Organisation Structure Design Principles

An effective organisation structure is one designed around the value chain of the organisation; ensuring resources are focused in the areas that they are needed most.  An effective organisation structure also supports the flow of information across the organisation and the workflows associated with your operational processes.

For those working in local government, there are some clear obligations and responsibilities set out in the Local Government Act (the ‘LGA’).   The LGA requires the elected Council to;

“determine an organisation structure, the senior staff positions within that structure and the resources to be allocated towards the employment of staff “.

Importantly, Councils must review and re-determine the council’s organisation structure within 12 months of an ordinary election (and may well wish to further review the structure at other times, such as following a significant change to the CSP or broader operating context).  There are a number of things to think about when considering the most appropriate organisation structure for the council to adopt.  We’ve highlighted below some of the key inputs and approaches our team take when reviewing organisation structures – why not drop us a line to discuss how we can assist if your team is looking to undertake a review.

Strategic Alignment Principles

We recommend starting any review of your organisation structure by taking a step back to ensure there is clarity around the organisational strategy, goals and objectives.   Without a clear reference point for what the organisation is trying to achieve it’s obviously very difficult to consider how best to organise your workforce for success.  We often refer to the principles of strategic alignment when discussing a best practice approach to reviews, which suggests considering the following fundamental questions in regard to the current state:

  • How clear is the organisation’s strategic plan and high-level objectives?
  • How well does our current structure and capabilities support the achievement of the strategy?
  • How effective have we been in developing required capabilities within the organisation?
  • How effective have we been in driving performance across our organisation?

Find out more about our approach to organisation structure reviews.

Best Practice Organisation Structure Reviews

The answers to these high-gain questions may well identify areas for improvement, which in turn may begin to highlight how a different organisation of the workforce and leadership responsibilities may be beneficial.

Value Chain Analysis

A second concept we refer to when commencing organisation structure reviews is referred to as ‘value-chain analysis’.  Value chain analysis explores the concept of value creation and competitive advantage.  This analysis distinguishes between primary activities (those directly relating to the creation of value) and support activities (which support the primary activities).  Whilst the concept is typically applied to product-based organisations, it’s also possible to apply the principles to public-sector and service-based organisations to identify areas in which it is likely to be most valuable to assign and apply resources.

Value Chain Model

Vertical Structures

Having considered the high-level design principles we can begin to assess the different types of organisation structures and focus in on a model that is best aligned with our needs.    Good organisation design considers much more than reporting lines and a best-fit approach is going to be one that considers strategic alignment, systems and processes as well of course as the needs of your people; the capabilities required now and into the future, how best your people can collaborate, how to support work and information-flows and the desired organisational culture.

In the local government context, it’s likely that a ‘vertical’ organisation structure will be the most relevant type of design, though we’ve also explored some of the other more prevalent design types for good measure.  First up though are the two more common types of vertical structures which are summarised below.


  • Divides work and employees by specialisation
  • Employees report directly to managers within their functional areas who in turn report to a chief officer
  • Management from above must centrally coordinate the departments.
  • This structure works best for organisations where a majority of the decision-making occurs at higher levels of the organisation and where there are few shared concerns or objectives between functional areas


  • Divides work and employees by output
  • Divisions have control over their own resources, essentially operating like their own business
  • Works well for large organisations as it empowers the various divisions to make decisions
  • Alternatively may be divided according to geographic areas, by specific market or by product

Matrix Organisation Structures

A matrix organisation structure essentially combines the functional and divisional structures to create a dual-command arrangement.  Employees typically report to two managers who are jointly responsible for their performance.  A matrix structure aims to create a functional and divisional partnership and looks to minimise costs by sharing key talent.

However, responsibilities can be unclear and can create conflict between department managers and project managers.  To mitigate this risk there is a need to ensure cooperation between two direct supervisors to determine an employee’s work priorities, work assignments and performance standards which your people leaders will need to buy into if it’s to be effective.

Horizontal or Flat Organisation Structures

With horizontal, or ‘flat’, organisation structures there are fewer levels between upper management and staff-level employees.  This approach tends to suit start-ups or smaller organisations before they grow large enough to build out different departments.  The design encourages less supervision and more involvement from all employees and can help produce employees with broader skill sets and knowledge than in more defined, hierarchical structures.  The limitation with horizontal organisation structures of course is that it can be difficult to maintain effective spans of control as the organisation grows and/or becomes more complex.

Open Boundary Organisations

A more contemporary trend in organisation design is to attempt to remove or break down the traditional boundaries created by the more functional structural designs.  The idea is to operate in a much more flexible way, where teams might replace function/divisional splits.  Similarly, external partners and suppliers are encouraged to work closely together for mutual benefit.   These structures are very falt in terms of formal hierarchy with everyone from senior executives to line management and the broader workforce encouraged to participate in the decision-making and striving for continuous improvement.


  • Intention is to disrupt the traditional hierarchy, focusing more on problem-solving, cooperation, and giving employees more control.
  • Values experience rather than seniority


  • Suits organisations that don’t have all their services under one employer (e.g. vendors, subcontractors, freelancers, offsite locations, satellite offices).
  • Focuses more on open communication and relationships rather than hierarchy

How Can We Help?

Mastertek is a specialist consulting practice providing HR and reward-related support and advice.  Our desire to help build sustainable, high-performing organisations has been the common objective of our consultants for over a decade.  We partner with clients to develop practical, actionable strategies that align with organisational objectives and recognise the needs and contributions of the people that make it happen.

We’ve worked with a number of Councils to assist with a review of their organisational structures, typically focusing on the executive and manager-level portfolios and their underlying functional areas.  We pay particular attention to organisational structure, functional areas and service lines with a view to ensuring the Council is well placed to continue to deliver high quality, cost-effective community outcomes.  In so doing, our recommendations aim to promote efficiency, financial sustainability and rationalisation.

Deciding where to start with your organisation structure review can be challenging – we’re here to help.

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