Organizational modeling is the process of structuring the company’s roles, functions, hierarchy, and workflow. It explains how a company operates on paper, who reports to whom and what teams and departments look like.
Companies are increasingly changing and adapting their structure and hierarchy to keep up with technological innovation and market conditions.
A good example of organizational restructuring is Microsoft under the CEO Satya Nadella. When he took over, Microsoft was struggling. The internal silos and rigid organizational structure were the main obstacles to innovation. Under his leadership, Microsoft pushed past these problems and became a more collaborative, agile place to work in, that prioritizes teamwork and cross-functional collaboration— the bane of informational silos.
It’s no wonder that Microsoft today is still a powerhouse in the tech world.
So today, we’re gonna talk about organizational modeling, which is a process of designing a company’s structure that will lead to a better workflow, more collaboration, and data-based decision-making. Everything’s moving fast in today’s business world and organizations need to update their structures and hierarchies to keep up. So let’s see what that looks like in practice.
Organizational models stayed pretty much the same from the 1900s to the late 1990s. However, all of this changed with rapid technological advancement and the rise of the Internet.
Traditionally, you had three different models that companies used, to govern an organization:
- Top-Down Approach. An organization was built around a strict hierarchy. You had a clear chain of command, with those at the top making all (important) decisions and the employees simply acting as the extended hand of their decision-making process (a cog in a wheel). The emphasis was on obeying and following through.
- Scientific Management Models. This model was popularized by Frederick Taylor. The entire model was based on task optimization: how can you standardize this task? The organizations would break down each objective into the smallest possible tasks. This way, employees would do small, repetitive tasks with utmost precision. Just think about old car manufacturing lines in factories.
- Bureaucratic Models. This model was created by Max Weber and it was based on strict rules that created consistency, removing any possibility of innovation, adaptation, or collaboration across different teams. Any internal or external changes made this model fragile and, in the end, redundant because it was almost impossible to react and respond to any changes.
There was a time when these models were effective, but that time isn’t today. And companies that don’t adapt to changing culture and market conditions are at risk of getting left behind.
Today’s organizational models are far more flexible. They prioritize collaboration, teamwork, adaptability, innovation, and change. They have a decentralized, bottom-up approach to decision-making. Employees aren’t cogs in a machine; they’re autonomous individuals who can (and should) make decisions on the ground floor.
The catalyst for this change was definitely technological advancement and the new generations in the workplace (Millennials and Gen Z) embraced these changes wholeheartedly.
- Network Model. The structures of the past had a single-line, top-down hierarchy. Today's structure operates more as a network or a matrix; it’s about the cross-functional collaboration of different teams from various departments, making the company more interconnected and, therefore, stronger and more resilient.
- Holacracy Model. A holacracy can’t really be called a hierarchical model because it’s by definition, a non-hierarchy. The model empowers teams and team members to operate collectively when it comes to decision-making, without having the need for a top-down management. Even though the model came to a lot of criticism in the past because of the disastrous effects it had at Valve. There are companies that successfully implemented it in the workplace, Zappos and Morning Star being great examples.
- Organizational Prioritization Model (OPM). OPM took the old models, such as Galbraith’s Star or McKinsey’s 7S, and evolved them for the modern business environment. The model is based on four elements: work, infrastructure, people, and connections.
- Platform-Based Structures. Here, the organization serves as a platform that has a variety of internal teams and external partners. Think about companies such as Airbnb or Uber and how they operate.
In general, today’s organizational modeling has evolved to focus on critical roles to simplify complex operations and make them as streamlined as possible. The model needs to drive results and it needs to do so fast.
There are four key shifts that transformed modern organizational modeling:
- From static to dynamic. The point of the traditional models was stability because the market didn’t change. Modern organizational models are built to change and quickly adapt to changes in the environment.
- From siloed to interconnected. The old way of operating was to focus only on what your team is doing and ignore everything else— this led to the creation of silos. However, today, teams do a lot of cross-functional collaboration, and the old barriers are no longer present in the modern workplace.
- From top-down to distributed decision-making. Before, only the boss made the decisions, and they made all the decisions. Today, decision-making happens as much on the ground floor as it does in the manager’s office.
- From fixed roles to project-based teams. The old way was static so employee roles didn’t change. Today, employees work in projects as teams and they can change their roles multiple times in a year, depending on the needs of the specific project they’re working on.
There are four drivers that pushed companies to shift their organizational modeling:
- Rapid market changes. The pace of change was fast and companies had to adapt by becoming more agile so that they could pivot fast and quickly adapt to the new conditions.
- Increasing complexity. Big, global businesses are inherently more complex than small, local businesses. However, it’s not just about big businesses. Global businesses are becoming more complex and the modern organizational models have to change to manage these complexities successfully.
- Changing employee expectations. Companies today offer autonomy, mastery, and purpose to ensure that employees stay motivated. It’s not enough to just pay people a good salary; you need to provide flexibility, collaboration, and purpose to keep them engaged.
- Digital transformation. Technological innovation brought with it the rise of digital tools and platforms. So companies had to adapt and integrate technology into their daily operations to ensure employees increase their productivity.
Here are five key reasons why modern organizational modeling matters in business:
- Adaptability to change. Five years ago, hybrid, remote, or on-site options were hardly a topic of discussion. Today, offering these options is expected, and incase you don’t, employees may seek out competitors who do.
- Enhanced collaboration. Collaboration is a core component of effective organizational modeling. It helps you align teams to a single goal and unlocks problem-solving potential across the entire organization. Collaboration enables employees to share insights which leads to more informed decisions. On top of that, the employees respond faster to market changes because the information flows so easily through the organization. That makes your entire company more durable.
- Data-driven decision-making. The more data that you collect, the better your insights. The better the insights, the more correct your decisions can be.
- Economic uncertainty. Employees have become more productive with technology, and today’s economic uncertainty has made them operate from a “do more with less” mindset.
- Talent Management. Upskilling and reskilling are a staple of the modern organization. Considering that the half-life of skills is just five years, employees need to evolve their skills constantly or they risk becoming obsolete in the market.
Not everything that belongs to traditional models needs to stay in the past. There are some things you can use in the modern organizational models:
- Cohabitation of models. Find out what works for you by combining different models and creating a specific model that works wonders for your organization.
- Resistance to experimentation. To find out what works best, you need to experiment with different models. You’ll never find your perfect model if you’re unwilling to go through a (painful) trial-and-error process. However, that’s the only way you’ll get your perfect model.
There are three trends that will continue shaping organizational modeling:
- AI and machine learning. More and more companies are implementing and integrating AI into their daily operations. Whether it’s to improve efficiency, create a more accurate decision-making system, or to anticipate emerging customer needs, AI is slowly but surely becoming a part of every system in an organization. On top of these, AI can also predict trends, simplify complex workflows, and help you create a forward-thinking organization. Soon enough, you’ll have a hard time finding any company that isn’t using AI to significantly optimize their operations.
- Remote working options. The cat’s out of the bag. Remote and hybrid work became a viable business solution for many businesses during the pandemic and the employees want to continue operating using these flexible working options.
- Purpose-driven models. The new generation of employees (Gen Z) emphasizes the importance of purpose and social responsibility in their work. So organizations will have to adopt models and focus on long-term value creation if they want to keep their employees engaged.
Organizational modeling is constantly evolving, driven by market changes, employee expectations, and technological advancements.
While traditional models served their purpose in a more stable and predictable world, today’s organizations require flexible, dynamic approaches that emphasize adaptability, collaboration, and decentralized decision-making. Companies that embrace these structures will be better positioned to thrive. To evolve as organizations, leaders must remain open to experimenting with different models and find the best fit for their specific needs.
Now is the time for your organization to transform and you can do so with Agentnoon. Book a demo to adapt, innovate, and succeed in the future of work by shifting your organizational model.