11

Chapter ThreeChapter Three

Fundamentals ofFundamentals of

Organization StructureOrganization Structure

22

A Sample Organization ChartA Sample Organization Chart

C h ie fA cco u nta n t

B u dg etA n a lyst

V ice P re sid e n tF in an ce

P la n tS u pe rin ten de nt

M a in te na n ceS u pe rin ten de nt

V ice P re sid e n tM a nu fa c tu ring

T ra in ingS p e c ia list

B e ne fitsA d m in is tra to r

D ire c to rH u m an R e so u rces

C E O

33

The Relationship of Organization The Relationship of Organization Design to Efficiency vs. Learning Design to Efficiency vs. Learning

OutcomesOutcomes

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

44

Project Manager LocationProject Manager Locationin the Structurein 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

55

Teams Used for Horizontal Teams Used for Horizontal Coordination at Wizard Software Coordination at Wizard Software

CompanyCompany

VideogamesChief Engineer

Programming Vice Pres

Customer ServiceManager

Videogames Basic Research Supervisor

Research Vice Pres

Applications and Testing Supervisor

ProcurementSupervisor

Videogames Sales Manager

Marketing Vice Pres.

Memory Products International Manager

Advertising Manager

Memory Products Chief Programmer

Memory ProductsResearch Supervisor

Memory Products Sales Manager

President

Videogames Product Team

Memory Products Team

66

Ladder of Mechanisms for Horizontal Ladder of Mechanisms for Horizontal Linkage and CoordinationLinkage 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

77

Structural Design Options for Structural Design Options for Grouping Employees into Grouping Employees into

DepartmentsDepartments

P ro du ctD iv is io n 1

P ro du ctD iv is io n 2

P ro du ctD iv is io n 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.

88

Strengths and Weaknesses of Strengths and Weaknesses of Functional Organization StructureFunctional Organization Structure

STRENGTHS:STRENGTHS:– Allows economies of Allows economies of

scale within functional scale within functional departmentsdepartments

– Enables in-depth Enables in-depth knowledge and skill knowledge and skill developmentdevelopment

– Enables organization Enables organization to accomplish to accomplish functional goalsfunctional goals

– Is best with only one Is best with only one or a few productsor a few products

WEAKNESSES:WEAKNESSES:– Slow response time to Slow response time to

environmental changesenvironmental changes– May cause decisions to pile May cause decisions to pile

on top, hierarchy overloadon top, hierarchy overload– Leads to poor horizontal Leads to poor horizontal

coordination among coordination among departmentsdepartments

– Results in less innovationResults in less innovation– Involves restricted view of Involves restricted view of

organizational goalsorganizational goals

Source: Adapted from Robert Duncan, “What Is the Right Organization Structure? Decision Tree Analysis Provides the Answer,” Organizational Dynamics (Winter 1979): 429.

99

Strengths and Weaknesses of Strengths and Weaknesses of Divisional Organization StructureDivisional Organization Structure

STRENGTHS:STRENGTHS:– Suited to fast change in unstable Suited to fast change in unstable

environmentenvironment– Leads to client satisfaction Leads to client satisfaction

because product responsibility because product responsibility and contact points are clearand contact points are clear

– Involves high coordination Involves high coordination across functionsacross functions

– Allows units to adapt to Allows units to adapt to differences in products, regions, differences in products, regions, clientsclients

– Best in large organizations with Best in large organizations with several productsseveral products

– Decentralizes decision-makingDecentralizes decision-making

WEAKNESSES:WEAKNESSES:– Eliminates economies of Eliminates economies of

scale in functional scale in functional departmentsdepartments

– Leads to poor Leads to poor coordination across coordination across product linesproduct lines

– Eliminates in-depth Eliminates in-depth competence and competence and technical specializationtechnical specialization

– Makes integration and Makes integration and standardization across standardization across product lines difficultproduct lines difficult

Source: Adapted from Robert Duncan, “What Is theRight Organization Structure? Decision Tree AnalysisProvides the Answer,” Organizational Dynamics(Winter 1979): 431.

1010

Reorganization from Functional Structure Reorganization from Functional Structure to Divisional Structure at Info-Techto 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 ub lis h ing

R & D M fg A c c tg M k tg

O ffi c e

A uto m a tio n

R & D M fg A c c tg M k tg

V irtua l

R e a lity

I n fo -T e c h

P re s ide n t

DivisionalStructure

1111

Structural Design Options for Structural Design Options for Grouping Employees (Continued)Grouping Employees (Continued)

MultifocusedGrouping

CEO

ManufacturingMarketing

ProductDivision 2

ProductDivision 1

Source: Adapted from David Nadler and Michael Tushman, Strategic Organization Design (Glenview, Ill.: Scott Foresman, 1988), 68.

1212

Structural Design Options for Structural Design Options for Grouping Employees (Continued)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.

1313

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 Dual-Authority Structure in a Matrix OrganizationMatrix Organization

1414

STRENGTHS:STRENGTHS:– Achieves coordination Achieves coordination

necessary to meet dual necessary to meet dual demands from customersdemands from customers

– Flexible sharing of human Flexible sharing of human resources across productsresources across products

– Suited to complex decisions Suited to complex decisions and frequent changes in and frequent changes in unstable environmentunstable environment

– Provides opportunity for Provides opportunity for both functional and product both functional and product skill developmentskill development

– Best in medium-sized Best in medium-sized organizations with multiple organizations with multiple productsproducts

WEAKNESSES:WEAKNESSES:– Causes participants to experience Causes participants to experience

dual authority, which can be dual authority, which can be frustrating and confusingfrustrating and confusing

– Means participants need good Means participants need good interpersonal skills and extensive interpersonal skills and extensive trainingtraining

– Is time consuming; involves frequent Is time consuming; involves frequent meetings and conflict resolution meetings and conflict resolution sessionssessions

– Will not work unless participants Will not work unless participants understand it and adopt collegial understand it and adopt collegial rather than vertical-type relationshipsrather than vertical-type relationships

– Requires great effort to maintain Requires great effort to maintain power balancepower balance

Strengths and Weaknesses of Strengths and Weaknesses of Matrix Organization StructureMatrix Organization Structure

Source: Adapted from Robert Duncan, “What Is the RightOrganization Structure? Decision Tree Analysis Provides theAnswer,”Organizational Dynamics (Winter 1979): 429.

1515

Matrix Structure forMatrix Structure forEnglander SteelEnglander Steel

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 Pro

du

ct L

ines

1616

A Horizontal StructureA 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.

1717

Strengths and Weaknesses of Strengths and Weaknesses of Horizontal StructureHorizontal Structure

STRENGTHS:STRENGTHS:– Flexibility and rapid response to Flexibility and rapid response to

changes in customer needschanges in customer needs– Directs the attention of everyone Directs the attention of everyone

toward the production and delivery of toward the production and delivery of value to the customervalue to the customer

– Each employee has a broader view of Each employee has a broader view of organizational goalsorganizational goals

– Promotes a focus on teamwork and Promotes a focus on teamwork and collaboration—common commitment collaboration—common commitment to meeting objectivesto meeting objectives

– Improves quality of life for employees Improves quality of life for employees by offering them the opportunity to by offering them the opportunity to share responsibility, make decisions, share responsibility, make decisions, and be accountable for outcomes and be accountable for outcomes

WEAKNESSES:WEAKNESSES:– Determining core processes to Determining core processes to

organize around is difficult and organize around is difficult and time-consumingtime-consuming

– Requires changes in culture, job Requires changes in culture, job design, management design, management philosophy, and information and philosophy, and information and reward systemsreward systems

– Traditional managers may balk Traditional managers may balk when they have to give up when they have to give up power and authoritypower and authority

– Requires significant training of Requires significant training of employees to work effectively in employees to work effectively in a horizontal team environmenta horizontal team environment

– Can limit in-depth skill Can limit in-depth skill developmentdevelopment

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.

1818

FunctionalStructure

Hybrid StructureHybrid StructurePart 1. Sun Petrochemical ProductsPart 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.

1919

Hybrid StructureHybrid StructurePart 2. Ford Customer Service DivisionPart 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 Group

Parts Supply / Logistics Group

FunctionalStructure

Hori

zon

tal S

truct

ure

Teams

Teams

2020

The Relationship of Structure to The Relationship of Structure to Organization’s Need for Efficiency vs. Organization’s Need for Efficiency vs.

LearningLearning

Horizontal

Structure

DominantStructuralApproach

Horizontal:• Coordination• Learning• Innovation• Flexibility

Vertical:• Control• Efficiency• Stability• Reliability

MatrixStructu

re

DivisionalStructure

Functional withcross-functional

teams, integratorsFunctionalStructure

Modular

Structure

2121

Symptoms of Symptoms of Structural DeficiencyStructural Deficiency

Decision making is delayed or lacking in Decision making is delayed or lacking in qualityquality

The organization does not respond The organization does not respond innovatively to a changing environmentinnovatively to a changing environment

Too much conflict is evidentToo much conflict is evident