The Relationship between Organizational Design, Organizational Structure, and Organizational Charts

Organizational design, organizational structure and organizational charts are terms we frequently hear, but are they all the same or are they distinct? If you’ve ever wondered about their relationship with each other, you’ve come to the right place.

While all three are inherently related, they each have their own definitions, purposes and challenges. They build on each other, with organizational design as the foundation, organizational structure as the by-product, and organizational charts as the representation.

Companies who ignore one of these layers can find themselves in a constant state of restructuring. They either didn’t consider their company culture and emerging technology, or they attempted to illustrate a dynamic architecture without understanding the complexity of relationships within the organization.

When organizational design drives the organizational structure, then the organizational charts can be a more accurate and useful rendering of company values, its culture and its focus.

Global Human Capital Trends 2016 report by Deloitte

Organizational Design Definition

If there is one constant in life, it is change. This applies to our personal lives as well as the corporate landscape. Companies who desire the nimbleness and flexibility to adapt must consider the driving forces of change: employee culture, technology, changing market demand and employee expectations. HR, in particular, contends with not only employee hiring and onboarding, but keeping those employees content through a rapid growth trajectory they expect.

In the Global Human Capital Trends 2016 report by Deloitte, more than 7,000 executives from over 130 countries responded to the survey. It found that 92 percent of executives said redesigning their organizations was a critical priority. “The ‘new organization’ is built around highly empowered teams, driven by a new model of management, and led by a breed of younger, more globally diverse leaders,” says Deloitte.

Organizations are in flux, realizing they must reassess how they attract and retain talent, how they respond to changing market demand, and how they leverage existing and emerging technology to enable an agile and progressive environment. Idea innovation can come from anywhere and the push for creativity and collaboration is finally knocking down silos in favor of more open ecosystems.

Today’s younger population includes millennials (people between the ages of 18 and 34), who have been raised on technology, are highly engaged through social media, and see their jobs less as a career and more as a stepping stone to something else. In order to attract and retain the best talent from this millennial pool, they have to step up their game and develop a compelling brand, a strategy, and ultimately a culture of innovation, collaboration, creativity, diversity and growth.

These are big changes to any enterprise who historically may have cared more about the bottom line than employee development. CEOs must work with HR and marketing to not only redefine and redesign the external brand to appeal to a more demanding consumer base, but to job seekers who have the skillsets these evolving companies need to take them to the next level in this digital world.

Organizational Structure

How a company is designed will naturally influence its corporate structure. The sole purpose of changing organizational design is to better reflect the more culturally diverse, collaborative environment of people who share ideas and information. Traditional structures, however, can fail to capture this more modern design. Companies are developing new missions, new perspectives, and new processes. These can be difficult to articulate and even harder to depict.

More traditional structures, such as hierarchical, functional, divisional, and product, are no longer the only options. They have struggled to accurately model the new agile, customer- and employee-focused organization.

Functional Structured Organizations

The functional organization aims to group employees by the specific functions performed. Common departments are organized by separating each area and managing them independent of the others. While this structure establishes clear roles, responsibilities and lines of command, a common consequence are silos, such as a finance department that rarely collaborates with IT.

Silos are rarely a good thing. They discourage collaboration between departments. Ideas, data and knowledge are confined to that one department. This has a ripple effect of increasing costs and decreasing productivity as efforts and expenditures are duplicated across departments.

Divisional and Product Structured Organizations

Organizations who are structured by divisions or product lines can suffer from the same fate. Because the company is divided by specific division or product, each are operated as separate companies. Even though the company is organized and structured, ideas, processes, data, technology, and resources are rarely shared.

Matrix Organizations

An organization that has a matrix structure can do a better job at fostering cross-company teamwork than those divided by functions, divisions or products while still adhering to a distinct reporting architecture. Teams are created by bringing people together from different areas of the business. They may report horizontally and vertically and be part of a functional group while at the same time, serve on a specific team.

Employees have responsibility for their projects as well as their team’s success. Silos are less of a problem, yet because employees may receive direction from different managers, there can be some confusion as to how to prioritize work.

Many companies are opting for more flat, holacratic structures that represent the interconnected teams that form the corporate ecosystem. These newer models allow organizations to be more flexible and appreciate the modern design.

Flat Structures

The flat structure generally consists of a small number of levels and a broad span of management at each of those levels. Every employee is given equal footing so decisions are made either in collaboration or autonomously. This gives employees the feeling they are contributing equally on projects and are therefore similarly valued.

The flat structure is more ideal for smaller companies where employees are used to wearing many hats and working together on whatever needs to be accomplished. As the company grows, the flat structure is more challenging to pull off. The consequence of a more lax structure can slow decisions because they are made as a democracy with everyone having a say.

Holacracy Structure

A holacracy is perhaps the latest attempt at mapping the organization without a more formal structure. These more modern companies respect the creativity and shared knowledge of the flat organization but blend departments and roles so decisions can be made from anywhere by anyone.

Employees are organized around work, projects and objectives rather than divisions or products. This hybrid approach offers a bit of structure without the rigidity, while still giving employees the autonomy to work freely within that structure.

These more free-form structures have something in common: the company is structured as a “team of teams” versus clear divisions of labor. These teams may be comprised of people from many areas of the business, including sales, marketing, finance, legal, and IT. They focus on a specific challenge or project, contributing their knowledge base to solve the problem, bring a product or service to market, or manage a project through its entire lifecycle. These employees may only work together as a team on a single project before disbanding and being pulled into a different project with an entirely new mix of people.

With every employee collaborating on multiple projects across the enterprise and working in many different teams on a variety of tasks, how does an organization then designate a leader? How is employee performance measured? How do employees grow and develop? How are resources planned, managed, and tracked?

These are questions the newly structured companies are facing and why it can be so challenging to put a pen to paper to draw out the relationships. Without distinct job descriptions or reporting structures, the lines in the traditional organizational structure are blurred. Companies must rethink how these cross-functional network of teams can be mapped without building fences. Enabling this flexible structure to exist may bring chaos to a company who doesn’t have the architecture to support it. There must be a balance between structure and agility.

Hierarchical Organizations

Hierarchical organizations are typical of larger organizations where there is a distinct chain of vertical command. One or more people may at the higher management levels with their direct reports having dozens, even hundreds, of employees reporting to them. There is generally a president or chief executive officer, followed by vice presidents, directors and managers of different functional areas.

In a hierarchy, there is definite structure, ranks and even bureaucracy. Roles, responsibilities and management levels are clear with little to no cross-team collaboration. Hierarchies can have many layers of management or be flatter, with only a few layers of reporting.

Organizational Charts

Org charts present a visual representation of the organizational structure. Because of the increasingly ambiguous construction of the more agile organizations, traditional org charts don’t always do a great job at mapping the actual structure. It is more difficult to depict cross-team collaboration, multiple and dynamic job roles, a lack of executive management, and other undefined models so prevalent in innovative, progressive companies.

Modern org chart software can bring order to the abstract. The software is purposely built to help organizations illustrate their structure, as well as communicate their design philosophy. Technology enables impressive functionality that older org chart tools can not match, making the org chart a valuable asset and resource to any organization.

A portion of the Deloitte report focuses on how to reimagine HR and the employee experience in the digital world. Afterall, HR often bears the brunt of managing the org chart and all of its constant updates. The report says, “Innovative HR organizations are integrating mobile and cloud technologies to build an app-based set of services designed to incorporate HR programs into an employee’s daily life….By bringing together design thinking and mobile technology, companies can now develop their own custom apps to make work easier, more productive, and more enjoyable.”

The survey results prove how this concept is taking shape in HR departments across industries. In 2016, 74 percent of executives said digital HR is a top priority. What is digital HR? It’s bringing many of the back-office HR systems, employee profile management, employee directories, and corporate org charts to the fingertips of employees across the company. By removing the barrier between HR systems and employees, companies can be more transparent and employees more self-sufficient. Even better, this sharing of information reflects the new design philosophy and organizational structure the company espouses.

HR no longer owns the information. Employees take ownership by performing many typically HR-driven functions themselves from their mobile device using these customized apps like org chart software. This new digital capability helps employees form the teams they need to best execute a project because they have better access to the required resources. Finding specific skill sets no longer requires multiple emails and questions. Instead, employee profiles are available 24/7 from the org chart software. The org chart becomes part of the employee’s daily life, as Deloitte puts it.

These profiles are critical in finding the needed resources, but also in understanding the mix of talent under the corporate roof. Resource gaps are easily identified and because the employee profiles include detailed experience, it is easy to determine if the skill set exists internally or headcount needs to be added.

Leveraging the full potential of every employee not only helps the company achieve greater human capital ROI, but it establishes growth opportunities the younger workforce so desires. Cross-team collaboration means a variety of skills can be utilized instead of pigeonholing each employee into a specific job function. Employees have room to grow, to work with new people, to learn from each other, and to be more fulfilled at work.

Org chart software does much more than simply draw an organization’s structure on paper. It brings employees together, giving them a platform to share personal and professional details that foster growth in career paths and relationships.

Having the entire employee base with all of their skills presented in a single, accessible resource helps promote productivity, efficiency, and collaboration. These are the qualities this new generation of workers are looking for and comparing in their job hunt. These are the assets an organization can market to attract these employees, keep them happy, and stay ahead of the competition.