Chapter 7

1. Chapter 7 Organizational Structure and Design

2. Learning Objectives • Explain the concepts of organizational structure and design. • Explain the concepts of differentiation and integration and their role in organizational structure and design. After studying this chapter, you should be able to:

3. Learning Objectives • Describe mechanisms used to achieve differentiation and integration and balance these two structural dimensions. • Identify the various structures used by organizations and describe their strengths and weaknesses. After studying this chapter, you should be able to:

4. Learning Objectives • List the environmental factors that influence organizational structure. • Determine the appropriate organizational structure for a firm given a set of internal and external factors. After studying this chapter, you should be able to:

5. Principles of Organizational Structure • Organizational structure • The sum of ways an organization divides its labor into distinct, coordinated tasks • Organizational design • Assessing the organization’s strategy and environmental demands • Determining the appropriate organizational structure

6. Principles of Organizational Structure • Organizational charts • Illustration of relationships • Units • Lines of authority among supervisors and subordinates • Illustrated by use of labeled boxes and connecting lines

7. CEO Executive Vice President Natural Gas and Alternative Energy Senior Vice President Major Projects Executive Vice President Marketing and Refining Executive Vice President Oil Sands Suncor Energy Organizational Structure Adapted from Exhibit 7.1: Suncor Energy Organizational Structure

8. Differentiation • Differentiation • Division of tasks into subtasks that are performed by individuals with specialized skills • Task differentiation • Cognitive differentiation

9. Integration • Integration • Facilitation of cooperation and interaction of various parts of the organization • Interdependence • Pooled • Sequential • Reciprocal

10. High Low High Low Appropriateness of Rules, Goals, Values Level of Appropriateness Level of Interdependence Level of Uncertainty Adapted from Exhibit 7.2: Appropriateness of Rules, Goals, Values

11. Formalization • Formalization • the official and defined structures and systems in decision making, communication, and control in an organization • Line of authority • Unity of command • Span of control

12. Factors that Influence the Span of Control • Job complexity—Jobs that are complicated require more managerial input and involvement and thus the span of control tends to be narrower. • Job similarity—If one manages a group of employees performing similar jobs, the span of control can be considerably wider than if the jobs of subordinates are substantially different. • Geographic proximity of supervised employees—Because employees who work in one location are more easily supervised than employees in dispersed locations, physical proximity to employees tends to allow a wider span of control. • Amount of coordination—A narrower span of control is advisable in firms where management expends much time coordinating tasks performed by subordinates. Adapted from Exhibit 7.3: Factors that Influence the Span of Control

13. Factors that Influence the Span of Control • Abilities of employees—Supervisors who manage employees who are more knowledgeable and capable can have a wider span of control than supervisors managing less knowledgeable and capable employees. The greater the abilities of employees, the less managerial inputs are required and thus a wider span of control is possible. • Degree of employee empowerment—Because employees who are trusted and empowered to make decisions need less supervision than employees with less autonomy and decision-making discretion, supervisors who empower their employees can have a wider span of control. • Ability of management—More capable managers can manage more employees than less competent managers. The abilities of managers to educate employees and effectively respond to their questions lessen the need for a narrow span of control. Adapted from Exhibit 7.3: Factors that Influence the Span of Control

14. Factors that Influence the Span of Control • Technology—Communication technology, such as mobile phones, fax, e-mail, workshare software, can allow managers to effectively supervise employees who are not geographically proximate, have complex and different jobs, and require significant coordination. Adapted from Exhibit 7.3: Factors that Influence the Span of Control

15. Exhibit Tall and Flat Organizational Structures Tall Organizational Structure Levels = 4 Span of Control = 3 Total Employees = 40 Adapted from Exhibit 7.4: Tall and Flat Organization Structures

16. Exhibit Tall and Flat Organizational Structures Flat Organizational Structure Tall Organizational Structure Levels = 3 Span of Control = 7 Total Employees = 57 Adapted from Exhibit 7.4: Tall and Flat Organization Structures

17. Informalization • Informal organization • Unofficial but influential means of • Communication • Decision making • Control

18. Centralization and Decentralization • Centralized organizations • Restrict decision making to fewer individuals, usually at the top of the organization • Decentralized organizations • Tend to push decision-making authority down to the lowest level possible

19. Formal Informal Centralized Decentralized Combinations of Formal/Informal and Centralized/Decentralized U. S. Military Philips Electronics Mitsubishi Club Med Adapted from Exhibit 7.5: Combinations of Formal/Informal and Centralized/Decentralized

20. Recruiting Training Compensation CEO Vice President Marketing Vice President Sales Vice President Manufacturing Vice President Human Resources Purchasing East region Market research Operations South region Advertising Logistics West region Promotion Functional Structure Adapted from Exhibit 7.6: Functional Structure

21. Strengths Small to medium-sized firms with limited product diversification Specialization of functional knowledge Less duplication of functional resources Facilitates coordination within functional areas Weaknesses Weak coordination across functional groups Restricted view of overall organizational goals Limits customer attention Slower response to market changes Burdens chief executives with decisions Functional Structure

22. Marketing Operations Sales CEO Vice President Product A Vice President Product B Vice President Product C Vice President Product D Marketing Marketing Marketing Operations Operations Operations Sales Sales Sales Product Structure Adapted from Exhibit 7.7: Product Structure

23. Strengths More focus on products and customers Easier to evaluate performance of the product Product responsiveness to market changes Less burden on the top executive in making operating decisions Weaknesses Duplication and lack of economies of scale Problems for customers purchasing across multiple product groups Conflicts between product group and corporate objectives Conflict between product groups Product Structure

24. CEO Vice President Medical systems Vice President Bioscience Vice President Clinical Vacutainer Labware Anesthesia Diagnostics Cell biology Hypodermic Consulting Immunology Infusion Division Structure Adapted from Exhibit 7.8: Division Structure

25. Strengths Reduced functional duplication Customer focus can increase Cross-product coordination is eased Cross-regional coordination is often eased Weaknesses Most appropriate only for diversified, large companies with many products and product families May inhibit cross-division coordination Coordination difficulties between division and corporate objectives Division Structure

26. CEO Vice President Retail Vice President Industrial Vice President Military Small Domestic Army Mid-size International Navy Customer Structure Adapted from Exhibit 7.9: Customer Structure

27. Strengths In-depth understanding of specific customers Responsiveness to changes in customer preferences and needs Responsiveness to moves by competitors to better serve customers Weaknesses Duplication of functional resources in each customer unit Coordination between customer units and corporate objectives Failure to leverage technology or other strengths in one unit across other units Customer Structure

28. Chief Executive Officer Vice President Latin America Vice President North America Vice President Europe Vice President Southeast Asia Vice President Africa Geographical/Regional Structure • Strengths: • Facilitates local responsiveness • Develops in depth knowledge of specific regions/countries • Creates accountability by region • Facilitates cross-functional coordination within regions • Weaknesses: • Often creates cross-regional coordination difficulties • Can inhibit ability to capture global scale economies • Duplicates resources and functions across regions Adapted from Exhibit 7.10: Geographical/Regional Structure

29. Chief Executive Officer Health Beauty Cleaning Food NA AP EMEA LA Matrix Structure Adapted from Exhibit 7.11: Matrix Structure

30. Strengths Information flow Decision quality Suited to a changing and complicated business environment Flexible use of human resources Weaknesses Complexity of performance evaluations Inhibited ability to respond to changing conditions Diffused accountability Conflicts between differing perspectives and objectives Matrix Structure

31. CEO Vice President Finance Vice President Human Resources Vice President Operations Vice President Product A Vice President Product B Auditing Recruiting Purchasing Retail Education Accounting Training Manufacturing Industrial Government Treasury Compensation Logistics Hybrid Structures Adapted from Exhibit 7.12: Hybrid Structure

32. CEO Vice President North America Vice President Latin America Asia Pacific Vice President EMEA Marketing Marketing Marketing Marketing Operations Operations Operations Operations Sales Sales Sales Sales Hybrid Structures: Continued Adapted from Exhibit 7.12: Hybrid Structure

33. Networked Structures • Formal or informal relationships among units or organizations (along the firm’s value chain) • Outsourcing • Value chain as a tool for understanding networked structures

34. Outsourced Structure Support Activities Primary Activities Adapted from Exhibit 7.13: Outsourced Structure

35. Outsourced Structure Outsourced to EDS Support Activities Primary Activities Adapted from Exhibit 7.13: Outsourced Structure

36. Network Structure Adapted from Exhibit 7.14: Network Structure

37. Simple Complex Static Dynamic Organizational Uncertainty Low uncertainty Moderate uncertainty Low demands placed on structure to facilitate extent or speed of coordination Low demands placed on structure for broad coordination, high for speed of coordination Moderate Uncertainty High uncertainty High demands placed on structure to facilitate extent or speed of coordination, low demand on speed High demands placed on structure to facilitate both extent and speed of coordination Adapted from Exhibit 7.15: Matrix of Organizational Uncertainty

38. International Strategy and Structure Geographic structure Matrix structure High Foreign Sales International division Worldwide product division Low Foreign Sales Low International Product Diversity High International Product Diversity Adapted from Exhibit 7.16: International Strategy and Structure