Organizational Structure and Design

LEARNING OBJECTIVES

Explain the concepts of organizational structure and design.

Explain the concepts of differentiation and integration and their role in organizational structure and design.

LEARNING OBJECTIVES

Describe mechanisms used to achieve differentiation and integration and balance these two structural dimensions.

Identify the various structures used by organizations and describe their strengths and weaknesses.

LEARNING OBJECTIVES

List the environmental factors that influence organizational structure.

Determine the appropriate organizational structure for a firm given a set of internal and external factors.

PRINCIPLES OF ORGANIZATIONAL STRUCTURE Organizational structure

The sum of ways an organization divides its labor into distinct, coordinated tasks

Organizational design Assessing the organization’s strategy and

environmental demands Determining the appropriate organizational

structure

PRINCIPLES OF ORGANIZATIONAL STRUCTURE

Organizational charts Illustration of relationships

Units Lines of authority among supervisors and subordinates

Illustrated by use of labeled boxes and connecting lines

SUNCOR ENERGY ORGANIZATIONAL STRUCTURE

Executive VicePresidentOil Sands

Executive VicePresidentMarketing andRefining

Senior VicePresidentMajor Projects

Executive VicePresidentNatural Gas andAlternative Energy

CEO

Suncor Energy Organizational Structure

DIFFERENTIATION

Differentiation Division of tasks into subtasks that are

performed by individuals with specialized skills

Task differentiation Cognitive differentiation

INTEGRATION

Integration Facilitation of cooperation and interaction of

various parts of the organization Interdependence

Pooled Sequential Reciprocal

Level of

Ap

pro

pri

ate

ness

High

Low

Level of InterdependenceLevel of Uncertainty

Low High

APPROPRIATENESS OF RULES, GOALS, VALUES

Appropriateness of Rules, Goals, Values

FORMALIZATION

Formalization the official and defined structures and systems in

decision making, communication, and control in an organization

Line of authority Unity of command Span of control

FACTORS THAT INFLUENCE THE SPAN OF CONTROL Job complexity—Jobs that are complicated require more

managerial input and involvement and thus the span of control tends to be narrower.

Job similarity—If one manages a group of employees performing similar jobs, the span of control can be considerably wider than if the jobs of subordinates are substantially different.

Geographic proximity of supervised employees—Because employees who work in one location are more easily supervised than employees in dispersed locations, physical proximity to employees tends to allow a wider span of control.

Amount of coordination—A narrower span of control is advisable in firms where management expends much time coordinating tasks performed by subordinates.

Factors that Influence the Span of Control

FACTORS THAT INFLUENCE THE SPAN OF CONTROL Abilities of employees—Supervisors who manage

employees who are more knowledgeable and capable can have a wider span of control than supervisors managing less knowledgeable and capable employees. The greater the abilities of employees, the less managerial inputs are required and thus a wider span of control is possible.

Degree of employee empowerment—Because employees who are trusted and empowered to make decisions need less supervision than employees with less autonomy and decision-making discretion, supervisors who empower their employees can have a wider span of control.

Ability of management—More capable managers can manage more employees than less competent managers. The abilities of managers to educate employees and effectively respond to their questions lessen the need for a narrow span of control.

Factors that Influence the Span of Control

FACTORS THAT INFLUENCE THE SPAN OF CONTROL

Technology—Communication technology, such as mobile phones, fax, e-mail, workshare software, can allow managers to effectively supervise employees who are not geographically proximate, have complex and different jobs, and require significant coordination.

Factors that Influence the Span of Control

EXHIBIT TALL AND FLAT ORGANIZATIONAL STRUCTURES

Tall Organizational Structure

Levels = 4Span of Control = 3Total Employees = 40

Tall and Flat Organization Structures

Tall Organizational StructureFlat Organizational Structure

EXHIBIT TALL AND FLAT ORGANIZATIONAL STRUCTURES

Tall and Flat Organization Structures

Levels = 3Span of Control = 7Total Employees = 57

INFORMALIZATION

Informal organization Unofficial but influential means of

Communication Decision making Control

CENTRALIZATION AND DECENTRALIZATION Centralized organizations

Restrict decision making to fewer individuals, usually at the top of the organization

Decentralized organizations Tend to push decision-making authority down to

the lowest level possible

Formal

Informal

Centralized Decentralized

COMBINATIONS OF FORMAL/INFORMAL AND CENTRALIZED/DECENTRALIZED

U. S. MilitaryPhilipsElectronics

Club MedMitsubishi

Combinations of Formal/Informal and Centralized/Decentralized

FUNCTIONAL STRUCTURE

Functional Structure

CEO

Vice PresidentMarketing

Vice PresidentSales

Vice PresidentManufacturing

Vice PresidentHuman Resources

Market research

Advertising

Promotion

East region

South region

West region

Purchasing

Operations

Logistics

Recruiting

Training

Compensation

FUNCTIONAL STRUCTURE

Strengths Small to medium-sized

firms with limited product diversification

Specialization of functional knowledge

Less duplication of functional resources

Facilitates coordination within functional areas

Weaknesses Weak coordination

across functional groups Restricted view of overall

organizational goals Limits customer

attention Slower response to

market changes Burdens chief executives

with decisions

PRODUCT STRUCTURE

Product Structure

CEO

Vice PresidentProduct A

Vice PresidentProduct B

Vice PresidentProduct C

Vice PresidentProduct D

Marketing

Operations

Sales

Marketing

Operations

Sales

Marketing

Operations

Sales

Marketing

Operations

Sales

PRODUCT STRUCTURE

Strengths More focus on

products and customers

Easier to evaluate performance of the product

Product responsiveness to market changes

Less burden on the top executive in making operating decisions

Weaknesses Duplication and lack

of economies of scale

Problems for customers purchasing across multiple product groups

Conflicts between product group and corporate objectives

Conflict between product groups

DIVISION STRUCTURE

Division Structure

CEO

Vice PresidentMedical systems

Vice PresidentBioscience

Vice PresidentClinical

Anesthesia

Hypodermic

Infusion

Labware

Cell biology

Immunology

Vacutainer

Diagnostics

Consulting

DIVISION STRUCTURE

Strengths Reduced functional

duplication Customer focus can

increase Cross-product

coordination is eased

Cross-regional coordination is often eased

Weaknesses Most appropriate

only for diversified, large companies with many products and product families

May inhibit cross-division coordination

Coordination difficulties between division and corporate objectives

CUSTOMER STRUCTURE

Customer Structure

CEO

Vice PresidentRetail

Vice PresidentIndustrial

Vice PresidentMilitary

Small

Mid-size

Domestic

International

Army

Navy

CUSTOMER STRUCTURE

Strengths In-depth

understanding of specific customers

Responsiveness to changes in customer preferences and needs

Responsiveness to moves by competitors to better serve customers

Weaknesses Duplication of

functional resources in each customer unit

Coordination between customer units and corporate objectives

Failure to leverage technology or other strengths in one unit across other units

GEOGRAPHICAL/REGIONAL STRUCTURE

Geographical/Regional Structure

Chief ExecutiveOfficer

Vice PresidentNorth America

Vice PresidentEurope

Vice PresidentSoutheast Asia

Vice PresidentLatin America

Vice PresidentAfrica

Strengths:• Facilitates local responsiveness• Develops in depth knowledge of

specific regions/countries• Creates accountability by

region• Facilitates cross-functional

coordination within regions

Weaknesses:• Often creates cross-regional

coordination difficulties• Can inhibit ability to capture

global scale economies• Duplicates resources and

functions across regions

Chief ExecutiveOfficer

Health Beauty Cleaning Food

NA

AP

MATRIX STRUCTURE

Matrix Structure

EMEA

LA

MATRIX STRUCTURE

Strengths Information flow Decision quality Suited to a changing

and complicated business environment

Flexible use of human resources

Weaknesses Complexity of

performance evaluations

Inhibited ability to respond to changing conditions

Diffused accountability

Conflicts between differing perspectives and objectives

HYBRID STRUCTURES

Hybrid Structure

CEO

Vice PresidentFinance

Vice PresidentHuman Resources

Vice PresidentOperations

Vice PresidentProduct A

Vice PresidentProduct B

Auditing

Accounting

Treasury

Recruiting

Training

Compensation

Purchasing

Manufacturing

Logistics

Retail

Industrial

Education

Government

HYBRID STRUCTURES: CONTINUED

Hybrid Structure

CEO

Vice PresidentNorth America

Vice PresidentLatin America

Asia PacificVice PresidentEMEA

Marketing

Operations

Sales

Marketing

Operations

Sales

Marketing

Operations

Sales

Marketing

Operations

Sales

NETWORKED STRUCTURES

Formal or informal relationships among units or organizations (along the firm’s value chain)

Outsourcing Value chain as a tool for understanding networked

structures

OUTSOURCED STRUCTURE

SupportActivities

Primary ActivitiesOutsourced Structure

Outsourced to EDS

Outsourced Structure

OUTSOURCED STRUCTURE

Primary Activities

SupportActivities

NETWORK STRUCTURE

Network Structure

ORGANIZATIONAL UNCERTAINTY

Low uncertainty Moderate uncertainty

High uncertaintyModerate Uncertainty

Matrix of Organizational Uncertainty

Simple

Complex

Static Dynamic

Low demands placed on structure to facilitate extent or speed of coordination

Low demands placed on structure for broad coordination, high for speed of coordination

High demands placed on structure to facilitate extent or speed of coordination, low demand on speed

High demands placed on structure to facilitate both extent and speed of coordination

Low InternationalProduct Diversity

High InternationalProduct Diversity

High ForeignSales

Low ForeignSales

INTERNATIONAL STRATEGY AND STRUCTURE

Geographicstructure

Matrixstructure

Worldwideproduct division

Internationaldivision

International Strategy and Structure