Tests for Assessing the Appropriateness of Organizational Structure Design

1. The Market-Advantage Test:
   • This test ensures that the organizational structure aligns with the market strategy. It follows the principle that “structure follows strategy,” ensuring that crucial operations are grouped to enhance market advantage. For instance, if coordination between two steps in a production process is key to market success, these should be placed within the same structural unit.
2. The Parenting Advantage Test:
   • This test examines whether the structure supports the corporate center’s role effectively. For example, if the corporate center adds value as a synergy manager, the structure should place important integrative functions like marketing or research at the center.
3. The People Test:
   • This test evaluates whether the structure fits the available human resources. It is risky to switch from a functional structure to a multidivisional structure if the organization lacks managers competent in running decentralized units.
4. The Feasibility Test:
   • This test ensures that the structure complies with legal, stakeholder, trade union, or other constraints. For instance, financial regulations might require investment banks to separate their research and analysis departments from their deal-making departments.
5. The Flexibility Test:
   • This test assesses whether the structure allows for adaptability and change in the future. It checks if the divisional domains are broad enough to pursue new opportunities and if the structure has sufficient modularity to allow for easy restructuring as market needs evolve.