Organisational Structures : Its impact on business performance and employee-engagement
Organisational structures can have a significant impact on the achievement of organisational and strategic objectives.
Therefore, I felt it necessary to highlight some of the advantages and disadvantages of each of the three most typical structures in operation.
The Hierarchical Structure
The most common organisational structure found within businesses is the hierarchical structure, where authority will follow a vertical chain of command from top to bottom.
Often in these businesses, there will be lines of command such as senior management, middle management and junior management. Relationships will be vertical between different levels within the organisation. In larger hierarchical organisations, divisions will divide into areas of specialisation, which in turn, will be led by a single leader or manager.
The advantages of a hierarchical structure, particularly in small to medium enterprises, include clear lines of accountability and responsibility at each level within the structure. As a result, quick, low-cost decision-making and flexibility increase because decisions get directed from the top echelons of the organisation. Subsequently, hierarchical structures are more prominent in smaller businesses which can also result in stronger employee relationships resulting in a close, family-like organisational culture.
In addition, arguably, without leadership, an organisation can struggle to implement its vision and become ‘rudderless’. Therefore, high performance is often associated with stable leadership structures aligned with organisational strategy. Robust hierarchical structures can also be very productive compared to other structures, thanks to the pure simplicity of the model.
However, risks can lie beneath the surface of a hierarchical structure because its effectiveness relies on the abilities of the leaders within it — especially the power leaders at the top. The performance of a business is often determined by how well each tier of management can lead and engage its employees. Consistency in management style and strong leadership skills are therefore essential if a hierarchical structure is to work optimally. For example, if a line manager within this structure lacks leadership skills, then the team below them may quickly become disillusioned or unhappy, which can detriment performance and increase employee attrition.
Disadvantages can also present themselves from within the structure from employee engagement perspective if employees feel limited, in terms of career progression, by the fact that their vertical line manager has no intention of leaving the organisation.
In addition, when accountability lines are so visible, often key leadership personnel can become overloaded, which results in increased levels of stress, reduced performance and pressure on the teams below the reporting line. It is also possible that as a business grows, the efficiency of its hierarchical structure reduces as expertise within management lines dilutes across too many operations. Subsequently, a weakness often attributed to hierarchical structures is that businesses can become too reliant on a small number of key personnel required to perform multiple tasks. When too much pressure is applied, problems can occur and the risks of a critical leader within the organisation leaving due to stress, pressure or unhappiness increases — which can be a costly loss for a small business, both financially (to replace) and functionally in terms of experience lost. However, if you do experience staff turnover, then do let us know as JGA Recruitment are the recruitment experts who can help you locate your next great HR or Payroll hire! 😊
The Matrix Structure
The second most common organisational structure is the matrix structure. More complicated than a hierarchical structure, it has reporting lines within departments and therefore, no longer maintain a single chain of command. Instead, specialist divisions are further divided into a separate project teams or product groups.
For example, a team of employees may need to complete a project for a project manager while simultaneously delivering sales results for a sales manager. Subsequently, duality to the management process can result in more flexible usage of employee resources. Therefore, in a matrix structure, there will be functional line managers who are responsible for operational management activities, and project or business managers who will be responsible for preparing projects or business strategies.
Matrix Structure Advantages
A matrix structure is flexible because it allows efforts to be focused on priority projects while providing employees with more opportunities to acquire experience across a range of projects. As a result, it is typical for organisations to experience increased productivity and creativity from its divisional employees. In addition, as management structures are not just vertical but also horizontal, employees can be more autonomy, responsibility and accountability, as they must deliver results for more than one manager.
An additional benefit of a matrix structure is that its formation reduces the pressure put onto individual line managers as the tasks divide across a broader number of managers. It also allows more than one manager to utilise the expertise of divisional employees. This increased group activity can often result in improved relationships across many different levels.
Another advantage is line managers within a matrix structure get the opportunity to become specialised at leading specialised teams within specialised areas which can improve productivity, control and service.
Matrix Structure Disadvantages
One disadvantage of a matrix structure is that dual authority can cause problems! For example, line managers may dislike losing some of their power to project managers or business managers that are utilising their resources. It can also result in an overemphasis on group decision making and internal bureaucracy, which could reduce efficiency.
The flat structure (also known as a horizontal structure) is when management is decentralised, effectively removing the need for line management altogether. In a structure such as this, each employee manages themselves. Flat structures often suit small businesses requiring collaboration or creativity such as design businesses or organisations where independent professionals are prevalent such as doctors, lawyers or organisations who contract out work.
Flat Structure Advantages
In theory, the critical advantage of a flat structure is that communication and decision making is much quicker and more direct because employees do not need to get line management authority to approve ideas. Instead, employees can communicate directly on a peer-to-peer basis, which can also improve employee autonomy and reduce management bureaucracy.
Other theoretical advantages of a flat structure include increased collaboration, trust, innovation and team-centricity. Hence, this type of structure has proven to work well in small businesses such as digital marketing or design-led organisations, where strategic success relies on employee creativity and collaboration. It also works well in companies who contract out work for professionals, such as legal firms.
Flat Structure Disadvantages
Flat structures can be very challenging to implement and maintain. For example, the organisation needs a supportive environment to work, because it requires a universal willingness from all employees to succeed.
However, it is challenging to prevent underlying management tendencies from appearing. Consequently, it is not uncommon for flat structures to become pseudo-flat structures, because, despite best intentions, someone will always ultimately try to take control.
Flat structures can also be tough to implement because it can be difficult for individuals to move away from a line management mindset. Subsequently, organisations with flat structures who rely on independent professionals can quickly become self-interested. Internal ideological arguments can significantly impact performance, slow down decision-making processes and put strains on organisational objectives.
Implementing a flat structure can be very problematic too. Successful implementation often requires effective leadership which can be contradictory to the ethos of the structure!
Ultimately, whatever organisational structure deployed, the key to being productive is the structure best able to raise performance and engagement. There may be times when external factors or situations could cause organisations to rethink their current structural frameworks. When quick decision making is critical, a CEO may implement a hierarchical response. When a project or system change is required, a matrix structure could draw upon the expertise of its multi-faceted workforce. Meanwhile, if creativity and collaboration are vital or if independent, contracted out professionals are required, then a flat structure may be most effective.
Most importantly, if the shared values of the employees’ mirror with the shared values of the organisation; then any structure can be effective in the right environment.
Written by Nick Day, Managing Director at JGA Recruitment Group — the UK’s leading HR & Payroll Recruitment Consultancy and Search Firm.
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