Organizational design is the process of selecting and executing a business’ structure. This includes establishing a chain of command, determining organizational elements and allocating resources. Several factors influence organizational design decisions, including the size of the company, available technology, the environment, networks of business allies and the overall corporate strategy. The organizational design supports the company, but it also maximizes the motivation and potential of individual employees.
Organizations of different sizes need different organizational structures. As a small business grows into a larger company, organizational changes ensure an intact chain of communication and management. Smaller organizations tend to rely on a communications-technology-infused structure for their mostly casual interactions, while larger organizations incorporate communication technology into their bureaucratic hierarchy. Small organizations use a simple design, emphasizing supervision levels but refraining from using formalization mechanisms such as rule books and company policy codes. As the company grows, problem-solving routine processes called “managerial scripts” become the official stance, eventually forming part of the organization’s policy.
A company’s technology aids in work-flow design by facilitating communication and work procedures. Technology aiding in work procedures is called operational technology. Different types of industries, departments and tasks require different levels of operational technology to function. Technology that facilitates communication is called information technology or IT. Similar to operational technology, IT changes depending on the needs of the organization’s design.
The external setting in which the business functions has a deep impact upon many elements of the organizational design. Organizations function within two types of environments: the general environment and the specific environment. General environments consist of the organization’s set of economic, legal, political, cultural and educational surroundings. An organization’s specific environment comprises the company’s market, industry standards and competition.
Organizational design extends outward from the company to include a network of supportive business and corporate allies. Organizations that co-evolve with other firms often end up stronger because of the mutual support. Some organizations carefully manage their network of alliances, while others organically build support through contributions natural to the course of commerce. Some alliances produce business-boosting activities such as joint-ventures or co-branding.