Why Organizational Design Matters

Organizational design is at the center of successful companies. That’s because companies are ultimately just collections of people, and how you organize and manage them will determine what products you can create, how well you can serve your customers, and how quickly you can adapt to changing conditions in the marketplace around you.

In this guide, we’ll run down the core concepts in organizational design, why it matters for your company, and how you can apply these principles in practice to accomplish more.

The Basics of an Organization

What exactly is an organization?

According to the Oxford English Dictionary, an organization is just “an organized body of people with a particular purpose.” Let’s focus on three words there: organize, people, and purpose. To organize is to arrange in a particular way, to order things in relation to each other and to give them a particular collective structure beyond any individual component part.

Those “component parts” are of course people; human beings with all their own complexities, needs, and desires. That’s what makes organizing people a challenge. Unlike organizing your clothes, people need deep consideration for what makes them unique, and they need to be treated as individuals, even when arranged into a collective.

Finally, purpose in a successful company should be the guiding light. Though companies need to make money to exist, the particular way that they do so and the impact they have on the world constitutes their purpose, and the world’s most successful companies all put their purpose above anything else.

Representing these three core elements is what management is all about. Through “mission statements” companies communicate their purpose to the world. Through human resources and hiring, companies find the most effective people they can. Finally, it is through organizational charts that companies capture the organizing structure that unites their people towards their guiding purpose.

To explain what org charts are, we’ve written a separate guide:

What Is an Organizational Chart?

Chain of Command

The most critical part of an org chart is how it illustrates the reporting structure of each employee and manager. These hierarchical relationships shape who leads and who makes critical decisions within the company.

Chains of command are best when they are clearly communicated and widely-understood. Companies can become sclerotic and mis-managed when these relationships break down, because it makes it difficult to execute on core priorities or for individual employees to understand what to do on a daily basis. Particularly in remote work environments, nothing matters more than getting everyone on the same page about your company’s chain of command.

Conway’s Law

At the center of organizational design is the relationship between the structure of a company and the products that it creates. In 1967, a computer programmer named Melvin Conway captured this relationship in his famous “Law”, which states that:

"Any organization that designs a system (defined broadly) will produce a design whose structure is a copy of the organization's communication structure."

There are three critical entities in his theory:

• Organization
• System
• Communications structure

The Conway’s Law argument can be formulated as such: Organizations have a certain Communications Structure, defined by the way that different individuals and teams within that organization transfer information and make decisions based on that information.

The decisions an Organization makes center on a System (most simply: a product, but really any human-designed creation, process, tool, or piece of technology directed towards particular aims) whose modules and components interface together.

Since modules and components are built by individuals inside the Organization, the way they communicate with each other will be reflected in the relationships between the components they are building.

How Org Structure Impacts Innovation

One of the most important consequences of Conway’s Law is the fact that innovative products require innovative organizations to create them.

This means that when you are looking to accomplish something new and disruptive, that same spirit needs to be reflected in the organization you build to accomplish it.

Case Studies in Organizational Design

Gitlab

Gitlab didn’t become the world’s greatest remote company by accident. Trust and transparency was the key to success. GitLab has made everything public including their production recovery, process, workflow, content, organizational charts, values and more. Read more about GitLab and how they’ve unlocked complete transparency:

GitLab: The World's Most Transparent Company

Alteryx

The Org spoke with David Kingsley, the Chief Human Resources Officer, to learn more about how Alteryx plans to evolve its organizational structure to chart a course for growth in 2021. Read on for excerpts from the conversation:

Why Organizational Design is Crucial When Scaling a Team, According to Alteryx's CHRO

Different Approaches to Structuring a Company

There are so many different approaches to structuring companies that we couldn’t possibly capture them all. To give you a sense of the landscape, we’ve written guides that cover the most essential and widely-seen organizational structures:

5 Types of Company Reporting Structures

Types of Organizational Structures

Designing Effective Teams

At the heart of a well-designed organizational structure are the functional units in which workers collaborate: their teams.

Effective teams are fundamentally greater than the sum of their parts. Rather than just bringing together a group of people, they create a super-unit, where people work together the same way that the limbs of a body do. As a cohesive whole, they can accomplish more than would be possible for any of them individually.

To build a team, you need to start with the set of positions that each individual will occupy, and where to use a given job title. We’ve written you an all-purposes guide to job titles and how to use them:

Different Types of Job Titles & How to Use Them

To build a company from scratch, you’ll need every different kind of team. When starting from zero, the key thing is to start with the right early hires, who themselves will become instrumental in building those teams around them. Here’s your guide to that process:

The Startup Org Chart from Founding to IPO