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1010Managing Organizational
StructureManaging Organizational
Structure
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1010Today’s Operative WordToday’s Operative Word
Don’t -- as in…No!Nyet!No way!Go away!
10-3© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
OverviewOverview
How to group tasks into motivational jobs
The need to centralize and decentralize authority
Choosing the right structure
10-4© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
OverviewOverview
How to coordinate, integrate and evolve jobs and structure as an organization grows
Using strategic alliances and networks to increase efficiency and effectiveness without adding structure
Why structure -- like bread dough – wants to rise and expand making today’s operative word vital
10-5© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Why Study Structure?Why Study Structure?
In order to empower your people to achieve goals efficiently and effectively, you must use SWOT to pick the structure best suited to your internal resources and the external environment
10-6© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Organizational StructureOrganizational Structure
Structure, control systems, culture and human resource management systems combine to determine how efficiently and effectively an organization uses resources
10-7© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Designing Organizational StructureDesigning Organizational Structure
Organizational Structure
The system of responsibilities and reporting relationships that enables workers to use resources to achieve goals efficiently and effectively.
10-8© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
The Organizational EnvironmentThe Organizational Environment
Organizational StrategyDifferent environments require different strategies
and structuresA differentiation strategy needs flexible structure to
foster innovationA low-cost strategy may need more rigid structure to
drive cost-controlIncreased vertical integration or diversification also
requires a more flexible structure because it requires reacting quickly to multiple, complex environments tracked by a small “corporate” staff using KPIs
10-9© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Forces Affecting StructureForces Affecting Structure
TechnologyThe combination of skills, knowledge, tools,
equipment and computers used to run the
organization frequently forces the structure
into new shapes that require new and
different management methods
10-10© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Forces…Forces…
Human Resources Highly skilled workers whose jobs require
teamwork that usually needs flexible structure
Professionals (e.g., CPA’s, doctors, lawyers, etc.) often have internalized professional norms that affect structure
10-11© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
The Organizational EnvironmentThe Organizational Environment
Managers must take into account environment, strategy,
technology, and human
resources when
designing the
organization’s structure
10-12© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Job DesignJob Design
Job design: dividing tasks into specific jobs to create an effective and efficient workforce
Job simplification: reducing the number of tasks each worker performs
Warning: too much simplification can cause boredom
10-13© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Job DesignJob Design
Job enlargement: increasing the number of tasks in a job to reduce boredom
Job enrichment: expanding the depth or breadth of responsibility to increase worker involvement
10-14© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Grouping Jobs into FunctionsGrouping Jobs into Functions
Functional StructureAn organizational structure including all departments an organization requires to produce its goods or servicesAdvantages
Encourages learning from others doing similar jobs. Easy for managers to monitor and evaluate workers.
Disadvantages Difficult for departments to communicate with others (silo effect) Preoccupation with department goals obscures organizational
goals Requires unified corporate plan and cross-departmental teams
to breach silo walls
10-15© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Divisional StructuresDivisional Structures
Divisional Structure An organizational structure composed of separate
business units each of which houses all the functions necessary to produce a specific product for a specific customer Divisions create smaller, manageable parts of a firm Divisions develop a business-level strategy to compete Functional managers report to divisional managers who
report to corporate management GE (a diversified conglomerate) is an example of this sort
of corporation; this approach requires KPIs to be effective
10-16© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Types of Divisional StructuresTypes of Divisional Structures
Product Structure Customers are served by self-contained divisions
that handle a specific type of product or service (such as jet engines or luxury cars). Allows functional managers to specialize in one product
area Division managers become experts in their area Removes need for direct supervision of division by
corporate managers (corporate just tracks KPIs such as customer satisfaction index or ROI)
Divisional management improves the use of resources
10-17© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Types of Divisional StructuresTypes of Divisional Structures
Geographic Structure Each region, country or area containing
customers with differing needs is served by a local, self-contained division locally producing or importing products to meet those needs.
10-18© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Types of Divisional StructuresTypes of Divisional Structures
Global geographic structureDifferent divisions serve each world region when
managers find different problems or demands across the globe.
Generally occurs when managers pursue a multi-
domestic strategy
10-19© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Types of Divisional StructuresTypes of Divisional Structures
Market (Customer) Structure Each kind of customer is served by a self-
contained division (e.g., Toyota, Lexus, Scion) Global market (customer) structure
Customers in different regions buy similar products so firms can locate manufacturing facilities and product distribution networks where they decide is best. Also achieves economy of scale. Firms pursuing a global strategy will use this type of structure.
10-20© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Product Team Design StructureProduct Team Design Structure
Product Team Structure Members permanently assigned to the team and empowered
to bring a product to market. Avoids problems of two-way communication and the
conflicting demands of functional and product team bosses. Cross-functional team is composed of a group of managers
from different departments working together to perform organizational tasks. Each team member has a channel back to his-her department.
Breaks down silo walls to focus silo power on satisfying customers
Toyota product development
10-21© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Hybrid StructuresHybrid Structures
Hybrid Structure The structure of a large organization with many
divisions that simultaneously uses many different organizational structures Managers can select the best structure for a particular
division—one division may use a functional structure, another division may have a geographic structure.
The ability to break a large organization into smaller units makes it easier to manage.
Customized, complex and confusing, but can be made to work if central management uses KPIs to track results.
10-22© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Coordinating Functions:Allocating Authority
Coordinating Functions:Allocating Authority
Authority: the power to hold people accountable for their actions and to make decisions concerning the use of organizational resources
Hierarchy of Authority: an organization’s chain of command, specifying the relative authority of each manager – the power spine
10-23© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Allocating AuthorityAllocating Authority
Span of Control The number of subordinates reporting directly to a
manager (How many departments do you oversee?) Line Manager
Managers in the direct chain of command who have authority over people and resources lower down
Primarily responsible for the production of goods or services (e.g., a plant manager)
Staff Manager Functional-area specialists who give advice and support
to line managers (e.g., a human resources specialist)
10-24© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Tall and Flat OrganizationsTall and Flat OrganizationsTall structures have many levels of authority and
narrow spans of control. Can slow decision-making and implementation Can hinder coordination Can garble communications as they are repeated down the
line Can separate decision-making from execution.
Flat structures have fewer levels and wider spans of control.
Creates quicker decision-making and communication but can overwork managers
Requires good line-of-sight control
10-25© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Downside of DecentralizationDownside of Decentralization
Decentralization diffuses control by distributing leadership; can cause loss of unified purpose, direction and focus
Rule of thumb: extremely decentralized organizations need a strong corporate culture so everyone has an embedded compass – all pointing in the same direction; replace external (management) control with internal (corporate DNA) control
Toyota faces this problem as it tries to evolve into a more decentralized, global organization
10-26© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Strategic AlliancesStrategic Alliances
Strategic Alliance Managers pool or share firm’s resources and
know-how with another company and the two firms share the risks and rewards of starting a new venture (Ford and Toyota on hybrids)
Network Structure: A series of strategic alliances an organization
creates with suppliers, manufacturers, and distributors to produce and market products.
10-27© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Basic Rules of StructureBasic Rules of Structure
Silos (vertical); demand (horizontal)Badly designed structure can garble
communication, divide decision from execution, and slow reaction time
Can frustrate initiative and leadershipNo bread dough; just say “NO!”In-source, outsource or leave empty
10-28© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
SummarySummaryLook in, look out. Base structure on your resources
and the external environment.Keep it small, simple, flexible, flat, and fast.Continually re-assess structure to see if it can be
improved to better match the changing environment, avoid waste, and provide more value to customers.
As you decentralize and empower, reinforce corporate DNA to assure shared direction, shared focus, and consistent decision-making.
Make certain managers have the right incentives and KPIs to motivate and measure performance; never get FDH (Fat Dumb Happy).