basic types of organization
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D-MTEC, Chair of Technology and Innovation Management
General Mgt I 5: Basic types of organizational structure
Toda most eo le in develo ed countries work in an or anization. Or anizations are set
up according to functions, market segments or regions. The more turbulent times
become, the more important structures are.
Reading: Ch. Perrow, Complex OrganizationsMc Graw-Hill 1986, p 1 - 6
Text: M. Gold, A. Campbell, Designing Effective Organizations;Jossey-Bass, 2002
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We have become a society of organizations
Wage dependent workers (US)
Rural 1820 30 %
Industrial 2000 > 90 % ( > 50 % in big organization)
Large bureaucratic organizations, public and
private, wil l be our fate for the foreseeable future
Ch. Perrow, Organizing America, Princeton University Press, 2002, p 227 f, p 1
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The modern factory: Coordination of specialists under one roof
1110 Arsenal Venice
1571: 100 ships in 100 days, 2000 employees
1719 First British modern factory - ,
1840 GB: 50% manufacturing population in factories
1845 F. Engels: Condition of the working class in England
Versus:
People resent Factory Acts: would work longer
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First factories: Staffed with paupers, orphans, criminals
Where workers could choose farming, skilled trades, or a mix
No one would accept wage slavery
o ese an some casua ay a or, ac or es cou no n
workers
1830, November
Workers storm
Ch. Perrow, Organizing America, Princeton University Press, 2002, p 22
textile factory
In Uster, Zurich
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Industrialization in US: Companies with no social liabil ity
Weak state
Immigrants hate
strong state, church
Limited liabilitycompany
Big textile mills
National market
Economy of scale
Consolidation
Low competition
1840 private
railroads
,
Wage dependency
Mass productionBureaucracy
Large externalitiesBad labor relations1890:200 big companies
Ch. Perrow, Organizing America, Princeton University Press, 2002, p 222 ff
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Railroad created the first big markets, the first professionalmanagers
The first professional managers were army engineers who were
hired to run railroads. .
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Organization matters: Internal and external opinions
Wal-Mart 1.2 Mio. Employees
Unilever 1 Mio. e-mails daily
DuPont Shares +12% when spl it up into 5 SBUs, 2002(12% = 7 bn $)
P+G 1999 launch of global integrated structure (1.9 bn cost)
2000 failure, CEO fired
.
Reorganizing is expensive and risky
FT, Mastering Leadership; November 8th; 2002; p 6
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Strategy: Opportunities Choice Priorities (strategic focus)
Goal How is performancemeasured?
Scope What businesses?
Opportunities
Specification of How do competitorscomp. advantage deal with firm?
Strategy
Explication why it Why is value
How do we organize company?
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Organization: Who does what with whom?Specialization and Coordination
Allocation of Decisions Responsibilityresources
Product Market+portfolio introduction
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IGP tries to be different: Even with their organizational chart
Technology
Support
Production
Marketing + Sales
30 000 products (colors)
Core copability: 24 h-delivery
75% produced on demand
Below 150 employees: Organizational chart not important
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In every organization you have to make a choice between threedimensions
Market
se ments
eg ons
One solution One dimension in staff
One dimension in dotted line
One dimension in fat line
Who has P+L responsibility? = fat line
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Go for clear responsibi lity: Profit and power have to be aligned
Market Segment
Manager
Product 1 Product 2
Region 1
Region 2
(One product has many applications)
Matrix dim 3
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Functional organization:Starting point of many companies
FinanceHR
Sales Production Service R+D
+
(Front end) (Back end)
(-) Many interfaces
(-) All the responsibility concentrated at the top
- n rec con ro no roug mar e
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At lowest level: Functions prevail
orpora on
Cardboard packaging Market Segment
Western Euro e Re ion
Sales Manuf Function
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The SBU-organization: Modular setup SIG 2004
F&CSIG 2004
HR
Technology
IT
Beverage Dry PackagingCardboard
mac nes sys ems mac nes sys ems
Western Europe Systems
Labelers
Systems
Standard
pac ag ng
(+) Fast decisions
(+) Direct control through market+ u respons y a = ow eve
(-) Economy of scale
(-) Divisions = Coach, not SBU
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Some Functions may be very important:Hybrid organization
Product management
Market segment management
Production
Europe
Europe
Production
sleeves
R & D
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The divisional organization:How to serve different markets?
+GF+
Machine Tools Piping Systems Automotive
+
(+) Responsibility, control close to customer
(-) Synergies within the group
Divisions are big SBUs
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3 types of units are common to most organizations
SBU Market focused, profit driven, high autonomy,
Function Operating tasks (cost centre)
Shared service units Provide services for several units
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Apple in 2005: Regional organization (languages + customs!)
Steve Jobs
Americas Europe Pacific
USA Asia
AustraliaCanada
JapanLatin America
Caribbean
www.apple.com/find/areas/html
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Nike: Value chain organizer 2005
Concentration on few value adding activities
Product design Marketing Distribution
Outsourcing of asset intensive / low skill work
Retail (economies of scope)
Mana in com lex network of relationships
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Johnson & Johnson: Independent small units with full businessresponsibility
150 independent companies
pay dividends to parent
Stron incentives
Strong commitment
Performance
But: 10 year struggle to create one hospital serving unit out of 10!
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Turbulent t imes: Strategy follows structure
Turbulent environment
Strate emer es from decisions taken at various levels
Design of organization determines strategy
Roberts J.: The modern firm, Oxford 2004, p. 24 f
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Turbulent times: 5 levels of structure become important, thesehave different time frames
Time to change
Informal networks Informal information flow
Processes Work flow
Reporting Formal decisions
Legal
,
Tax, risk optimization
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Turbulent times: Set basics, delegate the rest
Forecast
Environment
Technology
Set slow-moving elements
Set decision processes
Fast adaptation
Set basic strategic Shape dispersed strategic
Roberts J.: The modern firm, Oxford 2004, p 28
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Nokia 1990s:Gives up 90% of old business, 30% growth/year
Environment: Deregulation,
PrivatizationStrategic intent
Focused
Global
Telecom-orientedn erne
Mobile phones
Digital technology
ec no ogy:
Value added
Vision: Voice will go wireless
Roberts J.: The modern firm, Oxford 2004, p 28
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Clear structures:Sometimes an overreaction to accidents!
Collision of 2 passenger trains
Massachusetts 1841
Public demands better control
Definite res onsibilities for each hase of business,The board:
drawing solid l ines of authority and command
for administration, maintenance and operation
Salsbury S.: The state, the Investor, and the Railroad, HBS, 1967, p 186-187
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