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Session Three
Fundamentals of
Organization Structure
Top Management Responsibilities
Determine the organization’s purpose Determine the organization’s goals in order to
enact and fulfill the purpose Develop strategy to achieve the goals Design the organization to enact the strategy
given the demands of: Changing and uncertain stakeholders Changing and uncertain environment
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Environment/Goals/Strategy/Structure Analysis Process
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ExternalEnvironmentalAssessment
InternalEnvironmentalAssessment
2. Goals 3. Strategy 4. Structure
6. Outcome Assessment – have you been successful?
Learning orEfficiency
Learning orEfficiency
1. Tells you what you should do
5. Outcome
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Selecting Strategy and Design to Achieve Organizational Goals1. Goals Where you want to go
2. Strategy How you are going to get there. A plan for interacting with the competitive environment to achieve organizational goals.
3. Structure How you can do what you need to do to implement strategy and achieve goals
Environment Goals Strategy Structure
Selecting Structure to Implement Organizational Strategy Different structures better allow the
implementation of certain types of strategies We need to understand the theoretical types
of organizational structure to see which ones fit which types better allow the implementation of types of strategies, which in turn best achieve the desired goals
Looking to understand the types and how to create them
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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
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The Relationship of Organization Design to Efficiency vs. Learning Outcomes
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
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Vertical and Horizontal Linkages in Organizations Vertical – emphasis on efficiency and control
Specialized tasks Strict hierarchy, many rules Vertical communication and reporting systems Few teams, task forces or integrators Centralized decision making
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Vertical and Horizontal Linkages in Organizations Horizontal – emphasis on learning
Shared tasks, empowerment Relaxed hierarchy, few rules Horizontal, face-to-face communication Many teams and task forces Decentralized decision making
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Vertical Information Linkages
Used to delineate activities between different levels of an organization
Designed mainly to facilitate control and create efficiency
Formalized systems
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Vertical Information Linkages
Hierarchical referral Chain of command to pass information up and
down the organization Rules and plans
Procedures for responding to routine or repetitive tasks without communicating up the hierarchy
Vertical information systems Reports that pass information up and down the
hierarchy without face-to-face communication
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Horizontal Information Linkages
Primarily designed to overcome barriers between departments and coordinate employees in unity of effort
Bring people together for learning, creativity and teamwork
Used to aid rather than control activities
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Horizontal Information Linkages
Information systems – knowledge sharing Direct contact - creation of a liaison person
located in one department but responsible for communicating and coordinating with another
Task forces – temporary committees composed of representatives from many departments
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Horizontal Information Linkages
Full-time integrator – product/project/ program/brand manager located outside of
the various departments but is responsible for coordinating several departments Need excellent people skills, be able to span
boundaries of departments with different priorities and perspectives
Must be able to build trust and coalitions and resolve problems
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Project Manager Location in 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
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Horizontal Information Linkages
Teams Permanent task forces that are used with full-time
integrators when activities require strong coordination over a long time across several functions
Virtual teams – one made up of organizationally or geographically dispersed members who are linked through technology
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Ladder of Mechanisms for Horizontal Linkage and Coordination
HIGHLOW
LOW Information Systems
Direct Contact
Task Forces
Full-time Integrators
Teams
Am
ount
of
Hor
izon
tal
Coo
rdin
atio
n R
equi
red
Cost of Coordination in Time and Human Resources
H IGH
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Structural Design Options for Grouping Employees into Departments Places employees who perform similar functions,
bring similar knowledge and skills, together
Engineering Marketing Manufacturing
CEO
FunctionalGrouping
Source: Adapted from David Nadler and Michael Tushman,Strategic Organization Design (Glenview, Ill.: Scott Foresman, 1988), 68.
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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
Source: Adapted from Robert Duncan, “What Is the Right Organization Structure? Decision Tree Analysis Provides the Answer,” Organizational Dynamics (Winter 1979): 429.
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Strengths and Weaknesses of Functional Organization Structure 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
goals
Source: Adapted from Robert Duncan, “What Is the Right Organization Structure? Decision Tree Analysis Provides the Answer,” Organizational Dynamics (Winter 1979): 429.
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Structural Design Options for Grouping Employees into Departments Organizing people together according to what the
firm produces
DivisionalGrouping
Source: Adapted from David Nadler and Michael Tushman,Strategic Organization Design (Glenview, Ill.: Scott Foresman, 1988), 68.
ProductDivision 1
ProductDivision 2
ProductDivision 3
CEO
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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
Source: Adapted from Robert Duncan, “What Is theRight Organization Structure? Decision Tree AnalysisProvides the Answer,” Organizational Dynamics(Winter 1979): 431.
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Strengths and Weaknesses of Divisional Organization Structure 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.
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Structural Design Options for Grouping Employees (Continued) The organization embraces two structural groupings
simultaneously – matrix or hybrid
MultifocusedGrouping CEO
ManufacturingMarketing
ProductDivision 2
ProductDivision 1
Source: Adapted from David Nadler and Michael Tushman, Strategic Organization Design (Glenview, Ill.: Scott Foresman, 1988), 68.
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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
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Matrix Structure
Appropriate when the organization’s structure needs to be multifocused (i.e. product and function) at the same time
Strong form of horizontal linkage Product and functional managers have equal
authority – similar to integrator roles
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Matrix Structure – Conditions
Pressure exists to share scarce resources across product lines Medium sized business that needs to be flexible in its
use of resources Environmental pressure exists for two or more
outputs Balance of power between functions and products
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Matrix Structure – Conditions
Environment is uncertain and complex Frequent changes and high interdependence between
departments needs lots of coordination and information sharing (vertical and horizontal)
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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
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.
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STRENGTHS: Provides opportunity for both functional and
product skill development
Best in medium-sized organizations with multiple products
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.
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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
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.
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WEAKNESSES: 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.
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Structural Design Options for Grouping Employees (Continued) Employees are organized around core work
processes. All people who work on a core process are brought together in a group rather than separated into functional departments
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.
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A Horizontal Structure
Sources: 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.
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 Process
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Horizontal Structure
Organizes employees around core processes
Supporting activities cross processes (i.e. HR)
Generally made after a shift in focus – business process reengineering
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Horizontal Structure
Structure based on core processes rather than tasks Processes Business Development, Technical
Support Tasks Market Research, Call Centres
Self-directed teams rather than individuals Process owners are responsible for all tasks
within the core process
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Horizontal Structure
Team members provided skills, tools, motivation, and authority to manage processes and cross-trained to perform each other’s jobs
Freedom to think creatively and flexibly
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Horizontal Structure
Customer driven rather than task driven Effectiveness measured by end-of-process
performance objectives
Culture of openness, trust and collaboration focused on continuous improvement
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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
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.
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Strengths and Weaknesses of Horizontal Structure
STRENGTHS: 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
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.
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Strengths and Weaknesses of Horizontal Structure 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
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.
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Strengths and Weaknesses of Horizontal Structure WEAKNESSES:
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
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.
Virtual Network Structure
Many organizations OUTSOURCE secondary nor non-core operations to other organizations (geography is not a limiting factor) as a way of improving efficiency – can allocate more resources to competitive advantage generating competencies
Non-core activities: accounting, legal, marketing, manufacturing
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Virtual Network Structure
STRENGTHS More flexible and faster responses More efficient allocation of resources could lead to
better effectiveness Better access to better, innovative expertise –
R&D Reduced labour costs More focused organization
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Virtual Network Structure
WEAKNESSES Hard to determine core processes Requires change in culture, job design,
management philosophy, IS and rewards Much coordination needed Control is reduced Agency concerns
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FunctionalStructure
Hybrid StructurePart 1. Sun Petrochemical Products
President
TechnologyVice
President
FinancialServices
Vice Pres.
HumanResources
Director
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.
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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
Hor
izon
tal S
truc
ture
Teams
Teams
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The Relationship of Structure to Organization’s Need for Efficiency vs. Learning
HorizontalStructure
DominantStructuralApproach
Horizontal:• Coordination• Learning• Innovation• FlexibilityVertical:
• Control• Efficiency• Stability• Reliability
MatrixStructure
DivisionalStructure
Functional withcross-functional
teams, integratorsFunctionalStructure
Modular Structure
Structural Alignment Need to find and then implement the right
balance of vertical and horizontal control Vertical
Efficiency and stability Best in predictable, simple, stable environments,
with efficiency goals and low-cost strategies Horizontal
Effectiveness, learning and flexibility Best in uncertain, complex, dynamic
environments with effectiveness goals and differentiation strategies
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Symptoms of Structural Deficiency Organizational structure needs to be
evaluated periodically to make sure there are no deficiencies: Decision making is delayed or lacking in quality The organization does not respond innovatively to
a changing environment Employee performance declines and goals are
not being met Too much conflict is evident