Does size really matter?

The title may have thrown you off into thinking this blog would be about something completely different… but alas, I’m referring to organizational size, and how it shapes an organizations structure.

Organizational structure is a very important in the operations of a business. Discovering what works best for your organization is vital to its success.

So how do you figure out which structure is best? By examining the characteristics that are best benefited by the structure of choice. There are three structures available to analyze, functional, divisional and matrix. Matrix is really a combination of functional and divisional so I will not be focusing greatly on examining this structure.

Function structures are centralized, but inflexible and are essentially a structure based on departmentalization.

Companies that would benefit from such a structure would be ones with less need for coordination. By this, I mean that the structure is flatter and there are less chains of command to delegate. As well, if your organization is unable to steadily adapt to competition or other environmental factors, a functional structure fits the profile. Usually small or medium companies choose this structure to operate with, but some larger companies have been known to use functional structures as well.

The following image is a basic illustration of what a functional structure would look like:

Divisional structures are also flexible, but are decentralized. Employees are divided by the product lines, or geographical location. Divisional structures lend better to companies that are very large in size and have multiple product lines.

The following outlines a divisional structure:

I have worked for Canada Post in the past, which operates with a divisional organizational structure. Given that Canada Post is a very large company, serving over 14 millions addresses, this structure benefits them.

Notice that I’ve determined Canada Post as having a divisional structure based on the company’s size. This is because I feel that size should be emphasized in determining the best structure for a company.

So why is size so important?

An increase in size creates a decreased concentration of power. The larger a company gets the more beneficial it becomes to create divisions that run alongside each other. By doing so, you don’t have just one high level position, such as director. Instead you need up with many, balancing their powers between each other.

I once worked at a pizza shop, in Ontario and it was apparent less coordination was needed, as its staff and managers would be able to easily interchange ideas. Essentially, all employees would be generally delegated to the same tasks, and would report to the one owner. There are no branches, and therefore not a great deal of specialization is needed. Thus, divisions are unnecessary for smaller companies.

Is size the only real factor? It’s important, but no. It’s not the only factor. The environment also plays a key role.

The environment in which you operate can shape your structure. Functional or flatter structures are better off in environments that are stable. Stable environments require less of a need for rapid changes, alterations or adaptations because of external factors.

The opposite goes for divisional structures, as they can quickly adjust to external factors, such as new competition.

So, should you operate under a Functional or Divisional structure? How about a mix of both? Examine your organization to know what’s appropriate!

Bibliography

Borgatti, S. P. (2001, October 8). Organizational Theory: Determinants of Structure. Retrieved from Analytictech: http://www.analytictech.com/mb021/orgtheory.htm

Business Mate. (2009). What is a Divisional Organizational Structure? Retrieved from Business Mate: http://www.businessmate.org/Article.php?ArtikelId=185

Field, R. H. (2002). Organizational Effectiveness, Structure, and Technology. Retrieved from Richard Field on Management and Information Science: http://apps.business.ualberta.ca/rfield/Organizational%20Effectiveness,%20Structure,%20and%20Technology.htm

Tutorials Point. (n.d.). Organizational Structures. Retrieved from Tutorials Point: http://www.tutorialspoint.com/management_concepts/organizational_structures.htm

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9 responses to “Does size really matter?

  1. Although companies who uses function structure may look as if its inflexible, I think it is still a more organize compare to divisional structure. Everyone will only need to report to the same head management about everything, and all the information will be compile to one place. If anyone needed those information, employees would not need to run from one department to another to get all the info, but instead they could just go to the main top management to get it. However, it will probably lead to an inflexibly of getting information if stakeholders ask for information.Besides only one high level position, divisional structures is more flexible in getting information because of the division divisional.

    However, I agree with you that size of the business should not determine which structure should be used because any size of the company can use both of the structure. However, in my opinion, I would prefer to work with both structure apply which is matrix because both of them has their benefits and disadvantages.

    • Thank you for your comment, Irene.

      Functional structures can work well depending on the organizations needs. I’m glad you agree that size shouldn’t be the only determinant in organization structure. However, it should still be considered as important, just not the only criteria to focus on.

      In regards to your preference of a Matrix structure, this could work too! Once again, you must examine your company’s overall needed and figure out what truly is important for them to operate successfully.

  2. Yes, your title misled me into thinking something else… Anyway, there is considerable evidence that an organization’s size significantly affects its structure. For instance, large organizations – those with 2000 or more employees – tend to have more specialization, departmentalization, rules and regulations than do small organizations. But like you said, organizations of comparable size don’t necessarily have similar structures. What works for one organization may not work for another, because there are other factors affecting the decision, such as environmental uncertainty which you have mentioned. However, from my readings I found that flat strucures represent organic organizations whereas tall structures belong to mechanistic organizations. Therefore, a flat structure works best for dynamic and uncertain environments, because it allows better communication and gives employees more autonomy which results in faster reaction to changes. On the other hand, companies that are more stable require a tall structure. I think you got these two mixed up, unless I misunderstood.

  3. What about the skill level of staff or types of skill to determine structure type? An example would be partners at a law firm, although typically small all the partners operate on a same organizational level. Or splitting engineers into work teams for individual aspects of a project. So the nature of the organization ultimately defines the structure.
    In my experience I’ve typically only worked in Divisional structures. However, in one company where I work my perception of the structure is skewed. Communication runs freely throughout the entire structure, and I rarely have the feeling of actually having superiors, this may be due to the culture of the organization. Structurally defined however very relaxed.
    Best,
    AJ

  4. Great post!

    I think that an organization’s size is very important in determining the type of structure that it should be using.

    I worked for a small organization, which only had 10 employees, including me. And that number of employees was usually only needed for 1/3 of the year; for most of the year the organization was not busy enough to have more than 5 employees, including me. The problem within this organization was that the owner wanted to impose a more vertical structure; I think he thought that this type of structure would somehow benefit the organization. But, this was a very small organization; for example I would be the bookkeeper, but I would also be required to clean the office. That’s how small it was!

    When this vertical structure was introduced it felt like this small organization all of a sudden decided that between 5 employees we should start “playing telephone”. Information would travel from one person to another person, who was higher in charge, and then it would be passed on through another person in charge, and then, finally it would reach the boss. This was simply ridiculous! Instead of directly contacting the boss, the worker had to go through 2 other people just to ask a question or make a suggestion.

    This is an example of how a poor organization structure can really hinder productivity; it simply took 3 times longer than it needed to get things done, because the new structure was not the right fit for this very small organization.

    Needless to say I suggested to my boss that we should go back “to the good old days”, when the organization had a flatter structure. I think the reason why my boss wanted this type of structure was because he wanted to be the sole decision maker, and did not want to delegate any of duties. For Christmas I have him the “E-myth”, a book by Michael Gerber that talks about the importance of delegating business processes, in order to help grow your business. I think he got the hint; as my job duties increased! 🙂

  5. I would say whether an organization adopt a functional or divisional structure really depends on the nature of the business and its functional activities as well as the size of the organization. For example, the company that I work for has a divisional structure where each department works independently on its own. We have nearly 800 employees. The biggest problem with the divisional structure there is that each department does its own thing and there is minimal coordination between departments. One of the worst thing is the lack of communication between scheduling and operations and we often end up with shortages of staff because Operations doesn’t communicate with Scheduling and tell them how many staff are needed and Scheduling doesn’t tell Operations when employees book off sick or go on vacation!

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