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What Causes Changes in Organizational Structure?

By Carrieanne Larmore
Updated May 17, 2024
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Changes in organizational structure can result from a merger or acquisition, economic changes and process changes. These changes are usually initiated due to the organization’s desire to reduce costs, improve processes or increase communications. After a merger or acquisition takes place, the company may have to reorganize in order to avoid duplication of processes and maximize the strengths of both organizations. Economic changes can also force changes in organizational structure in order to improve processes or reduce costs. Process changes can also result in reorganization when a company wants to become more efficient or change its strategic direction.

Mergers and acquisitions usually require one organization to absorb the employees and processes of the other organization. Especially in the case where both organizations had different hierarchal structures, changes in organizational structure may be needed. The new organizational structure will take the strengths of both organizations in order to maximize the merged business’s potential as well as reduce weaknesses that either organization brought to the table. If the company being merged or acquired will retain its organizational structure, the other organization must still change in order to be able to monitor resources and decisions made within both organizations.

Economic changes can force changes in an organizational structure. When the business cycle dips into a recession or depression, businesses often reorganize to reduce costs or increase efficiencies. If the business has a tall hierarchal structure, it may find that centralizing decisions can help it increase productivity and customer satisfaction while decreasing employee turnover. Some organizations in this stage of the cycle decide to outsource departments or remove the need for certain positions. When the business cycle is in the expansion phase, a business may find that changes in organizational structure allow it to better support its desire invest in research and development teams or increase its number of product lines.

Process changes can cause changes in organization structure by either removing unneeded steps or adding new measures. An analysis of the processes within the organization may find that employees or departments are essentially doing the same tasks. To remove any duplications of processes, employees or departments may be reassigned or eliminated altogether from the organizational structure. The business may also find that essential steps are missing, are not assigned to a person or department, or are no longer necessary. If this is the case, the business would reorganize in order to accommodate missing steps or make sure that employees are completing steps in line with current goals and objectives.

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