Organizational Structure and Innovation: A Comparative Study of Horizontal and Vertical Models in Construction

This thesis investigates how vertical and horizontal organizational structures influence innovation in
service-based construction companies and applies system dynamics models to create a holistic view of
these processes. Utilizing a mixed-method approach, the research integrates semi-structured interviews,
Gioia analysis, and system dynamics modeling to analyze two case-study companies with contrasting
organizational strategies. One company has a vertically integrated structure and the other a horizontally
integrated structure. The study aims to answer the central research question:
“How do vertical and horizontal organizational structures in service-based construction companies
influence process innovation, and how can these be improved to stimulate innovation?”
A mixed-method approach, including a literature review, case study, and interviews, was used to develop
a Causal Loop Diagram (CLD) mapping innovation dynamics. The Gioia method identified themes, which
were integrated into a system dynamics model. Additional interviews refined and validated the CLD,
adapting it to three contexts: construction industry, vertical structures, and horizontal structures.
These CLDs visualize feedback loops and identify potential leverage points affecting innovation capacity.
These diagrams provide a systemic view of the interdependencies between organizational factors, such as
leadership, workflow design, and collaboration mechanisms, and their influence on innovation outcomes.
Furthermore, the study examines the role of organizational context in shaping innovation dynamics.
Hereby stressing how specific organizational frameworks and context interact with market and operational
conditions to influence innovation performance.
The thesis reveals that vertical organizational structures can enhance control, coordination, and resource
integration across project phases, thereby fostering systemic innovation. However, such structures
demand substantial financial and operational resources and involve higher levels of complexity, requiring
effective management to ensure good operational performance. In contrast, horizontal structures
promote agility and specialization, which enable incremental innovations and faster adaptability. However,
these firms often struggle with cross-functional collaboration and face challenges in maintaining clear
organizational structures due to their higher flexibility and employee autonomy.
Connecting theoretical insights with practical applications, the study offers actionable recommendations
to overcome structural inefficiencies and enhance innovation capacity. Enabling service-based
construction firms to optimize their workflows and achieve greater adaptability in the dynamic and
competitive market conditions of the construction industry.