In the dynamic manufacturing industry, choosing the proper organizational structure is crucial for companies to achieve operational efficiency and adapt to market demands. However, it’s important to note that there is no one-size-fits-all approach. This article explores the advantages and disadvantages of three models of organizational structures. Those structures are hierarchical, matrix, and holocratic structures. It then presents a novel approach, using a hybrid of the different structures, to allow flexibility depending on the organizational needs.
Hierarchical organizational structure is a common way of organizing authority levels in a company. In this structure, the most authoritative professionals are at the top and general employees are at the bottom.
Here are some advantages and disadvantages of a hierarchical organizational structure in the manufacturing industry:
Clearly defined career path and promotion path: When a business has a hierarchical structure, its employees can more easily ascertain the various chain of command. Having clear advancement opportunities can help attract and retain talented professionals. Promotions also allow employees to experience increased morale, motivation and productivity.
Department loyalty: Companies with hierarchical structures divide employees into teams and departments. When employees are part of a department, they tend to grow a sense of team spirit and loyalty. These sentiments can help retain employees and encourage team members to work together to achieve the organization’s goals.
Efficient leadership and communication: A hierarchical structure helps employees understand the various levels of leadership. Employees tend to know who to talk to when providing progress updates or reporting issues.
Segregation: Hierarchical structures can segregate departments and teams. This can result in a lack of collaboration and communication between different departments, which can hinder the company's overall success.
Weakening of common bonds: Hierarchical structures can weaken common bonds between employees. This can result in a lack of teamwork and cooperation.
Lack of coordination: Hierarchical structures can lead to a lack of coordination between different departments.
One example of a manufacturing organization that uses a hierarchical organizational structure is General Electric. The company has a transparent chain of command with the CEO at the top, followed by other C-suite executives, divisional leaders, department managers, and frontline employees at the base.
A matrix organizational structure is a company structure where the reporting ladder is in a matrix or grid instead of the traditional hierarchy. This structure means that workers report to a functional manager and team lead simultaneously. In the example below, IT, Finance, HR and Marketing are all functional leads.
The matrix structure also has some advantages and disadvantages:
Flexibility: Matrix structures are more flexible than traditional hierarchical structures. They allow more collaboration and communication between departments, leading to better problem-solving and innovation.
Efficient use of resources: Matrix structures allow for the efficient use of resources. Employees can be shared across different projects and departments, which can help reduce costs and increase productivity.
Improved decision-making: Matrix structures can lead to improved decision-making. Since employees report to multiple managers, they can provide different perspectives and ideas, leading to better decisions.
Complexity: Matrix structures can be more complex than traditional hierarchical structures. Employees may have to report to multiple managers, which can lead to confusion about roles and responsibilities.
Conflict: Matrix structures can lead to conflict between departments and managers. This can result in a lack of cooperation and communication, which can hinder the company's overall success.
Heavy workload: Matrix structures can lead to a heavy workload for employees. Since employees report to multiple managers, they may have to work on various projects simultaneously, leading to burnout and decreased productivity.
Many organizations use a matrix organizational structure. One example is Nike. The company has a matrix structure that allows for more collaboration and communication between different departments, leading to better problem-solving and innovation. Another example of a company that uses a matrix structure is Starbucks. The company’s matrix structure allows for more flexibility and efficient use of resources.
A holacratic organizational structure is a non-traditional organizational structure that replaces the traditional management hierarchy of top-down corporations with a fluid governance process.
Here are some advantages and disadvantages of a holacratic organizational structure in the manufacturing industry:
Increased agility: Holacratic structures are more agile than traditional hierarchical structures. They allow more collaboration and communication between departments, leading to better problem-solving and innovation.
Faster decision-making: Holacratic structures allow for faster decision-making. Since employees are empowered to make decisions, they can make decisions more quickly than in traditional hierarchical structures.
Employee empowerment: Holacratic structures empower employees to take ownership of their work. This can lead to increased job satisfaction and motivation.
Steep learning curve: Holacratic structures can have a steep learning curve. Employees may need to learn new skills and working methods, which can be challenging.
Cultural shift: Holacratic structures require a significant cultural shift. Employees may need to change their thoughts about work and organizational roles.
Risk of inefficiencies: Holacratic structures can be complex and challenging to manage. This can lead to inefficiencies and confusion, which can hinder the overall success of the company.
Zappos is an example of a company that uses a holacratic structure. This structure allows for more flexibility and efficient use of resources. Another example of a company that uses a holacratic structure is Mercedes-Benz.io. The company’s online arm has adopted holacracy principles.
Choosing the most suitable organizational structure is vital for manufacturing corporations to succeed in a competitive industry. Hierarchical structures offer clear authority but may lack flexibility, while matrix structures promote collaboration but require effective coordination. Holacratic structures empower employees but may present accountability challenges.
So why not take a hybrid approach and use the advantages of each type of structure for your organization? A strategy that offers clear authority, agility, flexibility, efficiency, communication and collaboration is proposed below.
In this proposal, the hierarchical structure is limited and quite flat and represents the reporting lines. Each functional department consists of 1 head and as many senior and junior associates are needed to operate the department efficiently, and to support cross-functional projects.
From the hierarchy, a matrix approach is used for cross-functional projects. A representative from each functional department sits on the project team, liaising with other members of their functional unit. One of the functional heads leads the project, unless the organization has dedicated Project Managers.
Within each department, holocratic teams are created for each “standard operation” that is defined by the department. Personnel rotate between these operations as needed and are cross-trained to be able to function in any of the defined operations. As an example, in manufacturing, there may be 4 different areas – powders, tablets, liquids, pastes. On any given day, a team of associates is assigned to each area. The next day, those teams might be completely different.
It is important to note that no single approach works for all organizations. The approach to organizing personnel should be based on the functions and operations specific to that organization, keeping in mind that several approaches can work together to provide the best efficiencies possible.
When organizations open their minds to adopting a hybrid approach to organizational structure, and also apply the right processes and BRAVE® behaviours, great things can happen!