Organizational structure and design
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Organizational structure and design Organizational structure (overview) Organization structure Defines how tasks are allocated Specifies reporting relationships Defines formal coordinating mechanisms and interaction patterns Organizational structure (overview)
Organizational structure and design
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Organizational structure and design S V Horner 2008
Organizational structure (overview) • Organization structure • Defines how tasks are allocated • Specifies reporting relationships • Defines formal coordinating mechanisms and interaction patterns S V Horner 2008
Organizational structure (overview) • Balances two conflicting forces • Need for division of tasks into meaningful groupings: division of labor • Need to integrate groupings for effectiveness and efficiency • Changes in response to organizational growth S V Horner 2008
Simple structure • Low departmentalization • Wide spans of control • Authority centralized in a single person • Low formalization S V Horner 2008
Simple structure • Start ups and small firms • Centralized in owner-manager • “walk around management” • Strategic controls at corporate level • Flexible, innovative, responsive • Most appropriate for focused business level strategies S V Horner 2008
Functional Structure S V Horner 2008
Chief Executive Officer or President Manager Production Manager Purchasing Manager Marketing Manager R&D Manager HR Manager IT Lower-level managers, specialists, and operating personnel Functional Structure S V Horner 2008
Functional structure • Workers grouped according to similar functions and work activities • Relatively centralized with CEO as key coordinator • Growth of rules, policies, and procedures • Strengths: economies of scale, worker expertise • Weaknesses: slow responsiveness, over centralization, low coordination between departments, potential conflict S V Horner 2008
The Divisional Structure Chief Executive Officer Corporate Office (Staff) Product A Product B Product C Product D S V Horner 2008
Divisional structure • Organized by type of output • Decentralized operations with central control • Semi-autonomous units functionally organized S V Horner 2008
Divisional structure • Strengths: responsiveness, internal coordination, decentralized • Weaknesses: less efficiency, coordination, and integration across divisions, less functional expertise S V Horner 2008
Divisional structure • Three important outcomes • Allows accurate monitoring and control • Facilitates comparison across product lines • Provides feedback for improving division performance S V Horner 2008
Variations of divisional structure • Strategic business unit (SBU) • Holding company (conglomerate) S V Horner 2008
SBU form of divisional structure S V Horner 2008
SBU form and related diversification • Related diversification or mix of related and unrelated businesses; i.e., limited links • Three levels: corporate headquarters (president and staff), strategic business units, product or geographic divisions S V Horner 2008
SBU form and related diversification • Divisions within SBUs are integrated with one another, but SBUs are independent of each other • Corporate staff oversees and consults with SBUs but provides little direct input into product strategy S V Horner 2008
SBU form • Advantages • greater decentralization • simplifies planning and control at corporate level • low synergies among SBUs • Disadvantages • added hierarchy • increases expenses • further removes corporate management from operations S V Horner 2008
Holding company structure S V Horner 2008
Holding company structure • Used when corporate portfolio is unrelated S V Horner 2008
Matrix structure: Dual authority • Matrix bosses • Department head: responsible for functional expertise, maintaining rules, and standards • Brand, product, or project manager responsible for coordination, customers, and product performance S V Horner 2008
Matrix structure: Dual authority • Two-boss employees • May be subject to conflicting demands • Dual loyalty means dealing effectively with both bosses • Top leader directs both command structures S V Horner 2008
Matrix structure • Strengths • Enables coordination possible • Better resource utilization • Well suited to complex, unstable environment • Allows development of either functional (technical) or general management skills • Best suited for mid-size organizations with multiple products S V Horner 2008
Matrix structure • Weaknesses • Dual authority violates unity of command principle • Requires good people skills and training • Involves frequent direct contact and high commitment to matrix form • Requires proper environmental conditions S V Horner 2008
Matrix structure • May be most appropriate when: • Sharing scarce resources (e.g., people and/or equipment) across product lines • Responding to multiple outcomes (e.g., technical expertise and rapid change in product lines) • Environment is complex and unstable • Organization is of moderate size with multiple products S V Horner 2008
Structure and strategy • Structure follows strategy • Strategy determines structure, e.g., related diversification forces shift from functional to divisional structure • Structure constrains strategy • Structure difficult to change S V Horner 2008
Summary • Four basic types of structure: simple, functional, divisional, matrix • Each may be appropriate under certain conditions and strategies S V Horner 2008
