Organisational Design Hierarchy – highly structured or decentralised?

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Organisational Design Hierarchy – highly structured or decentralised?

Feb 26, 2021

Organisational Design – is a flattened and decentralised hierarchy really good for business? Modern business practices are a result of the strategy and structure of an organisation. The strategy takes into account various factors that can significantly impact business outcomes such as competitive rivalry, political, social, and economic stability, an informed customer base and the advancements in the field of Information Technology (IT). But strategy alone is insufficient in achieving the long term tactical objectives. Managing change has become a pivotal factor to sustaining a competitive advantage and this drives organisations towards becoming multidimensional and to transform their structure to more efficient forms (Zott and Amit, 2007).

Organisational design is critical to identifying dysfunctional work areas and realigning them with the strategy. Key to this is how a company is structured and the concepts of centralisation and decentralisation. With increased competitive pressure and turbulent environmental factors, organisations have moved towards a decentralised command line in an effort to become more efficient by avoiding delays and giving more power and authority to local leaders (Harris and Raviv, 2002). However, although the decentralised structure offers many advantages, it also leads to inefficiencies and inconsistencies in decision-making and leadership. For example, open plan office space is common to organisations with a decentralised structure to enhance communication between employees. There are no rooms or closed spaces, but rather workstations that are positioned together (Danielsson and Bodin, 2008). Depending on the nature of business, this approach can result in significant delays and decreased productivity as a result of the lack of concentration, distractions, and an unnecessary level of every day interaction.

Leadership is pivotal to achieving organisational targets and sustaining competitiveness. Leaders therefore have to create an optimal balance between coordination and control. In centralised organisational design hierarchy structures, leaders are more visible and can guide their teams effectively towards goal attainment, but a silo mentality can prevail. In comparison, decentralisation of processes often results in conflicts because of the lack of direction and focus. Adopting hybrid structures allows for effective leadership and a more holistic approach in managing business; with more flexible structures where certain functions and decisions are centralised and some follow a decentralised approach (Thoger, Fuat and Torp, 2008). For instance, it is quite common in organisations to centralise the function of Research and Development (R&D), thereby minimising the cost and reducing duplication of effort. The Human Resources (HR) function is often also centralised in terms of its strategic decisions; however, for everyday transactional operations, a decentralised approach is usually adopted.

Kotter (1999) in his work explains that organisations with centralised structures work with a greater level of efficiency. The design however needs to be flexible and allow some form of decentralised decision-making, but in the same motion, still uphold a central structure. Kotter explains that this ensures that the disadvantages of a completely centralised firm are then minimised. New forms of organisational structures will evolve in the future. For instance, with a centralised approach, organisations such as IBM have decentralised their decision-making process by balancing it with a central strategic objective and a common customer focus (Simons, 2005).

Litha-Lethu Management Solutions (“Litha-Lethu”) is a niche consultancy specialising in sustainable, and credible transformation. We have enabled NPOs and Corporates to redesign their organisational design hierarchy structures to complement and support changes in strategic direction. Contact us if you’re looking for realistic, customised, and enduring results.


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