What do we mean by corporate structure?
Decoding the term
The term 'corporate structure' refers to the way the various parts of an organisation are arranged and related as opposed to the arrangement of buildings.
In contrast, business structures refer to the many forms of commercial legal entities such as sole trader, partnership. public or private limited company, cooperative or corporation.
The term corporate in this context simply refers to the body as a whole rather than its individual parts. The word corporate comes from the Latin corpus meaning body. Its use is not limited to 'corporations' (a group of people authorised to act as an individual and recognised in law as a single entity)
The classic view
The classic view of corporate structure is as a chart showing the arrangement of divisions, units, departments and other components of an organisation and the hierarchy of the key positions. What is being described is the division of work and labour and this is but one view of the structure.
In large international corporations, the structure might be represented geographically on a map of the world. However the classic view of the structure as the configuration of the division of work and labour has its limitations and should not be thought of as representing all aspects of the structure.
The systems view
The essence of any structure is that all parts are interconnected so as to form a coherent and functioning whole and that it exists to fulfil a particular purpose. In the case of an organisation structure, it exists to fulfil the mission. Checkland, Ackoff and Shannon reach similar conclusions that a system is a set of components interconnected for a purpose and therefore when Deming asks in his book Out of the Crisis, 'Is your organisation a system?', he is suggesting that organisations behave like systems in that their components work together to accomplish an aim.
By way of a contrast, Pirsig in his book, Zen and the Art of Motorcycle Maintenance, refers to the motorcycle as not just a structure of assembled parts but a system (all parts working together to perform the function of the motorcycle).
Systems thinking is one of Peter Senge's disciplines for building a learning organisation. The others are:
- Personal mastery
- Mental models
- Shared vision
- Team learning
Senge argues that the essence of the discipline of systems thinking lies in a shift of mind:
- Seeing interrelationships rather than linear cause-effect chains
- Seeing processes of change rather than snapshots
Therefore when we talk of looking at an organisation as a system it means we are taking a particular view or perspective of the organisation. There are many other perspectives we could take such as how knowledge is utilised or we could look at the political forces in the organisation and their impact on behaviour. A systems view of the organisation could take the form of several models each representing a distinct aspect of the organisation's complexity. These models might include:
- Functional model showing the division of work and labour with the lines of responsibility and accountability
- Process model showing the arrangement of business processes and the pathways along which work flows and the corresponding results are produced
- Communications model showing the network of internal and external communications with the stakeholders
- Location model showing the disposition of physical resources such as the buildings, plant and facilities where the organisation functions
- Cultural model showing the factors influencing the organisational culture and the way they are channelled through the organisation as values and principles that impact behaviour
Any model of the organisation that is produced in an attempt to understand and manage its complexity can be considered as a representation of the corporate structure.
Another advocate of systems thinking is Russell Ackoff, associate of W Edwards Deming, http://news.bbc.co.uk/2/hi/business/6338527.stm
A comprehensive treatment of systems thinking is at http://www.open2.net/systems/
Extending the Metaphor "System" by Atkinson and Checkland, 1988, The Tavistock Institute http://hum.sagepub.com/cgi/content/abstract/41/10/709
Once More unto the System S. Glaser, 1984, The Tavistock Institute http://hum.sagepub.com/cgi/content/abstract/37/6/473
What is the purpose of the structure
The way work and labour is organised is unique to each individual organisation and to be effective this is carried out only after the strategy has been determined. As Drucker points out, 'structure follows strategy'. And: 'If an organisation does not know where it is going there is no intelligent basis for organising human effort and material resources.'
The structure needs a clear aim as it is formed in order to implement the strategy. The strategy therefore becomes the purpose of the structure. Its measure of success is how well it executes the strategy which is why companies are continually re-organising, searching for the right structure to achieve the business goals.
But if the same processes are employed to achieve the organisation's goals, no amount of rearranging the division of work and labour will improve performance. More often than not these changes are made for financial reasons to try and take cost out of the enterprise because either the strategy has failed or the circumstances changed. By taking out costs without process redesign, the processes often malfunction. A more prudent approach is to apply systems thinking in any cost reduction programme.
Often it is not the division of work and labour that is at fault at all but the strategy or the business processes.
By viewing the division of work and labour through an organisation chart, firms become blind to the causes of failure. What they fail to realise is that all work is a process and that it is the processes that deliver the results not the boxes on the organisation chart - hence the importance of viewing the organisation as a system of processes rather than a structure of functions.
Why is structure important?
Drucker observes that the best structures will not guarantee results and performance, but the wrong structure is a guarantee of non-performance. He recognised that the right structure does not evolve and is not intuitive; organisation structures have to be designed.
An organisation regardless of the number of employees can function without structure providing the processes are capable. Just as a tree must have structure to grow, when the small organisation wishes to add diversity or complexity it needs a structure.
However, the wrong structure impedes process efficiency and effectiveness as it contributes to bottlenecks, duplication of effort, inter-department rivalry, turf wars and a host of issues that arise from the interaction of people within an organisation.
With modern structures like networks and virtual organisations these kinds of problems don't arise but they are not appropriate for executing all strategies.
David Packard remarks in his book the HP Way, an organisation's structure affects individual motivation and performance so if people are placed in positions for which they are unsuited or allocated work for which they are not competent there will be a detrimental effect on motivation and performance.
But even when people are placed in the right positions and allocated work they are competent to perform, there are other factors that effect motivation and performance such as the corporate values, culture, management style, pay and conditions.
Just as in a building where the structural components dictate its form and have hidden properties, the result producing components of an organisation dictate corporate structure but hide the inner strength upon which its success is built. These properties are commonly referred to as the organisational culture which is covered in the next section.
What characterises a corporate culture?
If we ask people to describe what it is like to work for a particular organisation, they often reply in terms of their feelings and emotions that are their perceptions of the essential atmosphere in the organisation. This atmosphere is encompassed by two concepts, namely culture and climate.
Hofstede (1994) defined culture as 'the collective programming of the mind which distinguishes the member of one group or category of people from another'. He implies it can be learned ie it does not form part of the human nature and it is distinct from individual personality, however it is shared by the members of one group.
Culture provides a code of conduct that defines acceptable behaviour whereas climate tends to result in a set of conditions to which people react such as political, economic, social and technological (PEST).
Culture is more permanent whereas climate is temporary and is thought of as a phase the organisation passes through.
Edgar Schien Professor of Management at MIT defines culture as the shared tacit assumptions of a group that it has learned in coping with external tasks and dealing with internal relationships. He conceptualises culture as a layered phenomenon that has three interrelated levels of meaning:
- artefacts and creations such as rites, ceremonies symbols, taboos, myths and stories. language and norms of behaviour
- values and beliefs such as integrity, the basis of reward and punishment, employee control, decision making, concern for people, suppliers, customers, management contact and autonomy
- basic assumptions such as respect for the individual, responsibility for actions and decisions, internal cooperation and freedom
How are values, culture and structure related?
From the above brief overview of culture, it can be seen that values are one aspect of culture. Although structure is the arrangement of parts, as was indicated previously, culture will influence how these parts interact. It will certainly discriminate between effective and ineffective structures.
Two organisations in the manufacturing sector may have the same organisation structure on paper but function very differently, indicating that it is the white space on the organisation chart that is more significant. This white space is occupied by the business processes as observed by Rummler in his book Improving Performance: How to Manage the White Space in the Organisation Chart.
As values maybe one of the factors that determine the position of units in a hierarchy, (see members' pages) the structure can be a good indicator of the alignment between values and structure. If the natural environment is something the organisation values, its position on the organisation chart might indicate whether this is true or false. However, this is not to say every value should warrant a dedicated organisational unit, but when it is everyone's responsibility it often arises that no one is held accountable and hence no one manages it.
How do corporate cultures differ?
There are several ways of looking at corporate culture. Taking a simple approach we can classify organisations as either being rules based or values based.
Geert Hofstede, a Dutch organisational anthropologist and writer on the interactions between national cultures and organisational cultures, demonstrated that there are national and regional cultural groupings that affect the behaviour of societies and organisations, and that are very persistent across time. In his research primarily addressing national cultures conducted in the 1970s, Hofstede identified four dimensions of culture:
- power distance
- uncertainty avoidance
- long-term orientation (Hofstede added a 5th dimension in 1990)
More on Hofstede's dimensions of culture is given in the members pages.
In a rules-based culture (or command and control culture) people will follow the rules or procedures regardless of the consequences but assume the rules are imposed for the general good.
Command and control cultures are used in the military because of the nature of the job and the size of the units. The strategy is worked out at Brigade HQ and orders issued down the line. If everyone on the front line was free to question the orders and take a different action, the battle would be lost. Battles are one-off events in which command and control structures are proven effective. Other one-off events like hurricane disasters, fire fighting, air, road and rail accidents all require people to follow orders without question as time is of the essence.
Management disciplines grew out of the military and the early industrialists followed the military models. This has been perpetuated over the decades and attracted the type of managers who feel in control in such an environment. Often military commanders would find jobs in management when they finished their military career and would manage their staff in the same way with disastrous results.
In a values-based culture there is less prescription of rules because from an understanding of the objectives and applying the corporate values, people will work out the right things to do, weigh up the circumstances and apply their skills and knowledge.
These organisations are quite rare. The values held by the founder have a profound effect on the nature of the organisation he or she builds. Such people surround themselves by others who share these values and rituals are developed to emphasis them. The selection process ensures only people who share these values are recruited and it is often difficult for those steeped in command and control to feel comfortable in such a culture.
Although these organisations have often been forced through market pressure to seek ISO 9001 certification, they see it as superfluous to their operations, adding no value. Hence certification body auditors have difficultly understanding how the systems achieve results without prescriptive documentation.
In a trading relationship there are other differences that run deeper than organisational culture and mirror national cultures. Research by Accenture in July 2006 found that cultural differences are one of the major reasons why offshore outsourcing arrangements fail http://newsroom.accenture.com/article_display.cfm?article_id=4376
Some of these are differences in:
- communication styles, both verbal and non-verbal
- approaches to completing tasks
- attitudes toward conflict
- decision-making styles
- sets of values
- styles of management
A study conducted in 2001 showed that the organisational cultures of one firm in one country can influence the organisational culture of affiliated firms in different countries, even where the national culture of the affiliate is substantially different from that of the parent. See http://www-rohan.sdsu.edu/dept/ciber/110Chow.pdf (nb PDF document)
What are corporate values and what effect do they have?
Corporate values are confirmed by top management expressing what they believe are the fundamental principles that guide the organisation in accomplishing its goals, what it stands for such as integrity, excellence, innovation, reliability, responsibility and fairness. Good leadership strives to bring about a set of shared values.
Values are not actions to take or decisions to make. They condition behaviour so if one of our values is integrity when taking an action or decision we would ask ourselves, where is the integrity in that, or how would I ensure the integrity of that judgment? Often they become instinctive so in a customer focused culture, the sales person would not even think of deceiving the customer into buying something that would later be discovered unsatisfactory.
Why are values and culture important?
Culture has a strong influence on people's behaviour but is not easily changed. It is an invisible force that consists of deeply held beliefs, values and assumptions that are so ingrained in the fabric of the organisation that many people might not be conscious that they hold them. Unless the recruitment process recognises the importance of matching people with the culture, mavericks may well enter the organisation and either cause havoc in the work environment or be totally ineffective due to a lack of cultural awareness. People who are oblivious to the rites, symbols, customs, norms, language etc, may not advance and will become demotivated.
There is however, no evidence to suggest a right or wrong culture. What is important is that the culture actually helps an organisation to achieve its goals - that it is pervasive and a positive force for good.
How does culture impact structure?
The organisational structure should be designed to enable it to function effectively whilst it is pursuing a certain mission. If the mission changes, the structure may need to change. However, the prevailing culture will influence that structure and it will reflect the core beliefs in the purpose and driving force eg if profit is king, the accounting function will be dominant, if the market is king, the marketing function will be dominant.
If there is scant regard to quality, safety or the environment, they won't be visible in the high level structure. This often arises due to ignorance rather than a deliberate policy. Where it is believed that quality, health, safety or environment are important to business success there will be a strong quality, health, safety or environment culture and you may detect this in the structure by there being senior positions dedicated to these functions. However, you will need to look more closely than the organisation chart. Positions with the word quality in the title might indicate leadership in quality or it might indicate delegation to a supernumerary.
However, a structure without positions dedicated to quality, health, safety or environment is not necessarily one that is ignorant of their importance. There might be robust processes that take due account of all relevant factors and rather than separate these into discrete functions, prefer to integrate them into process design.
In Organisation the Framework of Management Brech points out the link between morale and control and the responsibility of top management to create a suitable form of organisational structure and maintain it as a sound framework of management action. It must also ensure that the working of management accords with these intentions and that there is proper coordination within the framework established. In this connection arises its very important responsibility for attaining and maintaining high levels of morale and human relationships throughout the organisation.
How does culture impact change?
For many people, the culture in an organisation has to be discovered - it is not something that is necessarily articulated by the managers. Statements of the vision and values help but the rites, symbols and taboos are all learnt mainly by observation. Therefore if the culture is one where innovation is encouraged and rewarded, managers will recruit innovative people and once employed will continually seek new ways of doing things.
Alternatively, if the culture is one where change is resisted or unwelcome, managers will recruit people who are unlikely to challenge the status quo, people who crave stability and security and once employed these people will follow the routines and defend the status quo. Both types of culture have a role in society. The armed services need obedience and change in policy and a practice needs to be difficult although changes in the tools used to do the job needs to be encouraged. Alternatively in an innovative organisation like Microsoft, BP or Hewlett Packard the one constant is change for without it they die.
In many successful companies the culture is set by the values bestowed by the founders and their successors. They have propagated their ideas through a culture of discipline to mission statements, policies, operating procedures and systems thinking. Or in the case of Toyota a series of books collectively called the Toyota Way. This culture is carried forward by an acceptance/discipline to follow them and an integrated system of mentors or sensei (a Japanese title for a person of respected stature). The source of Toyota's current problems around the world is their inability to find (or hold on to) sufficient mentors to match their expansion.
How does culture impact performance?
Stephan Dahl suggests that it is possible to describe culture as a shared set of basic assumptions and values, with resultant behavioural norms, attitudes and beliefs which manifest themselves in systems and institutions as well as behavioural patterns and non-behavioural items. We can therefore suggest there is a strong relationship between values, behaviours and results. Behaviours are expressions of shared values and assumptions with results the product of behaviours.
Therefore when the behaviours align with the stated values, we can say that the results produced will be those expected by the group. The corollary being, when the behaviours don't align with the stated values, we can say that the results produced will not be those expected by the group. It follows therefore that in an organisation with a well defined culture, it drives performance, whereas in an organisation with no discernable culture or one that is multicultural, performance may be patchy and unpredictable.
Dahl points out that although all members of a group or society share their culture, expressions of culture-resultant behaviour are modified by the individuals' personality, and therefore culture does not predict individual behaviour. In the 1960s Douglas McGregor at the MIT Sloan School of Management developed two theories of human motivation. These were:
- Theory X - a label given to a belief that workers inherently dislike and avoid work and must be driven to it
- Theory Y - a label given to a belief that work is natural and can be a source of satisfaction when aimed at higher order human psychological needs
Organisations where theory X prevails is likely to have a different performance than those where theory Y prevails. See also http://en.wikipedia.org/wiki/Theory_X_and_theory_Y
In contrast, the Japanese management style has been labelled theory Z which is a belief that organisations should focus on increasing employee loyalty to the company by providing a job for life with a strong focus on the well-being of the employee, both on and off the job.
For the Japanese this style of management led to great improvement in performance but it is debatable whether this theory can be applied successfully in the West due to the different approach taken towards employment. At the end of world war II, there were still jobs for life in the UK and US but through the boom and bust years of the 1970s and 1980s this situation has almost disappeared. Organisations can no longer sustain the same structure for decades as they once did.
See also http://en.wikipedia.org/wiki/Theory_Z Further resources
Some of the more prominent people who have influenced and developed theories on organisation structure and culture include:
Niccoli Machiavelli (1469 - 1527)
Italian writer and statesman, conceived four principles or maxims of leadership. Leaders must: obtain mass consent, strive for cohesiveness, have a will to survive and must set an example to the people they lead.
Adam Smith (1723-1790)
Scottish philosopher. In the 18th century Adam Smith saw advantages in specialisation, breaking down work into simple tasks and developing skills
Eli Whitney (1765 - 1825)
American inventor, mechanical engineer, and manufacturer, best remembered as the inventor of the cotton gin (a machine to clean the green-seed cotton) but most important for developing the concept of mass-production of interchangeable parts in 1801
Charles Babbage (1791 - 1871)
English mathematician, economist and inventor who is credited with conceiving the first automatic digital computer. In his book On the Economy of Machinery and Manufacturers, he argues that by dividing work into different processes, each requiring different skills, or effort, the employer may purchase only that which is necessary for each process. Whereas if the whole work were executed by one workman that person must possess sufficient skill or effort to perform the most difficult or laborious of tasks, and would therefore be more costly.
Henry Fayol (1841-1925)
French engineer. His idea in 1925 of unity of command, which stated that an employee should receive orders from only one supervisor, helped to clarify the organisational structure of many manufacturing operations.
Fredrick Winslow Taylor (1856-1915)
American engineer known for defining the techniques of scientific management which is the study of relationships between people and tasks for the purpose of redesigning the work process to increase efficiency.
Henry Ford (1863 - 1947)
American industrialist who revolutionised factory production with his assembly-line methods
Frank Gilbreth (1868 - 1924) and Lillian Gilbreth, nee Moller (1878 - 1972)
Pioneered time and motion study as a means of developing the best way of working.
Alfred P Slone (1875 - 1966)
American corporate executive and philanthropist who headed General Motors as president and chairman for more than a quarter of a century.
- different kinds of work and labour
- organising work
- the pros and cons of different kinds of structure
- creating a corporate structures
- changing a corporate structure
- different types of culture
- problems with culture
- changing an organisational culture
Related publications and websites
Strategy and Structure: Chapters in the History of the American Industrial Enterprise by Alfred Dupont Chandler Beard Books 1996
The HP Way by David Packard. Collins; Reprint edition 2006
The Practice of Management, Peter F Drucker Butterworth-Heinemann, 2nd Revised editions, 2007
International Management: Culture, Strategy, and Behavior by Richard M. Hodgetts McGraw-Hill 6Rev Ed edition 2006
Improving Performance: How to Manage the White Space in the Organization Chart Geary A. Rummler and Alan P. Brache Jossey-Bass; 1995.
Organizational Culture and Leadership, Edgar H. Schein, Pfeiffer Wiley; 3 edition (21 Sep 2004)
Culture - several theories, article and links
Geert Hofsted gathered extensive data on the world's cultures and generated impressions of that data into charts and graphs that help better understand the many sublet implications contained in his raw data
On dimensions of social cultural
On dimensions of social cultural
A good study of various writers on culture that includes characteristics of each type of culture and measures that tease out the culture
http://www-rohan.sdsu.edu/dept/ciber/110Chow.pdf (nb PDF document)
A general overview of Organizational Culture with many useful references
The Fifth Discipline Peter Senge published by Random House Business Books. An excellent explanation of systems thinking and its importance in building learning organizations
Organization the Framework of Management E F L Brech published by Longmans Green and Co (1965)