©2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e 3-1 Chapter Three Fundamentals of Organization Structure

3-1 ©2000

South-Western College PublishingCincinnati, Ohio

Daft, Organization Theory and Design 7/e

Chapter ThreeChapter Three

Fundamentals ofFundamentals of

Organization StructureOrganization Structure

©2000South-Western College Publishing

Cincinnati, OhioDaft, Organization Theory and Design 7/e

3-2

A Sample Organization A Sample Organization ChartChart

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



3-3

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



3-4

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

CoordinationCoordination

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



3-5

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



3-6

Teams Used for Horizontal Teams Used for Horizontal Coordination at Rodney Hunt Coordination at Rodney Hunt

CompanyCompany

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



3-7

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

DepartmentsDepartments

P rod u c tD ivis ion 1



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.



3-8

Strengths and Weaknesses Strengths and Weaknesses of Functional Organization of Functional Organization

StructureStructure

STRENGTHS:STRENGTHS:• Allows economies of Allows economies of

scale within scale within functional 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 few productsor few products

WEAKNESSES:WEAKNESSES:• Slow response time to Slow response time to

environmental changesenvironmental changes• May cause decisions to May cause decisions to

pile on top, hierarchy pile on top, hierarchy overloadoverload

• Leads to poor horizontal Leads to poor horizontal coordination among coordination among departmentsdepartments

• Results in less innovationResults in less innovation• Involves restricted view Involves restricted view

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



3-9

Strengths and Weaknesses Strengths and Weaknesses of Divisional Organization of Divisional Organization

StructureStructure STRENGTHS:STRENGTHS:

• Suited to fast change in Suited to fast change in unstable environmentunstable environment

• 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, differences in products, regions, clientsregions, clients

• Best in large organizations Best in large organizations with several productswith several 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.



3-10

Reorganization from Functional Reorganization from Functional Structure to Divisional Structure at Structure to Divisional Structure at

Info-TechInfo-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


O ffi c e

A uto m a tio n


V irtua l

R e a lity

I n fo -T e c h

P re s ide n t

DivisionalStructure



3-11

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

(Continued)(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.



3-12

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

(Continued)(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.



3-13

Geographical StructureGeographical Structurefor Apple Computerfor Apple Computer

CEOSteve Jobs

AppleEurope

ApplePacific

France

AppleProducts

Far East

Japan

Australia

AppleAmericas

Canada

Latin America/Caribbean

SalesService andMarketingto Regions

Source: www.apple.com



3-14

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 Dual-Authority Structure in a Matrix Organizationa Matrix Organization



3-15

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 Suited to complex decisions and frequent decisions and frequent changes in unstable changes in unstable environmentenvironment

• Provides opportunity for Provides opportunity for both functional and both functional and product skill developmentproduct skill development

• Best in medium-sized Best in medium-sized organizations with organizations with multiple productsmultiple products

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 Is time consuming; involves frequent meetings and conflict frequent meetings and conflict resolution sessionsresolution sessions

• Will not work unless participants Will not work unless participants understand it and adopt collegial understand it and adopt collegial rather than vertical-type rather than vertical-type relationshipsrelationships

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

Strengths and Weaknesses Strengths and Weaknesses of Matrix Organization of Matrix Organization

StructureStructure

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



3-16

Matrix Structure forMatrix Structure forWorldwide Steel CompanyWorldwide 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



3-17

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.



3-18

Strengths and Strengths and Weaknesses of Horizontal Weaknesses of Horizontal

StructureStructure 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 toward the production and delivery of value to the customerdelivery of value to the customer

• Each employee has a broader Each employee has a broader view of organizational goalsview of organizational goals

• Promotes a focus on teamwork Promotes a focus on teamwork and collaboration—common and collaboration—common commitment to meeting commitment to meeting objectivesobjectives

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

WEAKNESSES:WEAKNESSES:• Determining core processed to Determining core processed to

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

• Requires changes in culture, Requires changes in culture, job design, management job design, management philosophy, and information philosophy, and information and reward systemsand reward systems

• Traditional managers may Traditional managers may balk when they have to give balk when they have to give up power and authorityup power and authority

• Requires significant training of Requires significant training of employees to work effectively employees to work effectively in a horizontal team in a horizontal team environmentenvironment

• 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.



3-19

FunctionalStructure

Hybrid StructureHybrid StructurePart 1. Sun Petrochemical Part 1. Sun Petrochemical

ProductsProducts

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.



3-20

Hybrid StructureHybrid StructurePart 2. Ford Customer Service Part 2. Ford Customer Service

DivisionDivision

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



3-21

Organization Contextual Organization Contextual Variables that Influence Variables that Influence

StructureStructure

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.



3-22

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

vs. Learningvs. Learning

HorizontalStructure

DominantStructuralApproach

Horizontal:• Coordination• Change• Learning• Innovation• Flexibility

Vertical:• Control• Efficiency• Stability• Reliability

MatrixStructure

DivisionalStructure

Functional withcross-functional

teams, integratorsFunctionalStructure



3-23

Symptoms of Symptoms of Structural DeficiencyStructural Deficiency

Decision making is delayed or Decision making is delayed or lacking in qualitylacking in quality

The organization does not respond The organization does not respond innovatively to a changing innovatively to a changing environmentenvironment

Too much conflict from Too much conflict from departments being at cross departments being at cross purposes is evidentpurposes is evident



3-24

C S U

P u b lic

C o n ta c t

A re a s

S tude n t

R e c o rds

T ra ns c rip t

O ffi c e

R e g is tra r G ra dua te

A dm is s io n s

I n te rna tio n a l

A dm is s io n s

A dm is s io n s ,

R e c o rds a n d

E va lua tio ns

T e s ting

S c ho la rs h ip W o rk S tudy

P ro g ra m s

F ina nc ia l

A id

U n ive rs ity

O u tre a c h

S e rvic e s

E n ro llm e n t

S e rvic e s

WorkbookActivity

Organization ChartOrganization Chart

Documents

©2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e 3-1 Chapter Three Fundamentals of Organization Structure