Best Practices and Strategies in Organizational Structure and Design PDF
Best Practices and Strategies in Organizational Structure and Design PDF
Best Practices and Strategies in Organizational Structure and Design PDF
MARKET EVALUATION SURVEYING DATA ANALYSIS BENCHMARKING INNOVATIVE PRACTICES LITERATURE REVIEW
HANOVER RESEARCH AUGUST 2010
Introduction
In this report, Hanover Research provides an overview of best practices regarding
organizational structure, with particular emphasis on how these practices relate to the
construction industry. We begin with a general discussion of literature surrounding
organizational design and restructuring. In this section we offer insight into
important issues that should be considered when evaluating an existing or selecting a
new organizational model.
Our final section provides information regarding the organizational structures of four
construction companies: Granite Construction, Flatiron Construction, RailWorks,
and Matrix Service Company. While limited information was available explicitly
discussing the organization of these companies, we were able to gain insight into their
basic organizational models through company websites, SEC filings, news articles,
Hoover’s company profiles, and job vacancy announcements.
Based on our examination of organizational models and our review of the four
construction companies, we found that matrix organizational structures appear to be
the most common in practice. As discussed later in the report, these structures blend
elements of functional and divisional models. While matrix models typically may
have multiple units organized by business segment or geography, the heads of these
units share decision-making authority with leaders of company-wide functional
support units such as human resources, finance, or IT.
It is our hope that these and other findings revealed throughout the report should be
helpful to those organizations reviewing and evaluating their own organizational
models.
At the root of any design effort is flexibility. A successful end result creates
workflows, incentives, and reporting/ decision making structures that best support a
company’s strategic mission and unique product lines, while allowing the company to
adapt quickly to unforeseen events. Too often, though, organizational design is
conducted without the requisite care, guided more by managerial whimsy than
necessity. According to Amy Kates and Jay R. Galbraith:1
Organizational design requires far more than a simple redistribution of lines and
boxes on a company’s organizational chart. Cultures and modes of interaction are
firmly entrenched throughout company hierarchies, and new designs must account
for formal and informal relationships, logical groupings of tasks (and people) required
to produce a good or service, incentive structures for achieving high performance
from employees, and the degree of independence or interdependence between units.
If executed competently, each component of the design should be mutually
1 Note that Amy Kates is a principal of Downey Kates Associates, a consulting firm focusing on organization
design and development based in New York City. Jay R. Galbraith is professor emeritus at the International
Institute for Management Development in Lausanne, Switzerland and formerly held faculty positions at the
Sloan School of Management at MIT and the Wharton School at the University of Pennsylvania.
2 Kates, Amy and Jay R. Galbraith. Designing Your Organization: Using the STAR Model to Solve 5
supportive, and all should work towards the company’s strategic plan. Consider Kates
and Galbraith’s STAR model below:3
As this model clearly illustrates, successful design must be informed, first and
foremost, by a company’s strategic objectives. In certain cases, it may be discovered
that a company is capable of meeting its objectives and adapting to change through
its present organizational configuration. If, however, redesign is considered necessary
for company progress and competitiveness, several aspects of the design must be
carefully aligned to ensure that the resulting organizational configuration supports the
company’s overarching strategic mission. Authority for decision making must be
clearly delineated in the organizational structure; work flows must be constructed
based on employee skill sets and overlapping job duties; communications channels
must allow for quick decisions and collaboration; and reward structures must incent
high performance at every level of the organization. Achieving the proper balance is
entirely context specific; what works for one company might be wholly inadequate
for another, ruling out the possibility of across-the-board design best practices.
3 Ibid, p. 3.
What changes will the new strategy require in the organization’s core work?
How will tasks be modified? Will there be new constraints, resources,
processes or technologies involved?
Do the organization’s people have the skills, interest, characteristics, and
capacity to perform the required work in a manner consistent with the
strategy?
Are values, beliefs, behavior patterns, and leadership styles associated with the
culture—or informal organization—likely to aid or hinder the performance of
the new work?
How will the explicit structures and processes that make up the formal
organizational arrangements affect the new work requirements?
4 Taken verbatim from the original. See: ―Strategic Organization Design: An Integrated Approach.‖ Oliver
Wyman, 1998, p. 6-7. http://www.oliverwyman.com/ow/pdf_files/Strategic_Org_Design_INS.pdf
5 Ibid, p. 11.
6 Outline taken verbatim from the original. See:―Strategic Organization Design‖ Human Resource
How will information about products or tasks be shared? At what level of the
company hierarchy will decision-making authority be vested? How will the company
respond to changing customer demands and competitors’ new market initiatives? Will
the company’s structure nurture and reward innovation? In large part, the formal
structure of a company determines the answers to these types of questions. As with
any choice, selecting an organizational structure requires weighing a series of
advantages and trade-offs. Below, Hanover profiles several common models of
organizational structure and discusses the types of companies for which each model
is most applicable.
Functional Structures
8 Ibid., p. 10.
9 Ibid., p. 11; List taken from original with slight changes
10 Adapted from: ―Chapter 3: Fundamentals of Organization Structure.‖ College of Business Administration,
President
Crews
Divisional Structures
Product-Divisional Structure
As companies begin to develop product or business lines beyond their initial core
offerings, functional structures become less effective for organizing people and
processes. Companies must be responsive to changes in customer desires, competing
product offerings, or any other relevant trends. So long as all decisions are funneled
to upper management for approval, organizations will not achieve the responsiveness
and flexibility necessary to manage multiple product lines. A product-divisional
structure can prove highly effective for companies moving away from a single
product focus. Oftentimes, the business models underlying each new product are
unique, rendering cross-functional collaboration impractical and necessitating the
placement of functional groups under product divisions. As a result, functional
departments like HR and marketing will be duplicated under each product division
and work solely with their designated product groups. Each product division, then, is
a more or less autonomous unit, responsible for its product from start to finish.
Kates and Galbraith observe three distinct advantages to the product-divisional
structure:11
At the same time, the product-divisional structure can restrict information flows
between divisions and create division-centric mentalities. Thus, divisional goals can—
and often do—take precedence over company-wide goals. Cultures and methods of
doing business can also develop differently such that one division’s operations might
be barely recognizable against another’s.12 Additionally, functional duplication can
eliminate economies of scale. While these disadvantages are not insignificant, the
product-divisional structure can be particularly effective when:13
11 Kates and Galbraith, op. cit., p 12; Taken verbatim from the original
12 Ibid, p 13
13 Ibid; Taken from the original with slight changes.
President
14 Adapted from Roper and Jackson, op. cit. and ―Chapter 3: Fundamentals of Organization Structure.‖ op. cit.
Geographic-Divisional Structure
President
Information Human
Legal Resources
Technology
Region 1 Region 2 Region 3
Matrix Structures
Adapted from Roper and Jackson, op. cit., Kates and Galbraith, op. cit. and ―Chapter 3: Fundamentals of
16
Below, Hanover presents a simplified matrix structure, along with its advantages and
disadvantages:17
President
Human
Operations Finance Marketing Legal Resources
Business A
Manager
Business B
Manager
Business C
Manager
As mentioned earlier, however, companies will have to balance these positive aspects
of the divisional model (either product/business segment or geographically oriented)
with redundancies in responsibilities, as divisions will often duplicate supporting
functions.21 Many contracting organizations therefore employ a matrix design,
http://www.skanska.com/upload/Investors/Reports/2000/Skanska_annual_report_2000_part1.pdf
21 Ibid., p. 7.
seeking to combine ―the services and advantages of a functional design with the
highly focused, relationship-based service delivery of a divisional design.‖22
Indeed, while the companies reviewed below tended to organize their operations by
geography or business segment, these companies are likely best described as matrix
organizations. Each displayed evidence of having functional units such as human
resources or finance holding responsibilities across the entire organization in addition
to their business segments or regionally oriented operations divisions.
As mentioned in the introduction to this report, it is also important to note that some
of these companies display functional duplications within divisions. For example, in
the case of BBRI, it appears that finance units are located both at the corporate level
and within some divisions (such as Transit which has a financial controller reporting
to the Vice President of Transit). Similarly Flatiron Construction lists a vice president
of human resources on its leadership team, while advertising for a human resources
manager within one of its geographic divisions. It may be the case that these
duplications are the results of earlier acquisitions, where the support units of an
acquired organization have been carried over and left unchanged. Alternatively, the
duplications may be intentional as the company has found it necessary to place
individuals responsible for certain functions at both the corporate and divisional
levels in order to execute its strategic mission.
On this note, and as discussed in the first section of this report, an organization will
ultimately have to decide which model will best facilitate the execution of its
particular strategic vision. Nevertheless, reviewing common organizational models,
as we have in this section, and examining the organizational structures of similar
companies within its industry, as we will do in the next section, will likely be helpful
in evaluating a company’s current organizational model or considering organizational
redesign.
22 Ibid., p. 8.
Location: Watsonville, CA
Company Type: Public
2009 Employees: 2,70024
2009 Revenue: $2.0 billion (Granite West: $1.4 billion; Granite East: $550.2 million) 25
Organized by: Business Segment
Granite Construction Incorporated describes itself as ―one of the largest heavy civil
construction contractors in the United States,‖ operating nationwide and serving
clients in both the public and private sectors. Public sector projects are typically
heavy civil infrastructure projects involving the construction of mass transit facilities,
roads, highways, bridges, dams, canals, and airport infrastructure. Private sector
projects include site preparation and infrastructure services related to residential
development, commercial and industrial buildings, and other facilities. 26 As of
December 31, 2009, Granite employed 1,800 salaried employees including those
working in management, estimating, and clerical roles, as well as 600 hourly
employees. Given seasonal fluctuations, the company employs an average of 2,700
individuals over the course of the year.27
23 Hoovers. http://www.hoovers.com/
24 ―Granite Construction Incorporated.‖ Hoovers.
http://www.hoovers.com/company/Granite_Construction_Incorporated/rcctci-1.html
25 ―Granite Reports Full-Year and Fourth-Quarter 2009 Results.‖ Granite Construction Incorporated.
http://www.graniteconstruction.com/investor-relations/release_detail.cfm?ReleaseID=447055
26 ―2009 Form 10-K – Granite Construction Incorporated.‖ United States Securities and Exchange
Commission. p. 2. http://www.graniteconstruction.com/investor-relations/documents/2009%20Form%2010-
K%20WEB%20PDF.pdf
27 ―2009 Form 10-K – Granite Construction Incorporated.‖ op. cit., p. 7.
In the past, the company’s construction business has been organized geographically
into two segments: Granite West and Granite East. As noted in the company’s Form
10-Q for the period ended September 30, 2009, Granite West’s offices, located in the
western United States,28 engaged in a variety of heavy civil construction projects,
primarily focusing on ―new construction and improvement of streets, roads,
highways, bridges and airports as well as site preparation for housing and commercial
development.‖29
Though most of the work conducted by Granite West was completed within a year,
the segment also had the capacity to work on larger construction projects. In
addition to construction revenue, all of the revenue generated by construction
materials sales came from Granite West. The segment ―mines aggregates and
operates plants that process aggregates into construction materials for internal use
and for sale to others.‖ Such activities were described as vertically integrated into
Granite West’s business, ―providing both a source of profits and a competitive
advantage to [Granite’s] construction business.‖30
Granite East was comprised of three regional offices in the eastern United States.
Working primarily east of the Rocky Mountains, the offices focused on large,
complex infrastructure projects such as major highways, large dams, mass transit
facilities, pipelines, canals, bridges, waterway locks, and airport infrastructure.
Granite East’s construction contracts were usually for periods longer than two years.
In addition to the two construction segments, Granite operated the Granite Land
Company (GLC). GLC focused on purchase, development, operation, sale, and
investment in real estate, in addition to the provision of real estate services to other
Granite operations.31
According to the firm’s most recent 10-K, on August 31, 2009, Granite announced
significant changes to its organizational structure. 32 Aimed towards improving
operating efficiencies and positioning the company for long-term growth, the
company’s segments were reorganized to reflect its product/business lines. For fiscal
2010, the company’s business segments are: Construction, Large Project
28 Note that according to the firm’s 2009 Form 10-K, Granite West’s operating structure included 14 branch
offices, of which several had additional satellite operations. See: ―2009 Form 10-K – Granite Construction.‖
op. cit., p. 3.
29 ―Form 10-Q for Quarter Ended September 30, 2009 – Granite Construction Incorporated.‖ United States
Construction, Construction Materials and Real Estate.33 Real Estate represents what
was previously referred to as Granite Land Company.34 The table below describes
each segment.
33 Please note that the company’s website does not currently reflect this reorganization and still describes the
business in terms of Granite East and Granite West. For example, see: ―Granite East.‖ Granite Construction
Incorporated. http://www.graniteconstruction.com/about-us/granite_east.cfm
34 ―2009 Form 10-K – Granite Construction Incorporated.‖ op. cit., p. 2
35 ―Form 10-Q for the Quarterly Period Ended March 31, 2010 – Granite Construction Incorporated.‖ United
http://www.graniteconstruction.com/investor-relations/documents/DA%20Davidson%2009-17-
09%20Final.pdf
37 Ibid.
Location: Longmont, CO
Company Type: Subsidiary
Employees (date not specified): 2,000
2009 Revenue: $1.038 billion41
Organized by: Geography
38 ―Granite Announces New Organizational Structure and Appoints James H. Roberts Chief Operating
Officer.‖ Business Wire. August 31, 2009.
http://www.thefreelibrary.com/Granite+Announces+New+Organizational+Structure+and+Appoints+James
+H....-a0206952829
39 Ibid.
40 Note that these job openings were current as of August 12, 2010. See: ―Career Opportunities.‖ Granite
http://www.flatironcorp.com/assets/pdf/Flatiron_Fact_Sheet_JUL2010.pdf
42 ―About Us.‖ Flatiron Construction Corp. http://www.flatironcorp.com/index.asp?w=pages&r=1&pid=2
Offering insight into the company’s organizational structure, the following table
provides a brief overview of Flatiron’s leadership team.
As the above table suggests, Flatiron is largely organized based on geographic units.
First, the Canadian Division works primarily on public private partnerships, design-
build, and traditional bid-build projects throughout Canada.44 The Division has
offices in Richmond, BC and Calgary, AB.45
Next, the Western Region offers construction services for civil projects including
bridges, highway widening, underground and utility works, and concrete and asphalt
paving, as well as work on major highways throughout California, Utah, and other
western states. Also located within the Western Region is Flatiron’s Electric Group,
which offers services related to traffic signal installation, ramp metering, highway
lighting, voltage conversion, traffic interconnect systems, and fiber Optic CCTV
system installation.46 The region has five offices, with four located in California and
one in Utah.47
In addition to the Canadian Division and the Western Region, Flatiron’s headquarters
are located within its Intermountain Region in Longmont, CO.48 The Intermountain
Region focuses primarily on Colorado and offers construction services related to
roadways, bridges, treatment plants, and commuter rail, among other heavy civil
projects.49
http://www.flatironcorp.com/index.asp?w=pages&r=18&pid=59
45 ―Contact Us – Flatiron Regional Offices.‖ Flatiron Construction Corp.
http://www.flatironcorp.com/index.asp?w=pages&r=1&pid=10
46 ―Western Region.‖ Flatiron Construction Corp.
http://www.flatironcorp.com/index.asp?w=pages&r=18&pid=55
47 ―Contact Us – Flatiron Regional Offices.‖ op. cit.
48 Ibid.
49 ―Intermountain Region.‖ Flatiron Construction Corp.
http://www.flatironcorp.com/index.asp?w=pages&r=18&pid=56
focus in terms of type of service, the division still has a regional mission. It primarily
operates in the southeast, northeast, and Midwest regions of the United States. 50
Note that while the majority of openings for staff positions not directly related to
construction services (human resources, IT, finance, etc.) are located in the
Intermountain Region/Headquarters office, two postings stand out. First, an
opening is advertised for a Human Resources Manager in the Canadian Division.
According to the posting, this individual is responsible for planning, directing, and
coordinating HR management activities ―of the operating division/region to
maximize the strategic use of human resources, and maintain functions such as
employee compensation, recruitment, personnel policies, and regulatory
compliance.‖53 Second, a Senior IT Specialist vacancy is advertised for the Western
http://www.flatironcorp.com/index.asp?w=pages&r=8&pid=37&job=237
Region. The individual is responsible for providing ―second level Desktop and LAN
support for approximately 250 users at various offices and remote jobsites.‖54
These two postings suggest that some of the HR and IT functions are distributed
throughout the regional divisions of the company, rather than being exclusively
centralized in the corporate headquarters.
RailWorks Corporation
As a private company, there is not a great deal of information available regarding the
organizational structure of RailWorks Corporation. However, an article published in
2002 indicates that the firm underwent a significant reorganization in the early 2000s,
emerging from bankruptcy after having been taken private. Jim Kimsey, the
individual who took over as president and Chief Operating Officer of the company
after its reorganization noted that its move towards bankruptcy largely stemmed from
its ―unusual organizational structure.‖56 The company had been formed in 1998 from
an assortment of rail businesses, with the aim of achieving economies of scale and
taking advantage of brand recognition. RailWorks continued to acquire new
companies at a rapid pace but eventually ran into cash-flow issues and was forced to
default on its large debt. According to Kimsey, ―The concentration was on the
market play and not on the business itself. We [new management and owners] are
focused on the business and the market at hand.‖57
This description of how the company was formed provides a helpful picture of the
company’s current structure. Still composed of a number of subsidiaries, it does
appear that the company has made efforts to organize them into more cohesive
business segments, as we discuss in greater detail below.
Today, RailWorks Corporation and its operating subsidiaries offer construction and
maintenance services through two main business segments: Track and Transit &
through nexis.com
56 Adams, Paul. ―A Reborn RailWorks Rolls Out of Bankruptcy.‖ The Baltimore Sun. November 15, 2002.
http://articles.baltimoresun.com/2002-11-15/business/0211150379_1_railworks-kimsey-bankruptcy
57 Ibid.
Systems.58 The company provides some information regarding its relationship with
its subsidiaries and its executive-level management structure, as displayed in the
charts below.
RailWorks Corporation
Signals &
PNR RailWorks RailWorks Transit Communications
RailWorks Leadership
RailWorks Corporation
President & CEO Executive Vice President
Senior Vice President – Tax Vice President – Human Resources
Executive Vice President, Chief Financial
Vice President – Business Development
Officer
Corporate Safety, Health & Environmental Executive Vice President, General Counsel and
Director Secretary
Transit & Systems
President – L.K. Comstock & Company, New
President – RailWorks Systems, Inc.
York Division and RailWorks Transit, Inc.
Track
President – RailWorks Track Systems, Inc. President – PNR RailWorks, Inc.
Vice President – RailWorks Track Services, Inc. --
Source: RailWorks Corporation.60
systems-track-construction-maintenance-services
As indicated by the leadership positions, the organization of its subsidiaries, and the
map of its office locations below, RailWorks appears to be organized by service (and
more specifically, subsidiary) rather than geography.
Beyond the mixed organizational structure of its subsidiary, the existence of a Human
Resources Manager and a Corporate Controller on the PNR RailWorks leadership
team indicates that support functions are at least somewhat distributed across
RailWorks Corporation. As noted in the previous RailWorks leadership table, the
organization has corporate-level HR and finance functional units.
Location: Tulsa, OK
Company Type: Public
2009 Employees: 2,818
2009 Revenue: $689.7 million63
Organized by: Geography
The Matrix Service Company (MSC) offers services related to two business segments:
Construction and Repair & Maintenance. The Construction segment offers a variety
of ―turnkey and specialty‖ construction services including civil/structural,
mechanical, piping, electrical, instrumentation, millwrighting, and fabrication. In
addition to construction of new facilities, projects include modifications, retrofits,
and expansions of existing facilities. The Repair & Maintenance segment offers a
wide range of ―routine, preventative, and emergency repair and maintenance
services,‖ enabling MSC to act as ―a single source provider to our clients for their
repair and maintenance needs.‖64 The two operating segments primarily serve four
markets: aboveground storage tanks, downstream petroleum, electrical and
instrumentation, and specialty. Specialty markets include liquefied natural
gas/industrial gas projects/liquefied petroleum gas, specialty tanks and vessels, power
projects, and fabrication.
As of May 31, 2009, MSC had 2,818 employees, with 464 working in non-field
positions.65
nexis.com
64 ―2009 Form 10-K – Matrix Service Company.‖ United States Securities and Exchange Commission. August
4, 2009. http://www.matrixservice.com/downloads/Form%2010-K%208.4.09.pdf
65 Ibid., p. 8.
As the above table indicates, the majority of facilities perform functions associated
with both of the company’s business segments. While not conclusive, this suggests
that the company does not organize its operations primarily by business segment.
Next, we can gain insight into the company’s organizational structure by examining
the titles of executive officers. Keep in mind that MSC has ―separate union and merit
subsidiaries, which allows [the company] to serve customers on both a union and a
merit basis.‖67 The subsidiaries are Matrix Service, Inc. (merit operations) and Matrix
Service Industrial Contractors, Inc. (union operations). As the table below displays,
MSC provides a list of executive officers, categorized by whether they are associated
with corporate headquarters (Matrix Service Company) or one of the two
subsidiaries.
The above table suggests a handful of interesting points. First, despite the fact that
MSC describes its operations in terms of two business segments – Construction and
Repair & Maintenance – there are three executive level positions responsible for
operations within defined geographic areas: Midwestern, Western, and Gulf Coast
Operations. Coupled with the fact that the majority of its physical facilities are
associated with both business segments, it appears that MSC’s operations – at least
those associated with its Matrix Service, Inc. subsidiary – are organized largely along
geographic lines.
The organization of Matrix Service Industrial Contractors, Inc. is less clear. A map of
MSC’s facilities (displayed on the following page) indicates that locations operated by
Matrix Service Industrial Contractors, Inc. are situated primarily in the eastern
portion of the country, while Matrix Service, Inc. facilities are much more spread out.
officers.asp
Based on publicly available information, we are unable to determine how the Matrix
Service Industrial Contractors, Inc. subsidiary is organized.
As for the location of support functions such as HR and finance, based on executive
positions it would appear that these are centralized at corporate headquarters. None
of the executive level positions associated with Matrix Service, Inc. suggest that HR
or finance functions are distributed among its units. Once again, Matrix Service
Industrial Contractors, Inc. is somewhat more difficult to read since the position of
the Vice President, Accounting and Administration is listed under the subsidiary. A
review of job postings did not provide additional insight into this question, as the
currently posted vacancies are for craft/labor positions or other positions not
associated with support functions such as HR, IT, or finance.
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