Organizational Structure

Chapter 11

McGraw-Hill/Irwin Copyright © 2009 by the McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives

1. Identify five traditional organizational structures and the pros and cons of each

2. Describe the product-team structure and explain why it is a prototype for the more open, agile organizational structure

3. Explain five ways improvements have been sought in traditional organizational structures

4. Describe what is meant by agile, virtual organizations

11-3

Learning Objectives (contd.)

5. Explain how outsourcing can create agile, virtual organizations, along with its pros and cons

6. Describe boundaryless organizations and why they are important

7. Explain why organizations of the future need to be ambidextrous learning organizations and how this fits into the global economy

11-4

Organizational Structure

Organizational structure refers to the formalized arrangement of interaction between and responsibility for the tasks, people, and resources in an organization

It is most often seen as a chart,

often a pyramidal chart, with

positions or titles and roles in cascading

fashion

11-5

Simple Organizational Structure

A simple organizational structure is one where there is an owner and a few employees and where the arrangement of tasks, responsibilities, and communication is highly informal and accomplished through direct supervision

This type of structure can be very demanding on the owner-manager

Most businesses in this country and around the world are of this type

11-6

Functional Organizational Structure

A functional organizational structure is one on which the tasks, people, and technologies necessary to do the work of the business are divided into separate “functional” groups (such as marketing, operations, and finance) with increasingly formal procedures for coordinating and integrating their activities to provide the business’s products and services

11-7

Functional Organization Structures

11-8

Divisional Structure

A divisional organizational structure is one in which a set of relatively autonomous units, or divisions, are governed by a central corporate office but where each operating division has its own functional specialists who provide products or services different from those of other divisions

This expedites decision making in response to varied competitive environments

The division usually is given profit responsibility

11-9

Divisional Organization Structure

11-10

Strategic Business Unit

The strategic business unit (SBU) is an adaptation of the divisional structure whereby various divisions or parts of divisions are grouped together based on some common strategic elements, usually linked to distinct product/market differences

The advantages and disadvantages of the SBU form are very similar to those identified for divisional structures

11-11

Holding Company Structure

A final form of the divisional organization is the holding company structure, where the corporate entity is a broad collection of often unrelated businesses and divisions such that it (the corporate entity) acts as financial overseer “holding” the ownership interest in the various parts of the company but has little direct managerial involvement

11-12

Matrix Organizational Structure

The matrix organizational structure is one in which functional and staff personnel are assigned to both a basic functional area and to a project or product manager

The matrix form is intended to make the best use of talented people within a firm by combining the advantages of functional specialization and product-project specialization

11-13

Matrix Organizational Structure

11-14

Product-Team Structure The product-team structure seeks to simplify

and amplify the focus of resources on a narrow but strategically important product, project, market, customer, or innovation

The product-team structure assigns functional managers and specialists to a new product,

project, or process team that is empowered to make major decisions about their product

11-15

The Product-Team Structure

11-16

What a Difference a Century Can Make

11-17

Trends Affecting Organizationsin the 21st Century

Globalization

The Internet

Speed

11-18

Efforts to Improve Traditional Structures

Redefine the role of corporate headquarters from control to support and coordination

Balance the demands for control/differentiation with the need for coordination/integration

Restructure to emphasize and support strategically critical activities

Reengineer strategic business processes Downsize and self-manage

11-19

Creating Agile, Virtual Organizations

Virtual organization: a temporary network of independent companies—suppliers, customers, subcontractors, even competitors—linked primarily by information technology to share skills, access to markets, and costs

An agile organization is one that identifies

a set of business capabilities central to high-profitability operations and then builds a virtual organization around those capabilities

11-20

Outsourcing—Creating a Modular Organization

Outsourcing is simply obtaining work previously done by employees inside the companies from sources outside the company

A modular organization provides products or services using different, self-contained specialists or companies brought together—outsourced—to contribute their primary or support activity to result in a successful outcome

Business process outsourcing (BPO) is the most rapidly growing segment of the outsourcing services industry worldwide

11-21

Types of Boundaries

Horizontal boundaries—between different departments or functions in a firm.

Vertical boundaries—between operations and management, and levels of management, between “corporate” and “division”

Geographic boundaries—between different physical locations; between different countries or regions of the world and between cultures

External interface boundaries—between a company and its customers, suppliers, partners, regulators, and competitors

11-22

Becoming Boundaryless

Jack Welch coined the term “boundaryless” to illustrate his vision for GE

Outsourcing, strategic alliances, product-team structures, reengineering, restructuring—all are ways to move toward boundaryless organization

Technology, particularly driven by the Internet, has and will be a major driver of the boundaryless organization

11-23

From Traditional Structure to B-Web Structure

11-24

Ambidextrous Learning Organization

The evolution of the virtual organizational structure as an integral mechanism managers use has brought with it recognition of the central role knowledge plays in implementation

The shift from exploitation to exploration (Ragan) indicates the growing importance of organizational structures that enable a learning organization to allow global companies the chance to build competitive advantage

An ambidextrous organization emphasizes coordination over control as well as flexibility

11-25