Organizational Structure and Change

  • Category:
    Management
  • Document type:
    Essay
  • Level:
    Masters
  • Page:
    4
  • Words:
    2553

Organizational Structure and Change

Organizational Structure and Change

Introduction

Businesses operate in complex and fast-changing business environment. Therefore, for a company to succeed in the present day business environment, it must be able to anticipate and adapt to the changes happening in the business environment. Organizational structure is one of the areas that often require change to match the changing nature of the business environment. Changing an organizational structure to respond to the changes in the business environment is important because an organizational structure has a huge influence the culture of an organization and how decisions are made in a company. Sengupta et al. (2006, p. 19) define an organizational structure as the way tasks and people are arranged in an organization to ensure that tasks are performed effectively and that an organization achieves its objectives. The main purpose of an organization is to provide guidance as to workflow and the reporting relationship in a company. However, a good organizational structure is that which makes it easier for a company to add new positions and allows for flexibility and makes growth easy (Aquinas 2009, p. 5). Although an organization may at some point in its life want to change from its dominant organizational structure to another, it has often been a daunting task for most organizations to change their dominant organizational structure. This paper begins by discussing the importance and various types of organizational structure and proceeds to examine the benefits that an organization can derive by changing its dominant structure and the challenges encountered during the change effort.

Importance of Organizational Structure and Types

Having a good organizational structure is critical to any business small or large. Aquinas (2009, p. 7) attributes this to the fact that organizational structure is the foundation upon which a firm’s processes and operational policies are built. Having a good organizational structure is also important because it is the organizational structure that defines the managerial reporting relationship and guides how decisions are made as well as how ideas and information flow in an organization. This implies that, whenever the structure of an organization has a problem or cannot meet the needs of the organization, everything in a company, including decision making, the flow of information and ideas, as well as operational policies and processes will have problem, thus resulting in the downfall of a company (Tran and Tian 2013, p. 229).

There are different types of organizational structure that a company can adopt depending on its size and needs. Typically, the most common organizational structures in use are functional, divisional, matrix and flatarchy organizational structure. Functional/bureaucratic organizational structure is that type of structure where a company is divided into smaller groups according to the functional areas, such as sales, marketing, procurement, finance and IT. In a functional structure, each department in an organization has a manager that oversees the operations of the department. The other is the divisional organizational structure where leadership is structured according to the projects or products. The other is the matrix organizational structure in which workers have several bosses and lines of reporting. Under this structure, a manager report to divisional managers as well as project managers. Flatarchy, however, is a type of organizational structure that is neither quite flat nor hierarchal in nature; rather possess the characteristics of both flat and hierarchical structure (Aquinas 2009, p. 15). The other types of organizational structures that are also adopted by companies include line organizational structure, committee organizational structure, project organizational structure, and hybrid organizational structure. Studies show that none of these organizational structures is better than the other. Instead, each of these organizational structures has its unique advantages and disadvantages that a company must consider before adopting one.

Benefits of Changing a Dominant Structure

Changing the structure of an organization from a dominant structure to another is one of the most daunting tasks. However, at some stage in a company’s development, changing from a dominant structure to another can be necessary. Extensive literature have shown that as much as it is difficult changing from dominant organizational structure to another, making such changes has many benefits. First, an organization can benefit by changing its dominant structure to a new one as such making such a change might allow a company to achieve its objectives in the most effective way (Tran and Tian 2013, p. 231). For instance, as a company changes from one stage in its life cycle to another, it might require changing its structure to accommodate the changes. In most cases, small companies adopt functional and product organizational structure. However, these structures might not allow a company to operate efficiently and coordinate their policies and processes effectively as a company grows bigger and move from one stage in life circle to another. Therefore, the best way to ensure that a company achieves its objectives is to change the organizational structure to suit the stage and the growth that happens in an organization. For instance, Gap Inc. and General Electric had to change their organizational structures from functional to divisional structures to accommodate the changes in the growth that happened on the company (Ogbonna and Harris 2003, p. 513). Changing to divisional structure was necessary as the size of the company increased that required these companies to structure their leadership based on products and projects. Accordingly, changing to a divisional structure allowed these firms to easily coordinate the flow of work as well as ensure ease of decision making.

A company also stands to gain from changing its dominant structure since such changes might allow a company to respond effectively to the changes in a market. The business environments where companies operate are affected by many external/macro-environmental factors, such as changes in demand, technological changes and competition among other factors. Therefore, a change from one dominant structure to a new structure can allows a company to respond effectively to the market changes by allowing a company to keep up with new technology, address changes in demand and cultural issues in a market. For instance, a company can opt to change from a more centralized structure to a decentralized structure to ensure responsiveness to the changes in the marketplace (Tran and Tian 2013, p. 236). For instance, by changing from a centralized structure to a decentralized structure, this can allow a company that has expanded its business in response to marketplace changes to be able to delegate the responsibilities by top level management to lower-level managers which effectively allows top management to focus on strategic and major decisions. Starbucks is an example of a company that has been able to respond effectively to the changes in the marketplace as a result of changing its organizational structure. Starbucks is currently the world’s leading coffee chain. Part of the company’s success is attributed to the fact that the coffee giant has evolved to build an organizational structure that suits its current business needs (Schultz 2011, p. 34). The company management reveals that Starbucks succeed in the coffee industry because its organizational structure grows with the business, a factor that has enabled Starbucks to optimize processes and the quality or services and goods. Currently, Starbucks adopts a matrix organizational structure with the features functional structure, geographical divisions, product-based divisions and teams (Schultz 2011, p. 36).

Additionally, a company stands to gain from changing a dominant organizational structure as this can help in addressing inefficient working practices and processes. As earlier stated, an organizational structure has a huge influence on the business practices, policies and processes. Additionally, an organizational structure has a huge influence on the organizational culture. Therefore, whenever there are inefficient business processes and processes that bar a company from achieving its objectives, the first thing that a company can do is to change its organizational structure (Ogbonna and Harris 2003, p. 518). For instance, in the modern business environment, employees are increasingly demanding a kind of organizational structure that allows for their participation in the decision making. As such, when a company adopts a bureaucratic organizational structure, this might result in collision with the employees, thus affecting company performance. Therefore, to ensure effective communication and efficiency in the processes and workflow, a company might have to change its structure to ensure adoption of efficient working practices and processes.

Problems that Might Emerge to Inhibit that Change Effort

As business environment continues to change, a company that hopes to succeed must also change accordingly. As indicated above, an organizational structure is the foundation upon which a firm’s processes and operational policies are built. As such, a company must ensure that the organizational structure adopted is that which enables a company to achieve its objectives (Michelman 2007, p. 3). However, as a company moves from one life cycle stage to another and as the business environment continues to change, a company must also change its structure to ensure that it is in circle with the prevailing business environment.

However, research shows that most companies face a lot of challenges when trying to change their dominant structure to a new one. The first major challenge has to do with resistance to change. Aquinas (2009, p. 73) cites resistance as being one of the major hurdles that company regardless of the industry and size face when trying to change their dominant organizational structure. In most companies that have tried to change their organizational structure, the challenge has often been faced in introducing a new structure because of resistance by managers, supervisors and employees. The reasons for resistance vary from one person to another. For example, some managers resist any attempt to do away with a dominant structure for fear that such changes might make them lose their jobs due to restructuring (Tran and Tian 2013, p. 233). As such, to ensure that they maintain their positions in the workplace, the best thing they can do is to resist any attempt to change the dominant organizational structure. McDonalds is one of the companies that experienced difficulties in 2014 when it wanted to change its dominant structure. In 2014, the American first food giant announced its intention to change its organizational structure by introducing a new structure as it sought to better respond to the changing consumer tastes and preferences amidst declining sales and profits. In the new structure, McDonalds planned to introduce new four zones that included Northeast, West, South and Central that it intended the organize around local consumer tastes and preferences (Jargon 2014). The introduction of the new structure was to replace the existing structure that consistent of three divisions, namely East, West and Central. However, even as the company planned to rollout this ambitious plan, there was resistance from some managers that were not comfortable with the change of the structure and resistant it, thus making the implementation of the intended change difficult for the company.

Changing an organizational structure is also difficult because of the resistance from employees. Normally, when employees have become accustomed to the dominant organizational structure and the culture of the business and the way the business is conducted, when a company tries to introduce a new structure that disrupts familiarity, a section of the workers might get upset, thus resulting in resistance to such changes (Michelman 2007, p. 3).

The resistance to a change of a dominant organizational structure is also experienced by most companies when the intended change is not well communicated to the employees. For instance, a change in an organizational structure might result in eliminating some departments or functional areas that might render employees jobless (Michelman 2007, p. 4). Therefore, if the intended change of organizational structure is not well communicated to the employees for them to know how the change of the structure is going to affect them, this might result in fear, thus resulting in resistance to change of organizational structure.

The other challenge faced when trying to change a dominant organizational structure has to do with cost. Changing an organizational structure is a very expensive affair both in terms of resources and time. Cameron and Green (2004, p. 173) show that many companies that might want to change their dominant organizational structure opt to stick with their dominant structure even if it is not working properly because of the cost challenges associated with introducing a new organizational structure. Introducing a new organizational structure requires proper planning and bringing everyone on board and setting the infrastructure in place and this requires money and time. For instance, when change the structure from a centralized structure to a decentralized structure, more departments might be needed to ensure that power is delegated and this requires investment in human capital and resources, which might prove costly to a company. At the same time, changing the structure of a company usually results in the disruption of business operations as managers and employees take time to adapt to the new structure (Michelman 2007, p. 4). The disruption in operations occasioned by such changes usually affects the ability of a company to generate revenue.

Conclusion

Organizational structure is the engine that drives a company into success. As such, any company that hopes to succeed in a market must ensure that it adopts an organizational structure that matches its business needs. Because the business environment is dynamic and fast-changing, a company might at some stage in the life cycle want to change to be able to respond to the changes in the market. Changing the structure of an organization can also be needed so as to be able to respond to the external factors and help in addressing inefficient working practices and processes. As indicated, Starbucks is one of the companies that have benefited greatly by allowing its organizational structure to grow with the business. However, changing a dominant organizational structure has often been a challenging endeavor for businesses. As highlighted in the report, the difficulties encountered by companies when trying to change their dominant structure arise mainly from resistance by managers, supervisors and employees, as well as due to the high cost associated with planning and implementing the new organizational structure. This implies that companies should ensure that the challenges resulting die to resistance and cost are addressed properly before trying to change a dominant organizational structure so as to ensure success in introducing the changes.

References

Aquinas 2009, Organization structure & design: applications and challenges. Excel Books India, Delhi.

Cameron, E., & Green, M 2004, Making sense of change management: a complete guide to the models, tools & techniques of organizational change. Kogan Page Publishers, New York.

Jargon, J 2014, McDonald’s plans to change U.S. structure. The Wall Street Journal 30 October, viewed 18 September 2016 http://www.wsj.com/articles/mcdonalds-to-change-u-s-structure-1414695278

Michelman, P. (July 2007). Overcoming resistance to change. Harvard Management Update, vol. 12, no. 7, pp. 3–4.

Ogbonna, E., Harris, L. C 2003, «Innovative organizational structures and performance: A case study of structural transformation to “groovy community centers”, Journal of Organizational Change Management, vol. 16, no. 5, pp.512 – 533

Schultz, H 2011, Onward: How Starbucks fought for its life without losing its soul. John Wiley & Sons, Upper Saddle River, NJ.

Sengupta, N., Bhattacharya, M. S., & Sengupta, R. N 2006, Managing change in organizations. PHI Learning Pvt. Ltd., London.

Tran, Q., & Tian, Y 2013, “Organizational structure: influencing factors and impact on a firm,” American Journal of Industrial and Business Management, vol. 3, pp. 229-236