1
Chapter Three
Fundamentals of
Organization Structure
–Definition
–Designing Vertical and Horizontal Linkages
–Design Options & Grouping Activities
2
Defining Structure Three components:
– Org. structure designates formal reporting relationships
– Grouping together of individuals into teams, departments, and organization
– Design of system to maximize communication, coordination, and integration of efforts across departments
3
A Sample Organization Chart
C h ie fA ccou n tan t
B u d g e tA n a lys t
V ice P res id en tF ian an ce
P lan tS u p erin ten d en t
M a in ten an ceS u p erin ten d en t
V ice P res id en tM an u fac tu rin g
Tra in in gS p ec ia lis t
B en e fitsA d m in is tra to r
D irec to rH u m an R esou rces
C E O
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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
Vertical structure is dominant• Specialized tasks• Strict hierarchy, many rules• Vertical communication and reporting systems• Few teams, task forces or integrators• Centralized decision making
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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
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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
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Teams Used for Horizontal Coordination at Rodney Hunt
Company
Water Control Equip.Chief Engineer
Engineering Vice Pres
Customer Service, Purchasing,
Production Manager
Foundry General Supervisor
Manufacturing Vice Pres
Machine Shop General Supervisor
Shipping and YardSupervisor
Water Control Equip. Sales Manager
Marketing Vice Pres.
Textile MachineryExport Manager
Advertising Manager
Textile MachineryChief Engineer
Stainless Steel General Supervisor
Textile MachineryDomestic Sales Manager
President
Water Control Product Team
Textile Product Team
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Structural Design Options for Grouping Employees into
Departments
P rod u c tD ivis ion 1
P rod u c tD ivis ion 2
P rod u c tD ivis ion 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.
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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 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.
10
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.
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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 u b lis h in g
R & D M fg A c c tg M k tg
O ffi c e
A u to m a tio n
R & D M fg A c c tg M k tg
V irtu a l
R e a lity
I n fo -T e c h
P re s id e n t
DivisionalStructure
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Structural Design Options for Grouping Employees
(Continued)
Multi-focusedGrouping
CEO
ManufacturingMarketing
ProductDivision 2
ProductDivision 1
Source: Adapted from David Nadler and Michael Tushman, Strategic Organization Design (Glenview, Ill.: Scott Foresman, 1988), 68.
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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.
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Geographical Structurefor Apple Computer
CEOSteve Jobs
AppleEurope
ApplePacific
France
AppleProducts
Far East
Japan
Australia
AppleAmericas
Canada
Latin America/Caribbean
SalesService andMarketingto Regions
Source: www.apple.com
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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
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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.
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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 Fu
nct
ion
s
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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.
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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 processed 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.
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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.
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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 and Programs Group
Parts Supply / Logistics Group
FunctionalStructure
Hori
zon
tal S
truct
ure
Teams
Teams
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Organization Contextual Variables that Influence
Structure
Structure(learning vs. efficiency)
EnvironmentChapters 4, 5
CultureChapter 9
SizeChapter 8
Strategy,Goals
Chapter 2
TechnologyChapters 6,7
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.
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The Relationship of Structure to Organization’s Need for Efficiency
vs. Learning
HorizontalStructure
DominantStructuralApproach
Horizontal:• Coordination• Change• Learning• Innovation• Flexibility
Vertical:• Control• Efficiency• Stability• Reliability
MatrixStructure
DivisionalStructure
Functional withcross-functional
teams, integratorsFunctionalStructure
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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 from departments being at cross purposes is evident