Does organization structure matter?

In today’s Matrix Monday review of available literature, Kevan Hall reviews ‘Does organization structure matter? On the relationship between structure, functioning and effectiveness’, by Andersen and Jonsson. 

This paper challenges whether organizations can become more effective by reorganizing. A move to a new structure assumes that this will give better outcomes, but there is little evidence of a direct link between structure and performance.

It correlates structure (division of work and authority – specialization, formalization and centralization), function (what people actually do at work), and effectiveness (profitability), in a sample of 320 small to medium sized Swedish manufacturing companies.

They describe function as what people actually do, and this is the reality of how organizations perform work and apply resources. This may be different from the formal structure, rules and processes. The variables they define as part of ‘function’ include empowerment, training, group dynamics, leadership and use of inter-functional teams – what we would call ‘ways of working’. Deployment is much more important than strategy itself.

The study was in simpler functional organizations, but this finding may be important for matrix structures, where the deployment of resources horizontally (the desired function) is often inhibited by the legacy power and patterns of behaviours of the traditional vertical silos. (I’ve not found any specific research on this – if you have please let me know.)

Whilst researchers have (according to this paper) often assumed a direct link between structure and performance, there appears to be no significant empirical evidence of this. There are logical and theoretical arguments both ways, but no empirical proof of either.

There does seem to be some relationship between degree of centralisation and the functioning of the firms, and some relationship between the functioning of the organization and profitability – the two factors with the greatest positive influence being quality leadership and training.

Successful companies were those that had “managed to realise the intentions of the formal structure in the functioning of the firms” which suggests that changing ways of working and patterns of behaviour are the most important direct drivers of performance and that structure works by influencing these.

There was no significant direct correlation between any of the specific elements of structure and profitability.

These findings support our own view that structure by itself solves nothing, It is the ‘soft’ or ’emergent’ structures and the skills and ways of working of the people involved that bring success.

Our experience is that constant reorganization may not only fail to improve performance, it may make things worse by disrupting the networks, communities teams and groups that actually get things done.

If it is essential in simple organizations like those in the study, then it is far more important in complex matrix structures where flexibility and change are constant, and structural change too slow and imprecise a tool to keep up.

Source: DOES ORGANIZATION STRUCTURE MATTER? ON THE RELATIONSHIP BETWEEN THE STRUCTURE, FUNCTIONING AND EFFECTIVENESS, by Jon Aarum Andersen and Patrik Jonsson, International Journal of Innovation and Technology Management (IJITM), 2006, vol. 03, issue 03, pages 237-263

Note May 2020 – nobody used a formal organization restructure to cope with the immediate consequences of  COVID 19 – we learned that it was flexible ways of working and people (plus a bit of IT support) that enabled business continuity and flexibility. See more about our insights in virtual teams, matrix management and agile & digital leadership