Class 17: Organizational Structure

External environment

Refers to events and conditions surrounding an organization that influence its activities

Open system concept

Sensitizes us to the need for organizations to cope with the demands of the environment on both the input side and the output side

Components of the external environment

• the general economy

• Customers

• Suppliers

• Competitors

• Social/political factors

• Technology

• Labor supply

Environmental uncertainty

Exist is when the external environment is vague, difficult to diagnose, and unpredictable

What shapes organizational structure in 2025?

• remote and hybrid work

• Digital transformation and AI

• Agility and speed

• Diversity of products and markets

• Employee experience and culture

Remote and hybrid work

Teams need to collaborate across locations and time zones

• structures are more flexible and less hierarchical, with emphasis on autonomy and digital communication

Digital transformation and AI

Roles and departments now include AI specialists, data analysts, and automation engineers

• cross functional teams are common to integrate tech into every part of the business

Agility and speed

Companies must respond quickly to change, so they use agile structures like project-based or squads

• decision-making its often decentralized to empower faster action

Diversity of products and markets

If a company serves multiple markets or product lines, it may adopt a divisional structure to allow tailored strategies

Employee experience and culture

Organizational design now considers well-being, inclusion, and purpose

• structures support collaboration, growth, and engagement, not just efficiency

Most common strategic responses

A change in organizational structure

Organizational structure

Is the manner in which an organization divides its labor into specific tasks and achieves coordination among these tasks

• it’s the operating manual of the organization

• Tells members how the organization is put together and how it works

• Describes how members are accepted, how leadership is chosen, and how decision are made

It shapes the experiences of employees

• structure affects your behaviors and the way you relate to others

• Interacting with someone at Google vs at Revenue Canada

  • It ensures

    • Work is done in the best way

    • Each employee’s tasks contribute to the whole

    • Orderly deference among organizational members

    • Ensure that members work together harmoniously

Uncertain environments require rapid adaptation

Increased use of temporary or project-based structures

Fast-changing environments demand quick information flow

Structures may include cross-functional teams, liaison roles, or integrators to improve coordination across departments

Flexibility and speed are critica

Organizations may move away from traditional hierarchies toward modular, networked, or platform-based structures

Rigid roles can limit responsiveness

Organizations may adopt fluid or broad job scopes to allow employees to pivot as needed

What is organizational structure?

Labor must be divided because individuals have physical and intellectual limitations

There are two basic dimensions to the division of labor

• a vertical dimension

• A horizontal dimension

Once labor is divided, it must be coordinated to achieve organizational effectiveness

Vertical division of labor (who is in charge?)

• Focuses on authority and decision-making

• Defines the chain of command

• Key themes

  • Autonomy’

  • Control

  • Communication

Focuses on authority and decision-making

Who makes the plans? Who follows them?

Defines the chain of command

A manager giving direction to a team member

Autonomy

How much freedom do employees have to make decisions?

Control

Who monitors performance and enforces rules?

Communication

How do instructions and feedback flow up and down?

Horizontal division of labor (what it mean sin real life)

• Breaks down work into specific roles

• Groups similar jobs into departments

• Specializes people based on skills or functions

• Connects to job design and the organization’s purpose

Breaks down work into specific roles

Think: splitting tasks between marketing, finance, and operations

Groups similar jobs into departments

Like how a restaurant has kitchen staff, servers, and hosts — each with a clear focus

Specializes people based on skills or functions

You would not ask a chef to manage payroll, right?

Connects to job design and the organization’s purpose

The way tasks are divided should support what the organization is trying to achieve

How can we summarize the structure of organizations?

• span of control

• Flat vs tall

• Formalization

• Centralization

• Complexity

Departmentation: how jobs are grouped in an organization

One tasks are combined into jobs, the next step is figuring out how to group those jobs, so the organization runs smoothly. This is departmentation

• Groupings jobs based on similar skills or responsibilities

• Marketing department: handle sales and advertising

• Finance department: manages accounting and credit

Functional departmentmentation

Functional structures are very efficient when we have one product, serving one market, dealing with one type of customer

Divisional departmentation

• formed based on geographic market, product line etc: major dimensions of the business

• Departments operate fairly independently because each have own set of functional specialists dedicated to output

Choosing the right structure

When designing an organization, ask yourself: where is coordination most important for what we want to achieve?

Functional structure

• Focuses on expertise in specific areas (e.g. marketing, finance, HR)

• Best when the company offers similar products or serves similar markets

  • Ex: a company selling one type of software worldwide

Divisional structure

• Focuses on collaboration across different functions

• Best when the company offers diverse products or serves different markets

  • Ex: a company with separate divisions for clothings, electronics, and home goods