Organizational structure and design

1. Organizational structure and design S V Horner 2008

2. Organizational structure (overview) • Organization structure • Defines how tasks are allocated • Specifies reporting relationships • Defines formal coordinating mechanisms and interaction patterns S V Horner 2008

3. Organizational structure (overview) • Balances two conflicting forces • Need for division of tasks into meaningful groupings: division of labor • Need to integrate groupings for effectiveness and efficiency • Changes in response to organizational growth S V Horner 2008

4. Simple structure • Low departmentalization • Wide spans of control • Authority centralized in a single person • Low formalization S V Horner 2008

5. Simple structure • Start ups and small firms • Centralized in owner-manager • “walk around management” • Strategic controls at corporate level • Flexible, innovative, responsive • Most appropriate for focused business level strategies S V Horner 2008

6. Functional Structure S V Horner 2008

7. Chief Executive Officer or President Manager Production Manager Purchasing Manager Marketing Manager R&D Manager HR Manager IT Lower-level managers, specialists, and operating personnel Functional Structure S V Horner 2008

8. Functional structure • Workers grouped according to similar functions and work activities • Relatively centralized with CEO as key coordinator • Growth of rules, policies, and procedures • Strengths: economies of scale, worker expertise • Weaknesses: slow responsiveness, over centralization, low coordination between departments, potential conflict S V Horner 2008

9. The Divisional Structure Chief Executive Officer Corporate Office (Staff) Product A Product B Product C Product D S V Horner 2008

10. Divisional structure • Organized by type of output • Decentralized operations with central control • Semi-autonomous units functionally organized S V Horner 2008

11. Divisional structure • Strengths: responsiveness, internal coordination, decentralized • Weaknesses: less efficiency, coordination, and integration across divisions, less functional expertise S V Horner 2008

12. Divisional structure • Three important outcomes • Allows accurate monitoring and control • Facilitates comparison across product lines • Provides feedback for improving division performance S V Horner 2008

13. Variations of divisional structure • Strategic business unit (SBU) • Holding company (conglomerate) S V Horner 2008

14. SBU form of divisional structure S V Horner 2008

15. SBU form and related diversification • Related diversification or mix of related and unrelated businesses; i.e., limited links • Three levels: corporate headquarters (president and staff), strategic business units, product or geographic divisions S V Horner 2008

16. SBU form and related diversification • Divisions within SBUs are integrated with one another, but SBUs are independent of each other • Corporate staff oversees and consults with SBUs but provides little direct input into product strategy S V Horner 2008

17. SBU form • Advantages • greater decentralization • simplifies planning and control at corporate level • low synergies among SBUs • Disadvantages • added hierarchy • increases expenses • further removes corporate management from operations S V Horner 2008

18. Holding company structure S V Horner 2008

19. Holding company structure • Used when corporate portfolio is unrelated S V Horner 2008

20. S V Horner 2008

21. Matrix structure: Dual authority • Matrix bosses • Department head: responsible for functional expertise, maintaining rules, and standards • Brand, product, or project manager responsible for coordination, customers, and product performance S V Horner 2008

22. Matrix structure: Dual authority • Two-boss employees • May be subject to conflicting demands • Dual loyalty means dealing effectively with both bosses • Top leader directs both command structures S V Horner 2008

23. Matrix structure • Strengths • Enables coordination possible • Better resource utilization • Well suited to complex, unstable environment • Allows development of either functional (technical) or general management skills • Best suited for mid-size organizations with multiple products S V Horner 2008

24. Matrix structure • Weaknesses • Dual authority violates unity of command principle • Requires good people skills and training • Involves frequent direct contact and high commitment to matrix form • Requires proper environmental conditions S V Horner 2008

25. Matrix structure • May be most appropriate when: • Sharing scarce resources (e.g., people and/or equipment) across product lines • Responding to multiple outcomes (e.g., technical expertise and rapid change in product lines) • Environment is complex and unstable • Organization is of moderate size with multiple products S V Horner 2008

26. Structure and strategy • Structure follows strategy • Strategy determines structure, e.g., related diversification forces shift from functional to divisional structure • Structure constrains strategy • Structure difficult to change S V Horner 2008

27. Summary • Four basic types of structure: simple, functional, divisional, matrix • Each may be appropriate under certain conditions and strategies S V Horner 2008