Organisation Design Case Study

What is the organisational structure of Amazon?

Online retailer Amazon has grown to be the biggest provider worldwide in the field of e-commerce. Amazon revenues grew from $8490 million USD in 2005 to $232,887 million USD in 2018. The success of Amazon emerged from the rapid rate of digitisation and was also influenced by its organisational structure.

Amazon follows a tall hierarchical corporate structure. That means the organisation implements top-down control elements used on their workforce, working at different units and levels. There are three key components of Amazon's organisational structure:

• A global hierarchy - This means that Amazon's CEO Jeff Bezos makes strategic decisions and has control over the entire organisation. All senior executives have to report directly to the CEO, which allows Jeff Bezos to be in direct control of all the organisation in terms of its functions, product lines, divisions, and service.

• Global groups based on functions - Amazon structures the organisation in a way that senior-level executives make up an independent group which in turn are in charge of each specific function. The direct control and division of each function ensure smooth and effective operations.

• Geographical divisions have their subdivisions - Amazon's organisational structure incorporates geographical divisions based on physical locations. This structure assists the company in addressing and solving issues that occur in particular geographical regions.

Netflix organisational structure

The success of Netflix is partially influenced by the company's organisational structure, which encourages innovation. Netflix's organizational structure has functional groups for the organisation's online and offline operations. The company also implements geographical divisions to oversee regional groups and markets. Finally, Netflix's structure includes product and operational divisions.

What is Netflix's organisational structure?

Netflix is an online streaming platform that streams TV shows, films, and documentaries. All the new shows and movies are added frequently by Netflix, which makes the company one of the best online streaming platforms in the world. Customers can use Netflix by subscribing to the platform, which allows them to have access to all content.

Netflix follows a corporate hierarchical structure at the first top few layers of the organisation. At the top, the CEO takes control of the entire organisation and senior executives at the next hierarchical level have to report directly to the CEO. The organisation does not incorporate many layers of hierarchy between the middle level and the bottom level, which makes the organisational structure relatively flat.

Important elements of Netflix's organisational structure (see Figure 2 below):

• Netflix has functional groups for the organization's online and offline operations;

• The organisation incorporates geographical divisions to manage various regional markets;

• Netflix incorporates divisions in product and operational types.

Let's have a closer look at each of these elements in Netflix's organisational structure:

Functional groups are divided into different business functions, and each function has a senior officer responsible for managing it. Even though the corporate headquarters (CEO and senior-level executives) follow a vertical structure, layers at the middle management level are reduced. In other words, senior executives are responsible for making decisions and giving directions to the functional groups at the middle level, whereas the middle management level follows a flat structure that allows open communication. This structure assists Netflix in improving its response to changing environments.

The key functional groups of Netflix are:

• CEO

• Legal

• Talent

• Finance

• Product

• Content

• Communications

Geographical divisions - This means that the organisational structure allows for strategic decision making in different geographical regions. The geographical divisions remain controlled by the cooperative structure, yet they are allowed to make changes and adjustments to serve a customer base in a particular geographical location.

The segments' geographical divisions at Netflix are:

• Domestic streaming

• International streaming

Divisions for products and operations - The Netflix organizational structure has divisions responsible for different outputs including original programming and other content. The 'other content' division manages content by working with other content producers and distributors to license their content and make it available on the Netflix platform. The 'original programming' division is responsible for distributing and managing Netflix's original content.

Functional organisational structure?

The functional organisational structure follows the principle of forming the company's structure with regard to the workforce's skills and knowledge. This means that the organisation is structured with respect to its different functions, which are:

• CEO

• Finance

• Sales

• Marketing

• Information technology

• Research and development, etc.

In addition, the departments are formed in regard to each function so they can maintain their independent structures. Within the functional department, employees are encouraged to work as a team and communicate with each other exclusively. There is at least one executive who is responsible for each function. These executives have to report directly to the CEO.

Examples of organisations that follow functional structures are Amazon and Netflix, as these organisations are structured based on their functions.

Figure 3 below shows a general example of a functional organisational structure.

Figure 3. Example Organisational Structure, StudySmarter

Business organisational structure examples

Now, let's take a look at examples of different organisational structures.

1. Hierarchical organisational structure

This structure clearly defines employees' roles and assigns them a supervisor that they can directly report to. Amazon implements elements of this structure at the top of the organization, where the CEO is in control and all senior executives reports directly to him. Each function has its own hierarchical structure in which its senior executives are at the top and directly supervise one level below. This is also called a top-down organisational structure. Figure 4 shows an example of a hierarchical organisational structure.

Figure 4. Hierarchical Organisational Structure, StudySmarter

2. Flat or horizontal organisational structure

A flat or horizontal organisational structure follows an opposite principle to the hierarchical structure.

In a flat organisation there is usually only one middle management layer between executives and workers (see Figure 5 below). However, in some cases, there is no separation at all, meaning executives are directly working and communicating with employees.

This organisational structure is usually present in startups or smaller companies. A flat structure allows quick decision-making and an opportunity for employees to learn a variety of skills and take on responsibilities. However, once the organisation grows it is a good idea to add some hierarchical levels to the organisation, to make it more organized and allow professionals to specialise in their field so that all functions in the organisation are executed effectively.

Figure 5. Flat Organisational Structure, StudySmarter

3. Matrix organisational structure

This structure aims to allow integration between workers from different functional organisational areas. This structure is usually implemented when working on projects or developing a new product line, in which collaborations of different functions are required. In this structure, employees have two different responsibilities assigned to them, including those within their department in addition to different projects (see Figure 6 below for an example).

Types of matrix structure:

• Weak - In this type of matrix structure, the project manager has limited authority in making decisions regarding the project, and functional managers are the ones responsible for the project's budgeting. Weak matrix structure closely resembles functional organisational structure.

• Balanced - In this matrix, both project managers and functional managers share the same level of authority and responsibility, so that both of these managers will make decisions regarding the project's budget.

• Strong - In this type of matrix, the project manager has full authority and responsibility for the project. Therefore the project manager will be responsible for assigning staff to their roles and controlling the project's budget. The functional manager has limited authority to make decisions.

Netflix incorporates some elements of the matrix structure at the lower levels of the organisational hierarchy when working with geographical divisions and project operation divisions.

Figure 6. Matrix Organisational Structure, StudySmarter

What is an example of a project organisational structure?

The project organisational structure always depends on the nature of the business and projects that are being carried out. For example, if the organisational projects are involved around temporary staff, the organisation should concentrate on implementing a structure that supports the process of recruitment and dismissal of employees. If the projects are carried out continuously and require the constant presence of employees, the organisation should concentrate on supporting employees permanently.

Different types of project organisational structures:

• Organic and Simple - This project organisational structure type implements a flexible flow of workforce in the organisation. Because horizontal communication is allowed, freelancers are usually included. The owner usually undertakes the project manager's role.

• Functional - In this structure, departments are formed around different organisational functions. These functions include marketing, R&D, finance, sales, IT, etc. The employees are assigned to different projects depending on their departments.

• Multi-divisional - In this type of structure, employees with different skills are grouped into a division. Each division can work independently and have its own structure (centralised or organic). Each division is structured upon a similar service, product, or geographical location.

• Matrix structure - This structure implements hybridity between functional and project structure. This structure can be both flat and vertical. Employees are not limited to their functional role, but they can also be assigned to various projects. The three types of matrix structure are: weak, balanced, and strong.

• Project-oriented - In this structure, each employee has a role in associated projects. The project manager must be present full-time and be in control of project budgets and management.

• Virtual - In this structure, the company has connections with external organisations such as suppliers via a virtual network. This type of organisational structure only maintains its core elements and outsources other parts that are required for a project.

To recap, Netflix's and Amazon's organisational design has played a key role in their overall success. Amazon, for instance, can adapt to changing environments even though it follows a hierarchical cooperative structure. There is also a corporate hierarchical structure at Netflix's top layers, but the structure becomes quite flat as you move down its hierarchy. Organisational design elements such as these contribute significantly to Amazon's and Netflix's success.

SOURCES:

1. John Dudovskiy, Amazon Organizational Structure: A Brief Overview, 2020.

2. David Anderson, Netflix Inc.’s Organizational Structure & Its Strategic Implications, 2019.