Organizational Structure and Success

Learning Outcomes

  • Organizational structure and its impact on success

Organizations grow and change all the time, and the organizational structure that worked for a company once upon a time doesn’t always work for a company as it grows. We’ve talked about how smaller companies in uncertain environments can have organic organizational structures and be very flexible about how they respond to customer needs. But as they grow larger, there’s a need for a more mechanistic approach. After all, a company can’t have 2,000 employees with decision making power, all doing business the way they think is right.

We’re going to take a look at a couple of organizations that went through some organizational structure changes, so we can see where the original organizational structure was going wrong and how changes to that structure once again set that organization up for success.

Google

Google is an excellent example of how a couple of guys in a garage changed the world. They started out with a single focus—to develop the world’s best internet search engine.

That was about the last time that Google had a single focus.

Google grew up fast, and in 20 years they’ve accumulated dozens of locations, over 90,000 “Googler” employees, and many, many different interests. Among their offerings are Google Docs, Google Translate, Google Maps, Waze, Android, YouTube, Blogger, Google Fiber, Google Home and self-driving vehicles. Just to name a few. Google’s single umbrella, with its relatively “flat” organizational structure, was growing monstrously diverse.

How does a single, relatively flat organizational structure support “monstrously diverse”? The short answer is, it doesn’t.

CEO and founder Larry Page created a holding company for all of Google’s projects and called it Alphabet. Then, each of those Google interests (26 in all, as you might have guessed) became its own company, with its own CEO. The CEO of each of those companies is now able to concentrate on the goals of that company without worrying about the mission of Google overall. It allowed greater autonomy to those smaller companies under the Alphabet umbrella.

Larry Page explained in a blog post: “Fundamentally, we believe this allows us more management scale, as we can run things independently that aren’t very related. Alphabet is about businesses prospering through strong leaders and independence.”

Page admitted the reorg was radical in the same post, saying, “in the technology industry, where revolutionary ideas drive the next big growth areas, you need to be a bit uncomfortable to stay relevant.”

The reorganization of Alphabet as a holding company for the 26 Google subsidiaries has been going strong since 2015. Employees are able to concentrate on the mission of their own company and, with each company accountable for its own expenditures and income, Page expected that they’d find innovating more meaningful.

This is an example of how a very large company, forced into mechanistic structure by its sheer size and scope, made an organizational move to allow its smaller divisions to innovate and adopt more organic structures if that better fit their needs. Alphabet’s 2018 revenue was $136.82 billion last year, and that’s a good indication that it’s working.

Microsoft

Microsoft had established themselves as the world’s go-to in personal computer operating systems and Office suites. But suddenly the behemoth technology company was struggling. Departments that had been established to innovate were now in competition with one another, creating a toxic environment that threatened the company’s future success.

While Google was the dominant online provider and Apple was the ruler of the world of mobile products, Microsoft was struggling to invent, and then losing interest in their own products when they did. Zune is a great example. Does anyone remember what Zune was?

In 2014, a new CEO, Satya Nadella, started his tenure with a major restructuring of the company. His first order of business was to do away with the damaging internal competition that posed so much of a threat, but he also wanted to reinvent productivity and business processes, build an intelligent cloud platform and create more personal computing. With a restructure plan and this three-pronged mission in hand, he went to work.

Nadella waited two years before he merged Microsoft Research Group with the Bing, Cortana, and Information Platform group teams to create a new artificial intelligence and research group, whose goal it is to innovate artificial intelligence across Microsoft’s product lines.

Restructuring this organization was a success in that it refocused Microsoft’s people. The company was suffering from low employee engagement, and manipulating the organizational structure to eliminate harmful competition and create new team focus was a huge win. Nadella helped Microsoft’s employees find a new sense of meaning in their work.

In both of these instances, CEOs reviewed current operations and decided it was time for a new organizational structure that would better impact the company’s success. Whether it’s a change in functional strategy, as was the case for Google, or in people strategy, in the case of Microsoft, both CEOs chose to redo the structure to support the new strategy. The new structures then set the companies up for future success.

What should every good organizational structure do for a company? The list includes, but is not limited to, the following:

  • Aids effective communication
  • Aids in performance evaluation
  • Increases efficiency
  • Unburdens employees from excess or redundant work
  • Provides faster and better decision making
  • Provides clear reporting and working relationships

A company should always be reviewing its strategy, size, technology and environment to decide if the organization’s structure still supports the business. If it’s in need of a change, then change should occur. We’ll talk about how to manage these kinds of changes in the next module.

Practice Question

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