Chapter Three
Fundamentals of Organization Structure
Thomson Learning 2004
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A Sample Organization Chart
CEO
Vice President Finance
Vice President Manufacturing
Director Human Resources
Chief Accountant
Budget Analyst
Plant Superintendent
Maintenance Superintendent
Training Specialist
Benefits Administrator
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The Relationship of Organization Design to Efficiency vs. Learning Outcomes
Horizontal Organization Designed for Learning
Horizontal structure is dominant Shared tasks, empowerment Relaxed hierarchy, few rules Horizontal, face-to-face communication Many teams and task forces Decentralized decision making
Dominant Structural Approach
Vertical structure is dominant Specialized tasks Strict hierarchy, many rules Vertical communication and reporting systems Few teams, task forces or integrators Centralized decision making
Vertical Organization Designed for Efficiency
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Ladder of Mechanisms for Horizontal Linkage and Coordination
H IGH
Teams
Full-time Integrators Task Forces Direct Contact
Amount of Horizontal Coordination Required
LOW
Information Systems
LOW HIGH
Cost of Coordination in Time and Human Resources
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Project Manager Location in the Structure
President
Finance Department Financial Accountant Budget Analyst Engineering Department Marketing Department Market Researcher Advertising Specialist Buyer Purchasing Department Project Manager New Product A Project Manager New Product B Project Manager New Product C
Product Designer
Draftsperson
Buyer
Management Accountant
Electrical Designer
Market Planner
Buyer
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Teams Used for Horizontal Coordination at Wizard Software Company
President Marketing Vice Pres. Programming Vice Pres Research Vice Pres Videogames Basic Research Supervisor Applications and Testing Supervisor Memory Products Chief Programmer Memory Products Team Customer Service Manager Thomson Learning 2004 Procurement Supervisor 3-6 Memory Products Research Supervisor
Videogames Sales Manager Videogames Product Team Memory Products Sales Manager Memory Products International Manager Advertising Manager
Videogames Chief Engineer
Structural Design Options for Grouping Employees into Departments
Functional Grouping
CEO
Engineering
Marketing
Manufacturing
Divisional Grouping
Product Division 1
CEO
Product Division 2
Thomson Learning 2004
Product Division 3
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:
WEAKNESSES:
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
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 goals
Source: Adapted from Robert Duncan, What Is the Right Organization Structure? Decision Tree Analysis Provides the Answer, Organizational Dynamics (Winter 1979): 429.
Thomson Learning 2004
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Strengths and Weaknesses of Divisional Organization Structure
STRENGTHS:
WEAKNESSES:
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
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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 the Right Organization Structure? Decision Tree Analysis Provides the Answer, Organizational Dynamics (Winter 1979): 431.
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Reorganization from Functional Structure to Divisional Structure at Info-Tech
Functional Structure
R&D Info-Tech President Manufacturing Accounting Marketing
Divisional Structure
Electronic
Info-Tech President
Office Virtual
Publishing
R&D Mfg Acctg Mktg R&D
Automation
Mfg Acctg Mktg R&D
Reality
Mfg Acctg Mktg
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Structural Design Options for Grouping Employees (Continued)
Multifocused Grouping
CEO Marketing Manufacturing
Product Division 1
Product Division 2
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)
Horizontal Grouping
CEO Human Resources Finance
Core Process 1
Core Process 2
Source: Adapted from David Nadler and Michael Tushman, Strategic Organization Design (Glenview, Ill.: Scott Foresman, 1988), 68.
Thomson Learning 2004
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Geographical Structure for Apple Computer
CEO Steve Jobs
Apple Products
Apple Americas Canada Latin America/ Caribbean Sales Service and Marketing to Regions
Apple Europe France
Apple Pacific Australia
Japan
Asia
Source: [Link]
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Dual-Authority Structure in a Matrix Organization
President Director of Product Operations
Product Manager A Product Manager B Product Manager C Product Manager D
Design Vice President
Mfg Vice President
Marketing Vice President
Controller
Procurement Manager
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Strengths and Weaknesses of Matrix Organization Structure
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:
Source: Adapted from Robert Duncan, What Is the Right Organization Structure? Decision Tree Analysis Provides the Answer,Organizational Dynamics (Winter 1979): 429.
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 Thomson Learning Requires great effort to maintain 2004 3-15 power balance
Matrix Structure for Worldwide Steel Company
President Mfg. Vice President Open Die Business Mgr. Ring Products Business Mgr. Marketing Vice President Finance Vice President Mfg. Services Vice President
Vertical Functions
Metallurgy Field Sales Vice Vice President President Industrial Relations Vice President
Horizontal Product Lines
Wheels & Axles Business Mgr.
Steelmaking Business Mgr. Thomson Learning 2004 3-16
A Horizontal Structure
Top Management Team
Process Owner
Market Analysis
Team 1
Research
Team 2
Product Planning
Team 3
Testing
Customer
New Product Development Process
Process Owner
Analysis
Sources: 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.
Team 1
Purchasing
Team 2
Material Flow
Team 3
Distrib.
Customer
Procurement and Logistics Process Thomson Learning 2004 3-17
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 collaborationcommon commitment to meeting objectives Improves quality of life for employees by offering them the opportunity to share responsibility, make decisions, and be Sources: Based on Frank Ostroff, The Horizontal Organization: What the accountable for outcomes 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.
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 3-18
Thomson Learning 2004
Hybrid Structure
Part 1. Sun Petrochemical Products
President
Functional Structure
Chief Counsel
Human Resources Director
Technology Vice President
Financial Services Vice Pres.
Product Structure
Fuels Vice President
Lubricants Vice President
Chemicals Vice President
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 Structure
Part 2. Ford Customer Service Division
Vice President and General Manager Functional Structure Strategy and Communication Human Resources
Finance
Horizontal Structure
Director and Process Owner Director and Process Owner Director and Process Owner
Teams Parts Supply / Logistics Group Teams Vehicle Service Group Teams Technical Support Group
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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Organization Contextual Variables that Influence Structure
Culture Chapter 10
Structure (learning vs. efficiency)
Size Chapter 9
Strategy, Goals Chapter 2
Technology Chapters 7,8
Environment Chapters 4, 6
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 Organizations Need for Efficiency vs. Learning
Functional with Functional cross-functional Divisional Matrix Horizontal Modular Structure teams, integrators Structure Structure Structure Structure
Dominant Structural Vertical: Control Approach
Horizontal: Coordination Learning Innovation Flexibility
Efficiency Stability Reliability
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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 is evident
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