Many features of large organization structures today can be traced back to historical innovations in the transportation industry. In the 1800s expanding railroad firms put in place the first administrative hierarchies in American business. Lower-frequency support activities were separated from higher-frequency operational activities in order to effectively manage a larger and more complex set of operations. As this decentralized line-and-staff concept became more prevalent, it provided a workable framework to minimize transaction costs as firms increasingly merged end-to-end systems (e.g., railroads expanded into adjoining territories, manufacturers expanded into distribution). In the 1920s General Motors further evolved large organization structures by creating semi-autonomous operating divisions organized along product, brand or geographic lines. This multidivisional corporate form increased internal coordination and enabled top firm leadership to focus on the long-term interests of the entire organization. Both innovations responded to urgent issues – unprecedented scale and complexity in the 1800s and lack of overall coordination by overloaded management in the 1920s – and both answered a set of questions that apply today:
- How should our work be divided?
- How should we work together?
- How should we ensure we meet our top priorities?
The ideal answers today might be quite different from the ideal answers yesterday. Sometimes it’s better to start with a blank page.