Thomson Learning © 20043-1 Chapter Three Fundamentals of Organization Structure

Thomson Learning© 2004 3-1

Chapter Three

Fundamentals ofOrganization Structure


A 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


Organizational Structures

Functional Functional + Cross-

Functional Linkages

Divisional Matrix Horizontal Modular Hybrid


Symptoms of Structural Deficiency Decision making

is delayed / poor quality:

Overloaded at top Insufficient

delegation to bottom Diagnosis:

Inadequate vertical (esp.) linkages


Symptoms of Structural Deficiency Lack of adaptive

response: departmental ‘walls’ internal focus Diagnosis:

Inadequate horizontal and external linkages


Symptoms of Structural Deficiency Too much

conflict is evident:

Lack of goal congruence

Sub-optimization Diagnosis:

Inadequate horizontal linkages


The Relationship of Organization Design to Efficiency vs. Learning Outcomes

Horizontal OrganizationDesigned for Learning (Exploration)

Vertical OrganizationDesigned for Efficiency (Exploitation)

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


Ladder of Non-Structural Mechanisms for Vertical Linkage and Coordination

HIGH

LOW

LOW

Hierarchical Referral

Rules & Plans

Vertical Information Systems

Am

ount

of

Hori

zonta

lC

oord

inati

on R

equir

ed

Information Capacity of Linkage Mechanism

H IGH


Ladder of Non-Structural Mechanisms for Horizontal Linkage 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


Project Manager Locationin the Structure (Full-time Integrators)

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


Teams Used for Horizontal Coordination at Wizard Software Company

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


Structural Design Options for Grouping Employees into Departments

P ro du ctD iv is io n 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.


Strengths and Weaknesses of Functional Organization Structure

STRENGTHS: Allows economies of

scale within functional departments

Enables in-depth knowledge and skill development

Enables organization to accomplish functional goals

Is best with only one or a few products

WEAKNESSES: Slow response time to

environmental changes May cause decisions to

pile on top, hierarchy overload

Leads to poor horizontal coordination among departments

Results in less innovation Involves restricted view

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


Geographical Structurefor Apple Computer

CEOSteve Jobs

AppleEurope

ApplePacific

France

AppleProducts

Asia

Japan

Australia

AppleAmericas

Canada

Latin America/Caribbean

SalesService andMarketingto Regions

Source: www.apple.com


Strengths and Weaknesses of Divisional Organization Structure

STRENGTHS: Suited to fast change in

unstable environment Leads to client satisfaction

because product responsibility and contact points are clear

Involves high coordination across functions

Allows units to adapt to differences in products, regions, clients

Best in large organizations with several products

Decentralizes decision-making

WEAKNESSES: Eliminates economies

of scale in functional departments

Leads to poor coordination across product lines

Eliminates in-depth competence and technical specialization

Makes integration and standardization across product lines difficult

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


Reorganization from Functional Structure to 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


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


Structural Design Options for 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.


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 Matrix Organization


STRENGTHS: Achieves coordination

necessary to meet dual demands from customers

Flexible sharing of human resources across products

Suited to complex decisions and frequent changes in unstable environment

Provides opportunity for both functional and product skill development

Best in medium-sized organizations with multiple products

WEAKNESSES: Causes participants to experience

dual authority, which can be frustrating and confusing

Means participants need good interpersonal skills and extensive training

Is time consuming; involves frequent meetings and conflict resolution sessions

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

Requires great effort to maintain power balance

Strengths and Weaknesses of Matrix Organization Structure

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


Structural Design Options for 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.


A 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.


Strengths and Weaknesses of Horizontal Structure

STRENGTHS: Flexibility and rapid response to

changes in customer needs Directs the attention of everyone

toward the production and delivery of value to the customer

Each employee has a broader view of organizational goals

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

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

WEAKNESSES: Determining core processes to

organize around is difficult and time-consuming

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

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

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

Can limit in-depth skill development


Modular Structure

Product Design

Manufacturing

HR Admin

Procurement & Distribution

Widgets Inc.

People ‘R’ Us

Cutting Edge Design

Build MastersAce Logistics


Strengths and Weaknesses of Modular Design

Strengths- Enables small org’s to

obtain talent & resources worldwide

- Gives immediate reach & scale without large investments in factories, equip, distribution

- Enables the org to be highly flexible & responsive to change

- Reduces administrative overhead costs

Weaknesses- Managers do not have hands-on

control of many activities and employees (Quality assurance)

- Requires time & skill to manage relationships and possible conflict with contract partners

- There is a risk of organizational failure if a partner fails to deliver or goes out of business

- Employee commitment weakened by divided loyalties and feeling that can be replaced


FunctionalStructure

Hybrid StructurePart 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.


Hybrid StructurePart 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


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

Horizontal

Structure

DominantStructuralApproach

Horizontal:• Coordination• Learning• Innovation• Flexibility

Vertical:• Control• Efficiency• Stability• Reliability

MatrixStructu

re

DivisionalStructure

Functional withcross-functional

teams, integratorsFunctionalStructure

Modular

Structure

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Thomson Learning © 20043-1 Chapter Three Fundamentals of Organization Structure