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# Organisation Design Case Study

When it comes to companies' success, organisational design plays a major role. Netflix and Amazon are both innovative and successful companies, and organisational design is among the reasons that they have achieved this. It's true that Amazon and Netflix incorporate functional and geographical divisions into their organisational designs, but that's not all.

## 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.

The process of creating the company's organisational structure to make it align with its culture and objectives is called organisational design. Organisations are aimed to be designed in such a way that they function as effectively and efficiently as possible.

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.

Unlike other organisations following rigid hierarchies, Amazon remains flexible and can respond and adapt to the rapidly changing external environment, as well as continue to innovate.

Figure 1. Amazon's Organisational Structure, StudySmarter

## 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.

If Netflix makes an advertising campaign at the corporate level, the geographical segments are allowed to adjust the campaign to customer preferences at the particular geographical region.

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.

Figure 2. Netflix Organisational Structure, StudySmarter

## 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.

Amazon has functional divisions with regard to its:

• Web services
• Worldwide consumer functions, etc.

In Netflix case, functional divisions are:

• Legal/product
• Content
• Talent
• Finance, etc.

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

Figure 3. Example Organisational Structure, StudySmarter

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

### 1. Hierarchical organisational structure

The hierarchical organizational structure follows a vertical hierarchy, meaning that this structure is represented in layers. The level at which employees are placed in the hierarchy determines the level of responsibility they have over their work or other employees. The higher the employees are on the hierarchical pyramid the more control and responsibility they have.

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.

A flat or horizontal organisational structure usually has fewer layers separating executives and employees.

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.

Netflix incorporates a few elements of a flat structure. For example, at the functional level, only the first top layer of senior executives and next-level management is vertical, but from middle management on the organisational structure is relatively flat. This allows direct communication and quick decision-making from the middle level downwards.

Figure 5. Flat Organisational Structure, StudySmarter

### 3. Matrix organisational structure

The matrix organisational structure incorporates both vertical and horizontal structural elements.

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.

## Organisation Design Case Study - Key takeaways

• Amazon follows a tall hierarchical corporate structure.

• There are three key components that Amazon's organizational structure follows: 1) A global hierarchy; 2) Global groups based on functions; 3) Geographical divisions have respective sub-divisions.

• Unlike other organisations following rigid hierarchies, Amazon remains flexible and can respond and adapt to the rapidly changing external environment and continues to innovate.

• Netflix follows a corporate hierarchical structure at the first top few layers of the organisation. However, from the middle hierarchy level to the bottom it remains relatively flat.

• The Netflix organisational structure follows three key elements: 1) Functional groups; 2) Geographical divisions; 3) Divisions for products and operations.

• The functional organisational structure follows the principle of organizing the company's structure in regard to the workforces' skills and knowledge. That includes grouping employees with similar skills and knowledge together to perform a function.

• Both Amazon and Netflix incorporate functional structure elements, as at the top of the hierarchy both companies group their employees based on their functions.

• The process of organising the company's organisational structure to make it align with its culture and objectives is called organisational design.

• The most common business organisational structure examples are: 1) Hierarchical organisational structure; 2) Flat or horizontal organisational structure; 3) Matrix organisational structure.

• The examples of project organisational structures are 1) Organic or simple 2) Functional 3) Multi-divisional 4) Matrix structure 5) Project-oriented 6) Virtual.

SOURCES:

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

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

Netflix is using a corporate hierarchical structure at the first few top layers of management. However, from the middle down, it remains relatively flat. The 3 key elements influencing Netflix's organisational structure are functional groups, geographic decisions, and divisions for products and operations.

Amazon is adopting a rigid hierarchy organisational structure. However, this structure is rather flexible and can be changed to respond to changes in the external environment.

## Final Organisation Design Case Study Quiz

Question

What organisational structure does Amazon follow?

Amazon follows a tall hierarchical corporate structure.

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Question

What are the key elements of Amazon’s organisational structure?

The key elements are 1) A global hierarchy; 2) Global groups based on functions; 3) Geographical divisions with sub-divisions

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Question

How does Amazon differ from other organisations following a similar organisational structure?

Unlike other organisations following rigid hierarchies, Amazon remains flexible, can respond and adapt to the rapidly changing external environment, and continues to innovate.

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Question

What organisational structure does Netflix implement?

Netflix organisational follows a corporate hierarchy structure at the first top few layers of the organisation. However, from the middle hierarchy level to the bottom line it remains relatively flat.

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Question

What are the key elements that Netflix organisational structure implements?

The key elements of Netflix organisational structure are 1) Functional groups ; 2) Geographical divisions; 3) Divisions for products and operations.

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Question

In the Netflix organisational structure, what do the ‘Divisions for products and operations mean’?

This means that Netflix organisational structure has divisions responsible for different outputs. These outputs are either original programming that involves responsibility on delivering Netflix original content or other content which means

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Question

Is Netflix organisational structure flat?

No, Netflix organisational structure is not completely flat.  However, Netflix incorporates a few elements of a flat structure. For example, at the functional level, only the first top layer of senior executives and next level management is vertical but from the middle management on the organisational structure is relatively flat.

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Question

What is functional organisational structure?

The functional organisational structure follows the principle of organising the company’s structure in regards to the workforces’ skills and knowledge. This means that the organisation is organised in regards to its different functions.

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Question

What are the functions commonly used by organisations implementing functional structures?

The commonly used functions are:

• CEO

• Finance

• Sales

• Marketing

• Information technology

• Research and development etc.

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Question

Do Netflix and Amazon implement any functional structure elements in their organisational structures?

Yes, both organisations implement functional elements in their structures.

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Question

What functions does Netflix implement in its structure?

The functions that Netflix’s organisational structure implements are:

• CEO

• Legal

• Talent

• Finance

• Product

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Question

What are the key examples of business organisational structures?

The key examples are:

• Hierarchical organisational structure

• The flat or horizontal organisational structure

• Matrix organisational structure

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Question

What are the key differences between a tall hierarchy structure and a flat structure?

The tall hierarchy structure has many layers from top to the bottom. The higher the level employees are placed on the hierarchy the more responsibility and control they have over their work and control of other employees. The tall hierarchy structure follows a formal top-down communication principle. On the other hand, a flat structure usually has one or no layers between executives and employees. Each of the employees usually has various responsibilities and do not have established formal control over them. Decision making and communication flow quickly throughout the organisation.

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Question

What are the different types of Matrix structures?

The different types of a Matrix structure are:

• Weak

• Balanced

• Strong

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Question

What is meant by organisational design?

The process of organising the company's organisational structure to make it align with its culture and objectives is called organisational design.

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Question

A rigid organisational hierarchy allows organisations to innovate and adapt to external changes rapidly.

False

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Question

Legal, talent, finance, product, and communications are all examples of:

functional groups

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Question

The process of creating the company's organisational structure to make it align with its culture and objectives is called product division.

False

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Question

Domestic and international divisions are an example of:

geographical divisions

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Question

Functional departments can be characterised by:

having an executive who is responsible for the function

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Question

Amazon and Netflix both follow functional organisation structures.

True

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Question

The _____ is usually found at the top of the organisational hierarchy.

CEO

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Question

______ are usually found at the bottom of the hierarchy.

Staff

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Question

A flat organisational structure usually has ______ layers separating executives and employees.

fewer

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Question

The level at which employees are placed in the hierarchy determines the __________ they have.

level of responsibility

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Question

The _______ structure aims to allow integration between workers from different functional organisational areas.

matrix

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