient and effective. In scenarios where the companies don’t adapt to changes in technology and organisational structure, the competitive environment just pushes them out of the race ensuring the survival of the evolved companies.
It’s absolutely crucial for companies to choose the most effective organisational structure according to their size, control and location to get maximum profits, employee satisfaction, productivity, etc. Moreover, the company should ensure a smooth transition while changing its organisational structure so that the employees can adapt to the changes easily. This could be done by taking employee feedback, including them in the decision making process while deliberating upon the change in organisational structure, imparting training and making them comfortable with the transitioning process.