1 organizational theory a functional structure is the bedrock of horizontal differentiation. it is...
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Organizational Theory
A functional structure is the bedrock of horizontal differentiation. It is the first “structure” that organizations adapt as they grow.
Research andDevelopment
Sales andMarketing
Manufacturing Materials Management
Finance
CEOFIGURE 6-1B
Functional Structure
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Organizational Theory
Advantages of a Functional Structure
Facilitates learning for employees as they learn from one another and become morespecialized.
People that are grouped together by commonskills can supervise one another.
Development of norms and values.
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Organizational Theory
Control Problems in a Functional Structure
Communication problems — developmentof subunit orientations.
Measurement problems — as functions become more complex, it’s often difficultto isolate each group’s contribution toproduct development.
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Organizational Theory
Control Problems in a Functional Structure
Location problems—if centralized controlat one geographical location does not allow the organization to handle manufacturing and support activities on a regional basis
Customer problems—the ability to identifyand satisfy unique customer needs may fall short
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Organizational Theory
Control Problems in a Functional Structure
Strategic problems—top managers spendtoo much time addressing coordinationissues for the various functions thatthey neglect the longer-term strategicproblems of the company.
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Organizational Theory
Solving Control Problems with a Functional Structure
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Organizational Theory
Functional structure is appropriate if the Functional structure is appropriate if the organization: organization: Limits itself to producing a small number of similar Limits itself to producing a small number of similar
productsproducts
Produces those products in one or a few locationsProduces those products in one or a few locations
Sells them to only one general type of client or Sells them to only one general type of client or customercustomer
When production expands to more products, more When production expands to more products, more locations, and/or more types of customers, more locations, and/or more types of customers, more complex structure requiredcomplex structure required
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Organizational Theory
Product Division Structure—a structure in which centralized support functions service the needs of a number of different product lines.
Typically used by organizations whose products are broadly similar and aimed at the same market.
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FIGURE 6-4
Product Division Structure
Vice PresidentSales and Marketing
Vice President Research and Development
Vice President Materials
Management
CEO
Vice President Finance
CannedSoups
Division
PDM
FrozenVegetableDivision
PDM
FrozenEntreesDivision
PDM
BakedGoods
Division
PDM
Centralized support functions
Divisions
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Organizational Theory
Multidivisional Structure—a structure inwhich support functions are placedin self-contained divisions.
Typically used by an organization whose products are very different and that operates in several different industries.
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FIGURE 6-6
Multidivisional Structure.
Corporate
Managers
CEO
Divisional
Managers
Senior VP
Marketing
Senior VP
Finance
Senior VP
Materials
Management
Senior VP
Research and
Development
Functional
Managers
Corporate Headquarters Staff
Division B
Support functions
Division D
Support functions
Division A
Support functions Support functions
Division C
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Organizational Theory
Disadvantages of a Multidivisional Structure
• Managing the Relationship between Corporate and Divisional Management—need for balance between centralization and decentralization of decision making.
• Coordination Problems between Divisions—divisions may begin competing for resources rather than cooperating.
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Organizational Theory
Disadvantages of a Multidivisional Structure
• Transfer Pricing—the price at which one division sells a product to another division can be a problem spot.
• Bureaucratic Costs—costs will go up with each division having its own set of support functions.
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Organizational Theory
Disadvantages of a Multidivisional Structure
• Communication Problems—we know that communication problems occur in tall hierarchies, and multidivisional structures tend to be the tallest.
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Organizational Theory
Product Team Structure—a divisional structure in which specialists from the support functions are combined into product development teams.
Typically used by an organization whose products are very technologically complexor whose characteristics change rapidlyto suit customer needs.
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FIGURE 6-8
Product Team Structure.
ProductDivision
Product Division
CEO
Functions
Product
Development
Teams
Product Division
Vice President
Research and
Development
Vice PresidentSales and
Marketing
Vice President Manufacturing
Vice PresidentFinance
Functional specialist
Vice PresidentMaterials
Management
PTM Product Team Manager
PTM PTM PTM
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FIGURE 6-9
Geographic Structure
Regional Operations
Regional Operations
Regional Operations
Regional Operations
CEO
Central Support Functions
Individualstores
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FIGURE 6-11
Market Structure
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CommercialDivision
ConsumerDivision
GovernmentDivision
CorporateDivision
CEO
Central Support Functions
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Organizational Theory
A matrix is a rectangular grid that shows a vertical flow of functional responsibility and a horizontal flow of product responsibility.
Matrix organization employees are oftenreferred to as two-boss employees becausethey report to two superiors:
product manager and functional manager
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FIGURE 6-12
Matrix StructureCEO
Vice PresidentEngineering
Vice PresidentFinance
Vice PresidentPurchasing
Vice PresidentSales and Marketing
Vice President Research and Development
Product AManager
Product BManager
Product CManager
Product DManager
Product Team
Two-boss employee
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Organizational Theory
Advantages of Matrix Structure:
• Reduce subunit orientation through the use of cross-functional teams.
• Increase learning by facilitating communication across functions.
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Organizational Theory
A multidivisional matrix structure provides formore integration between corporate and divisional managers and between divisional managers.
This structure makes it easier for top executives from the divisions and fromcorporate headquarters to coordinateorganizational activities.
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FIGURE 6-13
Multidivisional Matrix Structure
CEO
Senior Vice PresidentMarketing
Senior Vice PresidentFinance
Senior Vice President Research and Development
Senior VicePresidentMaterials Management
AutomobileProductsDivision
PersonalComputerDivision
ConsumerElectronicsDivision
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Organizational Theory
A recent innovation in organizational architecture is the use of network structures.
A network structure is a cluster of different organizations whose actions are coordinated by contracts and agreementsrather than through a formal hierarchy.
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Organizational Theory
Advantages of Network Structures:
Production costs can be reduced.
Bureaucratic costs associated with complexstructures are reduced.
Facilitates organization behaving in an organic way; underperforming partners can be replaced.
Lower-cost (foreign) inputs.
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Organizational Theory
Disadvantages of Network Structures:
Coordination problems.
Difficult to obtain the ongoing learning process seen inside an organization.
Flexibility that comes with being able to remove and add network partners assumesthat other organizations can be trusted with proprietary information.