Organisational Structures

How is the army structured? How is the education system structured? How is a company structured?  The answer is... hierarchically.  It is a form of modularisation, where functions or duties are compartmentalised and while each part may work to various degrees of independence or interdependence, all of the component parts should work together as a whole.

An organisational structure is a visual diagram of a company that describes what employees do, whom they report to, and how decisions are made across the business. Organizational structures can use functions, markets, products, geographies, or processes as their guide, and cater to businesses of specific sizes and industries.

When most people think of a company structure, they think of the CEO at the top and the workers at the bottom.  It can give the impression that the CEO is god-like and the worker is an ant doing the work slavishly.

Why?

What's the point of an organisational structure? Do you even need one? Org structures help you define at least three key elements of how your business is going to run.

As a company gets bigger, an organisational structure can also be helpful for new employees as they learn who manages what processes at the company.  Then, if you need to pivot or shift your leadership, you can visualise how the work flows would work by adjusting your organisational structure diagrams.

To put it simply, this chart simply explains how the company works and how its roles are organised.  Here's what each of those elements means to an organisation:

Chain of Command

Your chain of command is how tasks are delegated and work is approved. An org structure allows you to define how many "rungs of the ladder" a particular department or business line should have. In other words, who tells whom to do what? And how are issues, requests, and proposals communicated up and down that ladder?

Span of Control

Your span of control can represent two things: who falls under a manager's, well, management ... and which tasks fall under a department's responsibility.

If an organisation is flat, it implies a wider span of control. If we think of healthcare, it is at the "bottom" of the hierarchy that all the work gets done.  Each of the layers above that (management) and some beside (admin, IT, maintenance) assist them to do the job.  If we can reduce the management bloat how much would that save each year?  Of all the money poured into the health services, where does it go, given that nurses are so poorly paid?

Centralisation

Centralisation describes where decisions are ultimately made. Once you've established your chain of command, you'll need to consider which people and departments have a say in each decision. A business can lean toward centralised, where final decisions are made by just one or two entities; or decentralised, where final decisions are made within the team or department in charge of carrying out that decision.

For some things, it certainly makes sense that decisions be made centrally, and for others decentralisation is a better approach. Consider government.  It makes sense to have decisions for the country made by central government.  Equally it makes sense that local councils make decisions locally regarding roadworks, allocation of funding etc.  It is finding the right balance that is the difficult part.

Mechanistic vs. Organic

Organizational structures fall on a spectrum, with "mechanistic" at one end and "organic" at the other.  Take a look at the diagram below. As you'll probably be able to tell, the mechanistic structure represents the traditional, top-down approach to organisational structure, whereas the organic structure represents a more collaborative, flexible approach.

Which of these structures are reminiscient of the traditional waterfall method?  Which one looks more like agile?  Which one is more responsive to change?  Why?

Communication

Informal communication in organic organizations contrasts sharply with formal communication in mechanistic organizations due to their structural and cultural differences. Below is a comparison based on key aspects:

1. Structure and Flexibility

Organic Organization (Informal Communication):

•   Structure: Flat, decentralized, and flexible. Teams are often cross-functional, with fluid roles.

•   Communication Flow: Open, multidirectional, and spontaneous. Information flows freely across levels and departments without rigid protocols.

  •   Example: A tech startup where employees discuss ideas via casual chats, instant messaging, or impromptu meetings.

  •   Advantage: Encourages creativity, quick decision-making, and adaptability to change.

  •   Drawback: Can lead to ambiguity or lack of clear direction if not managed well.

Mechanistic Organization (Formal Communication):

•   Structure: Hierarchical, centralized, and rigid. Roles and responsibilities are clearly defined.

•   Communication Flow: Structured, top-down, and follows established channels (e.g., memos, reports, or official meetings).

  •   Example: A manufacturing firm where communication occurs through formal reports, chain-of-command protocols, or scheduled briefings.

  •   Advantage: Ensures clarity, consistency, and accountability in communication.

  •   Drawback: Can be slow, stifle creativity, and discourage open feedback.

2. Speed and Responsiveness

Organic (Informal):

•   Fast and dynamic. Employees can quickly share ideas or feedback via direct conversations, emails, or group chats.

•   Suited for fast-paced environments requiring rapid problem-solving (e.g., innovation-driven industries).

•   Example: A design team brainstorming on Slack to address a client issue in real-time.

Mechanistic (Formal):

•   Slower due to adherence to protocols and approval processes. Information often passes through multiple layers.

•   Suited for stable, predictable environments where precision is critical (e.g., government or large corporations).

•   Example: A formal proposal submitted through department heads for approval before action.

3. Employee Relationships

Organic (Informal):

•   Fosters collaboration and camaraderie. Communication is often personal, building trust and team cohesion.

•   Employees feel empowered to share ideas without fear of rigid judgment.

•   Example: Casual coffee-break discussions leading to innovative project ideas.

Mechanistic (Formal):

• Relationships are more professional and distant, with less emphasis on personal interaction.

• Communication is task-focused, which can limit relationship-building.

• Example: Employees receive directives via email from supervisors, with little room for casual dialogue.

4. Decision-Making

Organic (Informal):

• Decisions are often made collaboratively through discussions, with input from various team members.

• Encourages innovation but may lead to inconsistent decision-making without clear guidelines.

• Example: A team huddle to decide on a new product feature based on collective input.

Mechanistic (Formal):

•  Decisions are made at higher levels and communicated downward, ensuring alignment with organizational goals.

•  Provides stability but may discourage lower-level input or creativity.

•  Example: A manager approves a project plan after reviewing a formal report.

5. Adaptability to Change

Organic (Informal):

•  Highly adaptable. Informal channels allow quick dissemination of new information and adjustments to strategies.

•  Thrives in dynamic, uncertain environments (e.g., startups or creative agencies).

•  Example: A team pivots project direction after a quick group discussion on market trends.

Mechanistic (Formal):

•   Less adaptable. Formal processes can delay responses to change due to bureaucratic procedures.

•   Works well in stable environments but struggles with rapid shifts.

•   Example: A policy change requires approval from multiple departments, delaying implementation.

Summary

Organic Organizations rely on informal communication to foster flexibility, creativity, and collaboration, making them ideal for dynamic, innovative settings. However, they risk ambiguity without clear guidelines.  A very intereting read is Peter Senge's "Learning Organisation" summarised nicely by the Systems Thinking.

Mechanistic Organizations prioritize formal communication for clarity, accountability, and structure, suiting stable, process-driven environments. However, they can be slow and less innovative.

The choice between informal and formal communication depends on the organization’s goals, industry, and environment. Organic structures excel in innovation-driven contexts, while mechanistic structures ensure reliability in predictable settings.

Matrix Organisation

A project based matrix organisational structure doesn't follow the traditional, hierarchical model. Instead, all employees have dual reporting relationships. Typically, there is a functional reporting line (vertical) as well as a product- based reporting line (horizontal).  You might imagine that the project teams are, for example, agile teams with members from across the organisation, from different departments, all working collaboratively on various software projects.

The main appeal of the matrix structure is that it can provide both flexibility and more balanced decision-making (as there are two chains of command instead of just one). Having a single project overseen by more than one business line also creates opportunities for these business lines to share resources and communicate more openly with each other - things they might not otherwise be able to do regularly.

Disadvantages

The primary pitfall of the matrix organisational structure is.... complexity.  Imagine you work as an engineer in the company above, and are working on Product A and Product B. Now you have three bosses to report to. How do you manage your time?

The more layers of approval employees have to go through, the more confused they can be about who they're supposed to answer to. This confusion can ultimately cause frustration over who has authority over which decisions and products - and who's responsible for those decisions when things go wrong.

Network Structure

A network structure is often created when one company works with another to share resources - or if a company has multiple locations with different functions and leadership. They might use this structure to explain company workflows if much of the staffing or services is outsourced to freelancers or multiple other businesses. 

For example, if an employee needs help from a web developer for a blogging project and the company's web developers are outsourced, the could look at this type of chart and know which office or which person to contact outside of their own work location.

Disadvantages

The shape of the chart can vary based on how many companies or locations you're working with. If it's not kept simple and clear, there may be a lot of confusion if multiple offices or freelancers do similar things. If you do outsource or have multiple office locations, make sure your org chart clearly states where each specific role and job function lies so someone can easily understand your basic company processes.