Basic Types of Organization

7/30/2019 Basic Types of Organization

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D-MTEC, Chair of Technology and Innovation Management

General Mgt I 5: Basic types of organizational structure

Toda most eo le in develo ed countries work in an or anization. Or anizations are set

up according to functions, market segments or regions. The more turbulent times

become, the more important structures are.

Reading: Ch. Perrow, Complex OrganizationsMc Graw-Hill 1986, p 1 - 6

Text: M. Gold, A. Campbell, Designing Effective Organizations;Jossey-Bass, 2002

R. Boutellier 31516e


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We have become a society of organizations

Wage dependent workers (US)

Rural 1820 30 %

Industrial 2000 > 90 % ( > 50 % in big organization)

Large bureaucratic organizations, public and

private, wil l be our fate for the foreseeable future

Ch. Perrow, Organizing America, Princeton University Press, 2002, p 227 f, p 1



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The modern factory: Coordination of specialists under one roof

1110 Arsenal Venice

1571: 100 ships in 100 days, 2000 employees

1719 First British modern factory - ,

1840 GB: 50% manufacturing population in factories

1845 F. Engels: Condition of the working class in England

Versus:

People resent Factory Acts: would work longer



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First factories: Staffed with paupers, orphans, criminals

Where workers could choose farming, skilled trades, or a mix

No one would accept wage slavery

o ese an some casua ay a or, ac or es cou no n

workers

1830, November

Workers storm

Ch. Perrow, Organizing America, Princeton University Press, 2002, p 22

textile factory

In Uster, Zurich



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Industrialization in US: Companies with no social liabil ity

Weak state

Immigrants hate

strong state, church

Limited liabilitycompany

Big textile mills

National market

Economy of scale

Consolidation

Low competition

1840 private

railroads

,

Wage dependency

Mass productionBureaucracy

Large externalitiesBad labor relations1890:200 big companies

Ch. Perrow, Organizing America, Princeton University Press, 2002, p 222 ff



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Railroad created the first big markets, the first professionalmanagers

The first professional managers were army engineers who were

hired to run railroads. .



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Organization matters: Internal and external opinions

Wal-Mart 1.2 Mio. Employees

Unilever 1 Mio. e-mails daily

DuPont Shares +12% when spl it up into 5 SBUs, 2002(12% = 7 bn $)

P+G 1999 launch of global integrated structure (1.9 bn cost)

2000 failure, CEO fired

.

Reorganizing is expensive and risky

FT, Mastering Leadership; November 8th; 2002; p 6



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Strategy: Opportunities Choice Priorities (strategic focus)

Goal How is performancemeasured?

Scope What businesses?

Opportunities

Specification of How do competitorscomp. advantage deal with firm?

Strategy

Explication why it Why is value

How do we organize company?



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Organization: Who does what with whom?Specialization and Coordination

Allocation of Decisions Responsibilityresources

Product Market+portfolio introduction



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IGP tries to be different: Even with their organizational chart

Technology

Support

Production

Marketing + Sales

30 000 products (colors)

Core copability: 24 h-delivery

75% produced on demand

Below 150 employees: Organizational chart not important



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In every organization you have to make a choice between threedimensions

Market

se ments

eg ons

One solution One dimension in staff

One dimension in dotted line

One dimension in fat line

Who has P+L responsibility? = fat line



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Go for clear responsibi lity: Profit and power have to be aligned

Market Segment

Manager

Product 1 Product 2

Region 1

Region 2

(One product has many applications)

Matrix dim 3



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Functional organization:Starting point of many companies

FinanceHR

Sales Production Service R+D

+

(Front end) (Back end)

(-) Many interfaces

(-) All the responsibility concentrated at the top

- n rec con ro no roug mar e



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At lowest level: Functions prevail

orpora on

Cardboard packaging Market Segment

Western Euro e Re ion

Sales Manuf Function



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The SBU-organization: Modular setup SIG 2004

F&CSIG 2004

HR

Technology

IT

Beverage Dry PackagingCardboard

mac nes sys ems mac nes sys ems

Western Europe Systems

Labelers

Systems

Standard

pac ag ng

(+) Fast decisions

(+) Direct control through market+ u respons y a = ow eve

(-) Economy of scale

(-) Divisions = Coach, not SBU



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Some Functions may be very important:Hybrid organization

Product management

Market segment management

Production

Europe

Europe

Production

sleeves

R & D



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The divisional organization:How to serve different markets?

+GF+

Machine Tools Piping Systems Automotive

+

(+) Responsibility, control close to customer

(-) Synergies within the group

Divisions are big SBUs



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3 types of units are common to most organizations

SBU Market focused, profit driven, high autonomy,

Function Operating tasks (cost centre)

Shared service units Provide services for several units



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Apple in 2005: Regional organization (languages + customs!)

Steve Jobs

Americas Europe Pacific

USA Asia

AustraliaCanada

JapanLatin America

Caribbean

www.apple.com/find/areas/html



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Nike: Value chain organizer 2005

Concentration on few value adding activities

Product design Marketing Distribution

Outsourcing of asset intensive / low skill work

Retail (economies of scope)

Mana in com lex network of relationships



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Johnson & Johnson: Independent small units with full businessresponsibility

150 independent companies

pay dividends to parent

Stron incentives

Strong commitment

Performance

But: 10 year struggle to create one hospital serving unit out of 10!



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Turbulent t imes: Strategy follows structure

Turbulent environment

Strate emer es from decisions taken at various levels

Design of organization determines strategy

Roberts J.: The modern firm, Oxford 2004, p. 24 f



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Turbulent times: 5 levels of structure become important, thesehave different time frames

Time to change

Informal networks Informal information flow

Processes Work flow

Reporting Formal decisions

Legal

,

Tax, risk optimization



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Turbulent times: Set basics, delegate the rest

Forecast

Environment

Technology

Set slow-moving elements

Set decision processes

Fast adaptation

Set basic strategic Shape dispersed strategic

Roberts J.: The modern firm, Oxford 2004, p 28



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Nokia 1990s:Gives up 90% of old business, 30% growth/year

Environment: Deregulation,

PrivatizationStrategic intent

Focused

Global

Telecom-orientedn erne

Mobile phones

Digital technology

ec no ogy:

Value added

Vision: Voice will go wireless

Roberts J.: The modern firm, Oxford 2004, p 28



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Clear structures:Sometimes an overreaction to accidents!

Collision of 2 passenger trains

Massachusetts 1841

Public demands better control

Definite res onsibilities for each hase of business,The board:

drawing solid l ines of authority and command

for administration, maintenance and operation

Salsbury S.: The state, the Investor, and the Railroad, HBS, 1967, p 186-187


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Basic Types of Organization