Organizational Behavior and Culture in Business Operations

Organizational structure and culture are becoming critical elements that businesses need not only to generate profits but simply to survive. Due in part to rapid technological change, many businesses are undergoing fundamental shifts in their operating models. No industry is immune to these changes. Trends are currently emerging around big data, data analytics, cloud computing, artificial intelligence, automation, and more (Halpin, 2018). Many tasks once considered essential are now becoming routine and automated. These innovations, though welcome from the consumer's perspective, bring a litany of challenges related to organizational structure (Bhambri, 2018). Those challenges center on how to properly leverage emerging technologies in a manner that improves corporate performance while also creating a strong competitive advantage. To accomplish both goals, organizational structure and culture must be adapted (Abernethy, 2018).

Organizational structure is the system of processes and procedures used by businesses to accomplish a predetermined task or goal. These structures often vary from company to company, each with its own strengths and weaknesses. As noted above, technology is heavily disrupting industries irrespective of market position. The rapid pace of change in the business climate, combined with the dynamic nature of technological evolution, can help or harm particular organizational structures (Eccles, 2018).

For example, the most common organizational structure found in older organizations is the bureaucracy. A bureaucracy is characterized by a complex system of layers and processes that govern activities within an organization (Carzo, 2019). This form of structure was well-suited to industries that experienced little or no change in their core operations, and it was popularized during the Industrial Revolution. During that period, although innovations were occurring, the structural framework required to adopt them remained largely the same. Changes were not as rapid, and organizations could implement them slowly once they were determined to be successful.

The railroad industry, for example, was heavily characterized by bureaucracy (Blankenship, 2018). Once track was laid, it was very difficult for competitors to contest a specific route — government regulation prevented it, and the high capital expenditures required deterred new market entrants. As a result, certain railroads accumulated near-monopolies in specific regions of the United States. That regional dominance persists today: CSX dominates the southeastern railroad sector, Burlington Northern Santa Fe dominates the Midwest and West, and Canadian Pacific dominates the South. Due in part to limited competition, strong market positions, and entrenched operations, railroads typically operate under a bureaucratic structure (Cheney, 2018). Changes must be approved through multiple layers of review and oversight to avoid major disruptions and ill-advised decisions. Once approved, changes are implemented slowly to ensure minimal disruption to business operations or customers. This is the preferred system because the railroad industry occupies an entrenched position that evolves slowly — changes can be anticipated well in advance, and adjustments can be made deliberately. Consequently, operations do not require a decentralized structure. A well-defined chain of command works best, as positions and authority are clearly delineated (Abramson, 2019).

Most industries in America, however, are not so fortunate. A majority are subject to dramatic change, and a very controversial case study in organizational structure is currently unfolding in the financial services industry. Large banks, much like railroads, historically operated under bureaucracies with multiple layers of red tape. Now, however, they are being disrupted across nearly every operating segment. Innovations in peer-to-peer lending have disrupted banks' core lending businesses. Fintech firms such as PayPal and Square have eroded bank market share in payment processing and the fees associated with it. The emergence of shadow banks has provided customers with services that traditional banks are often unable or unwilling to offer. The rise of cryptocurrency and other forms of digital payment threatens to change how transactions are handled by intermediaries. Even the brokerage business is being disrupted by firms such as Robinhood and their ability to provide commission-free pricing (Cooke, 2019).

To combat these trends, financial institutions are altering their organizational structures to become flatter. Traditional financial institutions have significantly reduced their physical branch networks to compete more effectively with smaller, more agile rivals. This has allowed banks to eliminate unnecessary headcount at branches — which are declining in usage — and redeploy that capital into growing technologies such as mobile and online banking. They have streamlined operations to make the organization nimbler, with fewer approvals required to reach a decision. Many banks have also become heavy adopters of data analytics and artificial intelligence within their organizational frameworks. Through a horizontal structure, banks can make faster, smarter, and more accurate decisions related to core operations. Customers can now open checking and savings accounts entirely online, apply for mortgage loans, apply for credit cards, and engage with customer service staff digitally. Internally, organizations have streamlined processes through the flat structure to render quicker decisions on loan applications, payment disputes, and fraudulent transactions. Through the use of data analytics, banks are now better able to identify money-laundering activities, stolen cards, and duplicate transactions online (Child, 2020).

All of this occurs within the context of a more agile and horizontal organization. These companies have been rewarded with stock prices that have remained market leaders throughout the COVID-19 pandemic. In addition, large banks' market share in terms of deposits continues to grow as consumers show confidence in the new business model and horizontal organizational structure. Departmentalization has allowed key personnel to focus on core strategic initiatives — in banking, these initiatives center heavily on data analytics and how to leverage it to make better-informed decisions related to loans, transactions, fraud, cybersecurity, and overall business performance. The streamlined chain of command inherent in a horizontal business structure enables decisions to be made more accurately and more quickly (Bormann, 2020).

Organizational culture refers to the expectations, values, philosophy, and overall strategic vision that guide the behaviors of employees. Culture, much like organizational structure, is now becoming a much more critical component of business success. A primary reason for this is the need for a more specialized and engaged workforce. As technology continues to permeate every sector, organizational culture must be one that embraces change and innovation to help fuel the business growth of tomorrow (Schrodt, 2020). An unwillingness or inability to foster such a culture will render a company's operations obsolete.