Organizing the Organization

How is your organization structured?

Today, there are a variety of choices. As management thinking has evolved, companies have adopted different ways of organizing workers.

First, there’s the traditional, top-down approachwith a reporting structure where information flows down through the ranks in a clear order and employees report to their individual manager.

Then there’s the matrix structure. Employees in this approach are grouped by both function and product. Firms with multiple lines of business, for instance, might have different accounting departments for each business it runs. Reporting structure is also more complicated, as employees might have multiple managers.

And though the concept isn’t entirely new, some progressive organizations are stripping hierarchy altogether in favor of a more flattened, entrepreneurial approach to getting work done, known as holacracy.

So how do talent managers know which is best for their organization?

“There’s not a right way or a wrong way,” said Jeff Tritt, an organizational design expert and chief talent officer at digital marketing firm Resource Interactive. “There’s just lots of different ways depending on the challenges the company is facing.”

Most important, a firm’s strategy should be the guiding principle in choosing an organizational design. “It shouldn’t be like fashion,” said Amy Kates, an organization design consultant at Kates Kesler. “It’s about fitting the right organization form to your context and your strategy.”

Talent Management spoke with a few companies that have worked in — or are transitioning to — these design models to get a better picture of each.

A Top-Down Evolution

Like many companies looking to adapt to a more collaborative work culture, insurance company Health Care Services Corp. is in the middle of a transition from a top-down organizational structure to one more akin to a matrix model.

Aside from wanting a renewed focus on internal collaboration, the shift was spurred largely by the Affordable Care Act, according to Nazneen Razi, HCSC’s senior vice president and chief human resources officer. The 2010 landmark health care overhaul opened up new lines of business for the regional insurer, which has roughly 24,000 employees spread across five states in the Midwest.

“Right now, we’re focusing heavily on relationships, collaboration, building out structures that allow people to work much better with each other,” Razi said.

Among the major advantages of a top-down reporting structure is simplicity. “A centralized, top-down structure is easier to understand,” said Jim Ellis, a senior organizational effectiveness consultant at HCSC. “Meaning, when you re-located within the structure and you report up to a single leader, it’s very clear for that leader to understand your scope of work, to set your goals, your performance expectations.”

But such central structures become less efficient when they need to cross geographies or product lines, as was the case with HCSC. “It tends to be a little inefficient where that occurs and you’ve multiple divisions that have similar skills versus residents in each division,” Ellis said.

The Matrix Strength

German insurance and financial services firm Allianz adopted the matrix approach to better serve customers across different business lines.

Before 2006, Allianz had multiple semiautonomous organizational structures to align with its various business subsidiaries in different locations. But events like hurricanes Katrina and Rita prompted the company to rethink its approach to its organizational design.

Under its matrix model, collaboration meant global coordination, with new lines of reporting for each employee. The added global dimensions of the company required it to broaden communication and collaboration with people across different time zones. 

“We set up a global organization spanning all of the activities of Allianz in this industrial space, but then delivered locally through regional clusters,” said Hugo Kidston, the firm’s head of communications.

Shared decision-making became the go-to process at Allianz as it shifted power from one manager to two or more. The approach lets them simultaneously look at the local factors and consult someone with a global perspective. The matrix also increased flexibility and agility in the firm.

“The strength of the matrix sometimes comes from consensus,” Kidston said, “and consensual decisions-making can be slower, but typically it is more thorough, because you have to consider a greater range of stakeholders.”

A Flattened Approach

E-commerce firm Zappos has grabbed its share of headlines over the years for promoting its unconventional culture. So it’s unsurprising that the Las Vegas-based e-commerce retailer is at it again when it comes to its organizational structure.

During 2014, Zappos’ CEO Tony Hsieh moved the company from a traditional, top-down structure to a more entrepreneurial, flattened organizational mindset, often defined as a holacracy.

“As we grew larger, we became less and less productive, less efficient,” said Alexis Gonzales-Black, who works on the company’shuman resources team. “There becomes more overhead, more bureaucracy, more communication silos, all of these challenges that can prevent us from adapting and evolving as quickly as we’d like. I think with holacracy we’re trying to build a system where we can be superadaptable aschange comes.”

The company eliminated job titles and implemented“work circles,” or teams of employees working together on projects based on shared interests. Employees are free to work on multiple teams — Hsieh, for example, is part of 15 different work circles.

Gonzales-Black said the switch has provided the company with a lot of advantages, such as increased collaboration and idea creation. However, there have been a number of challenges that have come with flattening the organization. As managers’ roles faded, compensation has become a tricky issue — one Gonzales-Black said the company is still in the process of sorting out.

Getting employees used to the new organization structure has been another challenge. To this end, Gonzales-Black said Zappos created a course, “Holacracy 101,” for employees to understand how to work in the new system. A three-day training program follows that course.

Another facet has been making the “implicit explicit,” Gonzales-Black said, meaning the flattened leadership structure has promoted a greater dose of constructive feedback and transparency among team members. 

“I think over the past couple of months, we’ve really generated a clear picture of where our biggest opportunities are [and] where our biggest challenges are,” Gonzales-Black said. “So now we’re seeking about the hard work of fixing those things and getting closer to solving those problems.”