The vertical and the horizontal structure of an organisation should be carefully designed by organisations to serve the intended purposes. Examine this statement appropriately.
Organizational purpose can be generally defined as its reason for being, which is usually reflected in its mission (Daft, Murphy & Willmott, 2010). Clear statement of the purpose leads to the development of realistic objectives, strategies and tasks, which eventually help to build company success and to create value. In order to support their purpose, organizations pay careful attention to developing their structures (Stevens, Loudon, Wrenn & Mansfield, 2006).
Organizational structure refers to the formal system of authority and task distribution, which is established within the organization to control its activities and to allocate scarce resources. It defines reporting relationships within a company and ensures coordination between organizational units and individuals. The choice of a structure has a significant impact on the organizational performance, its objectives and culture. Moreover, this choice is affected by the technology and processes in the organization, as well as by the overall environment, which the organization is operating in. If the structure is chosen correctly, it may become an important source of competitive advantage and ease the achievement of organizational aims. However, if the structure is selected ineffectively and it does not fit the intended purpose of the organization, it may hamper future development of the company and nullify even the strongest advantages, which an organization possesses in the market. Therefore, it is important to consider the peculiarities of every organization, as well as the goals it attempts to achieve, in order to design the most appropriate structure, which will promote company values, strengthen its culture and help to achieve the intended purpose. This paper attempts to explore the effect of the vertical and the horizontal structures within an organization on its intended purpose and the way the choice of one or the other structure influences organizational functioning (Jones, 2009).
Vertical and horizontal differentiation is closely linked to the authority distribution and hierarchical relationships within the organization. Vertical dimension defines the way reporting relationships are created and authority lines are designed. Vertical structure links subunits and organizational roles, thus establishing control over the activities and supports value creation.
Horizontal dimension refers to the way organizational roles and tasks form subunits, such as divisions and functions. Horizontal differentiation is based on the idea of the division of labour, which leads to specialization, thus enhancing productivity and leading to additional value creation. Depending on the type of the activity performed by the organization, its objectives and environment, horizontal structures define the best way to group activities in order to improve efficiency through specialization. The balance between vertical and horizontal differentiation represents one of the main challenges for organizational design, which defines mechanisms of control, decision-making and activity coordination that are essential for organizational goal achievement (Jones, 2009).
In order to determine the most optimal way of developing horizontal and vertical functional dimensions, any business should consider the desired structural outcomes in terms of the elements of the organizational structure, such as the chain of command, specialization, authority distribution, span of management, centralisation and formalisation. Organizational structures can be roughly divided into mechanistic and organic.
Mechanistic structure is characterized by the need to establish high level of control and to induce predictable behaviour. It requires highly centralized decision-making with the clearly defined chain of command and formal authority lines. Task distribution occurs from top to bottom in a formalized process, which implies that every person is individually specialized and responsible for the assigned responsibilities. Non-standard behaviour in mechanistic organizations is usually discouraged or prohibited, that is why there is little room for innovation and risk-taking. Since hierarchy in mechanistic organizations acts as the main driver for integrating of functions, vertical organizational structure should be most emphasized in such companies. Multiple levels along the vertical dimension allow higher degree of managerial control and easier standardization. Vertical orientation should be further embedded into the employee appraisal programs, which should highlight promotion opportunities based on performance and meeting objectives, rather than creativity and risky behaviour (Plunkett, Attner & Allen, 2008).
Organizations with more organic structures usually aim to promote flexibility and adaptability. People are expected to make changes and to show their initiative and creativity. Such organizations tend to be more decentralized, with the decisions being made according to the current business needs rather than hierarchy. Organic structures have loosely defined tasks, which can be altered according to the company needs. Instead of the individual specialization, people are responsible for their performance jointly, and the authority is often given to staff specialists (staff authority), thus promoting flexibility and decentralization. Strong emphasis on the product or task, rather than formal responsibilities, gives the need to develop flat organizational structures and to focus on the horizontal dimension of the organizational structure (Jones, 2009). Coordination in such organizations usually represents a more complex system, which is not based on the formal hierarchy levels, but on the mutual adjustment, compromise and informal networks (Plunkett, Attner & Allen, 2008).
In reality none of the structures exists in pure forms. Many companies have realized the need to consider locating themselves between the two extremes, giving priority to either mechanistic or organic organizational structure. Therefore, they need to integrate both horizontal and vertical dimensions into their structure. It is most commonly done through a matrix structure, which combines the traditional hierarchical vertical chain of command with the horizontal integration across divisions. By considering both horizontal and vertical dimensions the company develops higher flexibility and cooperation, while maintaining relatively high level of coordination and centralized integration. However, matrix structures can never reflect both dimensions equally, and the dominance of one or the other side of the matrix is defined by the organizational strategic direction and external environment (Kroon, 1995).
Organizational purpose is usually defined by the environment the company is operating in. According to the contingency theory the most appropriate structure should be developed to respond to the sources of uncertainties in the market environment. High degree of environmental uncertainty requires more flexibility and adaptability. Therefore, organizations tend to be less formalized, while emphasizing decentralization, task flexibility and horizontal differentiation. Employee in such organizations are expected to take initiative and to be creative in the tasks, assigned to them. Thus, for example, in the companies, which develop consumer products, such as food and beverages, competition is very high, while the change in customer preferences occurs very fast. Therefore, organizational structures of such companies should have more horizontal orientation, which facilitates quick decision-making and promotes creativity, necessary for maintaining market position and satisfying customer demands (Jones, 2009).
In more stable environments, on the other hand, more mechanistic structures with vertical orientation are more desirable. As the risk of unforeseen circumstances for such companies is quite low, there is little need for high flexibility, adaptability and responsiveness. Senior managers are able to control the development of the company and to send decisions top-down along the hierarchy structure. Since strict adherence to rules and formal requirements is essential in such organizations, the structure should be stretched vertically with multiple hierarchy levels, which ensure control and standardization. An example of such companies can be found in aerospace or nuclear energy industries. Thus, on a nuclear power plant following highly formalized requirements is extremely important, and employees are expected to respect the rules very carefully, since the consequences of non-compliance with the regulations can be disastrous (Jones, 2009).
Although the choice of the vertical or horizontal focus in the organization is solely determined by its purpose and market environment, today the general trend is shifted to adopting more horizontal structure. F. Ostroff in his book “Horizontal Organization: What the Organization of the Future Actually Looks Like and How it Delivers Value to Customers” suggests that information age dictates the need to emphasize horizontal structure, which allows decentralization thus leveraging the widespread access to information. Moreover, more and more companies establish operations in several locations and even in multiple countries, which makes centralized coordination and communication more complex. In this case authority decentralization, flexible task definition and responsiveness to the global environmental changes are essential for company survival. Therefore, companies stress the importance of horizontal dimension of organizational structure as the cornerstone of effective operations and one of the key elements of company co9mpetitiveness (Right, 2011). However, following the general trend it is important to remember that the structure should help the organization to achieve its intended purpose, therefore, only careful consideration of the individual objectives and market position of the company may suggest the right way to organize it both horizontally and vertically.
Daft. J., Murphy, J., & Willmott, H. (2010). Organization theory and design. (9th ed.). Andover, UK: Cengage Learning EMEA.
Jones, G. R., (2009). Organizational theory, design, and change. (6th ed.). Upper Saddle River, NJ: Prentice Hall
Kroon, J. (1995). General management. (2nd ed.). Cape Town, South Africa: Pearson South Africa.
Plunkett, W. R., Attner, R. F., & Allen, G. S. (2008). Management, meeting and exceeding customer expectations. (9 ed.). Mason, OH: Thomson South Western Cengage Learning.
Right, J. (2011). Retrieved from http://www.ehow.com/about_6561176_vertical-horizontal-organizational-structure.html
Stevens, R., Loudon, D., Wrenn, B., & Mansfield, P. (2006). Marketing planning guide. (3rd ed.). Binghampton, NY: Best Business Book.
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