3-1
Chapter Three
Fundamentals ofOrganization Structure
3-2
Three key components in the definition of Organization Structure
Organization structure designates formal reporting relationships, including the number of levels in the hierarchy and the span of control of managers and supervisors.
Organization structure identifies the grouping together of individuals into departments and of departments into the total organization.
Organization structure includes the design of systems to ensure effective communication, coordination, and integration of effort across departments.
3-3
A Sample Organization Chart
C h ie fA cco u nta n t
B u dg etA n a lyst
V ice P re sid e n tF in an ce
P la n tS u pe rin ten de nt
M a in te na n ceS u pe rin ten de nt
V ice P re sid e n tM a nu fa c tu ring
T ra in ingS p e c ia list
B e ne fitsA d m in is tra to r
D ire c to rH u m an R e so u rces
C E O
3-4
The Relationship of Organization Design to Efficiency vs. Learning Outcomes
Horizontal OrganizationDesigned for Learning
Vertical OrganizationDesigned for Efficiency
DominantStructuralApproach
Horizontal structure is dominant• Shared tasks, empowerment• Relaxed hierarchy, few rules• Horizontal, face-to-face communication• Many teams and task forces• Decentralized decision making
ex. Dow Chem. ,
P & G
Vertical structure is dominant• Specialized tasks• Strict hierarchy, many rules• Vertical communication and reporting systems• Few teams, task forces or integrators• Centralized decision making
3-5
Vertical Information Linkages Vertical linkages are used to
coordinate activities between the top and bottom of an organization and are designed primarily for control of the organization.
Structural devices to achieve vertical linkage:
-- Hierarchical Referral -- Rules and Plans -- Vertical Information Systems
3-6
Ladder of Mechanisms for Horizontal Linkage and Coordination
HIGH
LOW
LOW
Information Systems
Direct Contact
Task Forces
Full-time Integrators
Teams
Am
ount
of
Hori
zonta
lC
oord
inati
on R
equir
ed
Cost of Coordination in Time and Human Resources
H IGH
3-7
Project Manager Locationin the Structure
President
FinanceDepartment
FinancialAccountant
BudgetAnalyst
ManagementAccountant
EngineeringDepartment
ProductDesigner
Draftsperson
ElectricalDesigner
MarketingDepartment
MarketResearcher
AdvertisingSpecialist
MarketPlanner
PurchasingDepartment
Buyer
Buyer
Buyer
Project ManagerNew
Product B
Project ManagerNew
Product A
Project ManagerNew
Product C
3-8
Teams Used for Horizontal Coordination at Wizard Software Company
VideogamesChief Engineer
Programming Vice Pres
Customer ServiceManager
Videogames Basic Research Supervisor
Research Vice Pres
Applications and Testing Supervisor
ProcurementSupervisor
Videogames Sales Manager
Marketing Vice Pres.
Memory Products International Manager
Advertising Manager
Memory Products Chief Programmer
Memory ProductsResearch Supervisor
Memory Products Sales Manager
President
Videogames Product Team
Memory Products Team
3-9
Organization Design Alternatives
Required Work Activities Reporting Relationships Departmental Groupings
3-10
Organization Design Alternatives Required Work Activities--Departments are created to perform tasks
considered strategically important to the company. e.g. Dept. of HR
--As organizations grow larger and more complex, more and more functions need to be performed.
--Organizations typically define new departments or divisions as a way to accomplish tasks deemed valuable by the organization.
--Today, many companies are finding it important to establish departments. such as IT or e-business to take advantage of new technology and new business opportunities.
3-11
Organization Design Alternatives
Reporting Relationships--Reporting relationships, often called the
chain of command, are represented by vertical lines on an organization chart.
--The definition of departments and the drawing of reporting relationships defines how employees are to be grouped into departments.
3-12
Organization Design Alternatives
Departmental Grouping Options--Options for department grouping,
including functional grouping, divisional grouping, multifocused grouping (Matrix or Hybrid), horizontal grouping, and modular grouping. (Fig. 3.6)
--Departmental grouping affects employees because they share a common supervisor and common resources, are jointly responsible for performance, and tend to identify and collaborate with one another.
3-13
Structural Design Options for Grouping Employees into Departments
P ro du ctD iv is io n 1
P ro du ctD iv is io n 2
P ro du ctD iv is io n 3
C E O
Engineering Marketing Manufacturing
CEO
FunctionalGrouping
DivisionalGrouping
Source: Adapted from David Nadler and Michael Tushman,Strategic Organization Design (Glenview, Ill.: Scott Foresman, 1988), 68.
3-14
Strengths and Weaknesses of Functional Organization Structure
STRENGTHS: Allows economies
of scale within functional departments
Enables in-depth knowledge and skill development
Enables organization to accomplish functional goals
Is best with only one or a few products
WEAKNESSES: Slow response time to
environmental changes May cause decisions to
pile on top, hierarchy overload
Leads to poor horizontal coordination among departments
Results in less innovation Involves restricted view
of organizational goalsSource: Adapted from Robert Duncan, “What Is the Right Organization Structure? Decision Tree Analysis Provides the Answer,” Organizational Dynamics (Winter 1979): 429.
3-15
Strengths and Weaknesses of Divisional Organization Structure
STRENGTHS: Suited to fast change in
unstable environment Leads to client satisfaction
because product responsibility and contact points are clear
Involves high coordination across functions
Allows units to adapt to differences in products, regions, clients
Best in large organizations with several products
Decentralizes decision-making
WEAKNESSES: Eliminates economies
of scale in functional departments
Leads to poor coordination across product lines
Eliminates in-depth competence and technical specialization
Makes integration and standardization across product lines difficult
Source: Adapted from Robert Duncan, “What Is theRight Organization Structure? Decision Tree AnalysisProvides the Answer,” Organizational Dynamics(Winter 1979): 431.
3-16
Reorganization from Functional Structure to Divisional Structure at Info-Tech
R&D Manufacturing Accounting Marketing
Info-TechPresident
FunctionalStructure
R & D M fg A c c tg M k tg
E le c tro n ic
P ub lis h ing
R & D M fg A c c tg M k tg
O ffi c e
A uto m a tio n
R & D M fg A c c tg M k tg
V irtua l
R e a lity
I n fo -T e c h
P re s ide n t
DivisionalStructure
3-17
Structural Design Options for Grouping Employees (Continued)
MultifocusedGrouping
CEO
ManufacturingMarketing
ProductDivision 2
ProductDivision 1
Source: Adapted from David Nadler and Michael Tushman, Strategic Organization Design (Glenview, Ill.: Scott Foresman, 1988), 68.
3-18
Structural Design Options for Grouping Employees (Continued)
HorizontalGrouping
CEO
FinanceHuman Resources
CoreProcess 2
CoreProcess 1
Source: Adapted from David Nadler and Michael Tushman,Strategic Organization Design (Glenview, Ill.: Scott Foresman, 1988), 68.
3-19
Geographical Structurefor Apple Computer
CEOSteve Jobs
AppleEurope
ApplePacific
France
AppleProducts
Asia
Japan
Australia
AppleAmericas
Canada
Latin America/Caribbean
SalesService andMarketingto Regions
Source: www.apple.com
3-20
Product
Manager A
Product
Manager B
Product
Manager C
Product
Manager D
Directorof ProductOperations
DesignVice
President
MfgVice
President
MarketingVice
PresidentController
Procure-ment
Manager
President
Dual-Authority Structure in a Matrix Organization
3-21
STRENGTHS: Achieves coordination
necessary to meet dual demands from customers
Flexible sharing of human resources across products
Suited to complex decisions and frequent changes in unstable environment
Provides opportunity for both functional and product skill development
Best in medium-sized organizations with multiple products
WEAKNESSES: Causes participants to experience
dual authority, which can be frustrating and confusing
Means participants need good interpersonal skills and extensive training
Is time consuming; involves frequent meetings and conflict resolution sessions
Will not work unless participants understand it and adopt collegial rather than vertical-type relationships
Requires great effort to maintain power balance
Strengths and Weaknesses of Matrix Organization Structure
Source: Adapted from Robert Duncan, “What Is the RightOrganization Structure? Decision Tree Analysis Provides theAnswer,”Organizational Dynamics (Winter 1979): 429.
3-22
Matrix Structure forWorldwide Steel Company
President
IndustrialRelations
Vice President
Mfg.Services
Vice President
FinanceVice
President
MarketingVice
President
Mfg.Vice
President
MetallurgyVice
President
Field SalesVice
President
Open DieBusiness Mgr.
Ring ProductsBusiness Mgr.
Wheels & AxlesBusiness Mgr.
SteelmakingBusiness Mgr.
Vertical Functions
Hori
zon
tal Pro
du
ct L
ines
3-23
A Horizontal Structure
Team3
Team2
Team1
TopManagement
Team
Team3
Team2
Team1
Customer
Customer
ProcessOwner
ProcessOwner
Testing Product Planning
Research Market
Analysis
New Product Development Process
Distrib. Material
Flow Purchasing Analysis
Procurement and Logistics ProcessSources: Based on Frank Ostroff,The Horizontal Organization, (New York:Oxford University Press, 1999); John A. Byrne,“The Horizontal Corporation,” Business Week, December 20, 1993, 76-81; and Thomas A. Stewart,“The Search for the Organization of Tomorrow,”Fortune, May 19, 1992, 92-98.
3-24
Strengths and Weaknesses of Horizontal Structure
STRENGTHS: Flexibility and rapid response to
changes in customer needs Directs the attention of everyone
toward the production and delivery of value to the customer
Each employee has a broader view of organizational goals
Promotes a focus on teamwork and collaboration—common commitment to meeting objectives
Improves quality of life for employees by offering them the opportunity to share responsibility, make decisions, and be accountable for outcomes
WEAKNESSES: Determining core processes to
organize around is difficult and time-consuming
Requires changes in culture, job design, management philosophy, and information and reward systems
Traditional managers may balk when they have to give up power and authority
Requires significant training of employees to work effectively in a horizontal team environment
Can limit in-depth skill development
Sources: Based on Frank Ostroff, The Horizontal Organization: What the Organization of the Future Looks Like and How It Delivers Value to Customers, (New York: Oxford University Press, 1999);and Richard L. Daft, Organization Theory and Design, 6th ed.,(Cincinnati, Ohio: South-Western College Publishing, 1998) 253.
3-25
FunctionalStructure
Hybrid StructurePart 1. Sun Petrochemical Products
President
TechnologyVice
President
FinancialServices
Vice Pres.
HumanResourcesDirector
ChiefCounsel
ChemicalsVice
President
LubricantsVice
President
FuelsVice
President
ProductStructure
Sources: Based on Linda S. Ackerman, “Transition Management: An In-Depth Look at Managing Complex Change,” Organizational Dynamics (Summer 1982): 46-66;and Frank Ostroff, The Horizontal Organization, (New York: Oxford University Press, 1999), Fig. 2.1, 34.
3-26
Hybrid StructurePart 2. Ford Customer Service Division
Director andProcess Owner
Director andProcess Owner
Sources: Based on Linda S. Ackerman, “Transition Management:An In-Depth Look at Managing Complex Change,” Organizational Dynamics(Summer 1982): 46-66; and Frank Ostroff, The Horizontal Organization, (New York: Oxford University Press, 1999), Fig. 2.1, 34.
HumanResources
Strategy andCommunicationFinance
Vice President andGeneral Manager
Teams
Teams
Director andProcess Owner Teams
Technical Support Group
Vehicle Service Group
Parts Supply / Logistics Group
FunctionalStructure
Hori
zon
tal S
truct
ure
Teams
Teams
3-27
Organization Contextual Variables that Influence Structure
Structure(learning vs. efficiency)
EnvironmentChapters 4, 6
CultureChapter 10
SizeChapter 9
Strategy,Goals
Chapter 2
TechnologyChapters 7,8
Sources: Adapted from Jay R. Galbraith,Competing with Flexible Lateral Organizations, 2nd ed. (Reading, Mass.: Addison-Wesley, 1994), Ch.1; Jay R. Galbraith, Organization Design (Reading, Mass.: Addison-Wesley, 1977), Ch. 1.
3-28
The Relationship of Structure to Organization’s Need for Efficiency vs. Learning
Horizontal
Structure
DominantStructuralApproach
Horizontal:• Coordination• Learning• Innovation• Flexibility
Vertical:• Control• Efficiency• Stability• Reliability
MatrixStructu
re
DivisionalStructure
Functional withcross-functional
teams, integratorsFunctionalStructure
Modular
Structure
3-29
Symptoms of Structural Deficiency Decision making is delayed or
lacking in quality The organization does not respond
innovatively to a changing environment
Too much conflict is evident