As an organization design consultant, I am sometimes asked by clients how important formal structure is, relative to other factors such as culture or rewards.

How strong is the link between structure and business performance?

It is of course difficult to say something definite about this topic. It’s a rather complex issue. With a few exceptions (see e.g., this study), there is little research on this topic.

There are many studies that examine factors that may lead to business success, but they frequently ignore organization design variables (this is the case, for example, with the research cited in Jim Collin’s’ books such as Good to Great).

Although there are few studies that link structure directly to performance, there is extensive evidence that formal structure shapes how people behave, and which thus suggest that structure has a more indirect influence on performance.

In my own book I cite earlier studies that demonstrate, among other things, how formal structure influences the prevalence of conflict and how it shapes communication patterns.

As most of these studies are from the 1960’s and 70’s, there has been some doubt, however, about whether the findings still hold true, given the profileration of electronic communication systems. Modern communication technologies greatly reduce the time and cost of communicating, which should facilitate collaboraton across formal boundaries. Some have even dismissed the importance of formal structure in modern “network firms”.

Yet consider the highly rigorous study carried out Adam Kleinbaum for his doctoral dissertation at Harvard University in 2008. Kleinbaum used data from a large firm’s e-mail server to examine e-mail messages sent by more than 30,000 people over a 3 month period. The study basically replicates the earlier findings about the effect of formal structure.

After excluding some types of messages such as mass mailings, Kleinbaum looked at who people were most likely to communicate with via e-mail. If formal structure played no role, one would expect there to be equally frequent communication across different units.

But even when controlling for other factors such as gender, salary band and physical distance, he found that people were 10 times more likely to communicate with someone within their own business unit than with someone belonging to a different business unit.

His conclusion – phrased in rather careful, academic language, is as follows:

(…) we do observe what we judge to be evidence indicating strong effects of organizational boundaries in structuring communication, which seem to us to be more consistent with the traditional image of the organization, versus a more fluid pattern of interaction implied by contemporary visions of the firm.

These results don’t prove that one organizational form is more effective than another, or that structure is more important than other factors such as culture or rewards. But they do suggest that formal structure has a powerful impact. Where one draws the boundaries in an organization matters.

But rather than discussing the role of formal structure in general, I usually recommend that clients try to find out what the situation is in their companies. One should periodically ask managers and employees at different levels about factors that facilitate or constrain their ability to achieve specific strategic goals.

In this manner one can assess whether the organizational structure is appropriate given the strategic goals and business processes of the organization. One can also employ systematic methods for this purpose such as employee surveys (see my previous post about this topic here).

When I was a doctoral student at Oxford University, I lived in a college together with graduate students in many other fields, including the natural sciences.

After dinner one night, a chemistry student remarked that he would head over to the lab – across the road – to test a hypothesis he had come up with.

Those of us who studied management had no similar facility at our disposal. There was no lab at the business school, only offices, lecture halls, and a library.

If we wanted to “get access” as we called it, i.e., do a study to test a hypothesis in a real organization, we would have to go through a cumbersome and long-drawn process of identifying possible companies, setting up a meeting (or multiple meetings), negotiating the terms of the research, finding a time suitable for both parties (often at some point into the future), and then carry out the research.

Even if initial access was secured (which was not certain), one would never be guaranteed that one would be able to collect data in the way that was planned. The manager with whom the agreement was made might have moved on, or the people that one planned to involve in a study might be preoccupied with other, more pressing issues and no longer have time to participate in an academic study.

Needless to say, many doctoral students (and professors) found this approach to be too time-consuming – and the outcome too uncertain – to pursue, given publication pressures, deadlines, and limited research budgets. As a consequence, a lot of research was done in the library, reading, analyzing and slightly modifying the theories already developed by others.

Although one can understand these individual choices given the constraints that researchers work under, the lack of exposure to the real world has a profoundly negative effect on the scholarly study of business organizations. A look at the type of work published in leading academic management journals will demonstrate this.

The key issue, as I see it, is not so much that the research that is published is “theoretical”, but that theory development occurs in a vacuum. I am of the opinion that theories are tools (see this article that I wrote a few years ago) – and that  researchers should use theory to develop solutions to important problems facing organizations or society at large.

But only a minority of researchers carry out this type of “problem focused” research. There is even less “intervention research” – that is, research where management scholars posit a hypothesis about a likely outcome resulting from an intervention, and then carry out the intervention in a real organization to see whether the hypothesis is confirmed or not. It’s a bit like having a chemistry department without organic chemistry, only theoretical chemistry.

I believe that this is one reason why many doctoral students in management and the organizational sciences do not continue in academia but go into consulting after they graduate. By working as a consultant, one is provided with the laboratory that is missing in academia.

This is at least what I have found. In writing my textbook on organization design, I have certainly spent a lot of time reviewing – and attempting to synthesize and extend – a number of theoretical frameworks.

But I have also been helped immensely by the opportunity to test different approaches during client engagements and observe how they work, as well as reflecting upon the daily dialogue with managers that I work with in my engagements. To the extent that I succeed with my book, I believe it will be because of this mix of theory and practice.

If we are serious about creating relevant knowledge, this opportunity should be open to all of those who carry out academic research in the organizational sciences.

Leaders of business schools should consider how faculty members can be provided with the opportunity to observe real world organizations and even intervene in (simulated or real) systems. As Chris Argyris, a renowned organizational psychologist, once stated:

“The most powerful empirical tests for theories are provided when predictions are made about changing the universe, not simply describing it”

Every business school should have a laboratory.