m a n a g e m e n t 2e H i t t / B l a c k / P o r t e r

1. m a n a g e m e n t 2eH i t t / B l a c k / P o r t e r Chapter 7: Organizational Structure and Design

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

3. Learning Objectives • Identify the common structures used by organizations and describe their strengths and weaknesses of each of these structures • Understand how network structures help firms manage their value chain activities and contribute to achieving a competitive advantage • Describe how environmental factors and the organization’s strategy influence organizational structure • Explain the types of organizational structure important for firms to use when operating in international markets

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

5. 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

6. Suncor Energy Organizational Structure Adapted from Exhibit 7.1

7. Differentiation Differentiation • Division of tasks into subtasks that are performed by individuals with specialized skills • Two types of differentiation: • Task differentiation • Cognitive differentiation

8. Integration Integration • The extent to which various parts of the organization interact, coordinate and cooperate with each other • Driving forces of integration include: • Interdependence: degree to which each unit or each person depends on other units or people to accomplish a required task • Uncertainty: the extent to which future input, process, and output factors cannot be forecast accurately

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

10. 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

11. Line of Authority A line of authority specifies who reports to whom

12. Unity of Command An employee should have only one boss

13. Span of Control The number of employees reporting to a given supervisor

14. Factors that Influence the Span of Control Adapted from Exhibit 7.3

15. Levels = 4 Span of Control = 3 Total Employees = 40 Tall Organizational Structures Adapted from Exhibit 7.4

16. Flat Organizational Structures Levels = 3 Span of Control = 7 Total Employees = 57 Adapted from Exhibit 7.4

17. Informalization Informal organization • Unofficial but influential means of communication, decision making, and control • The Japanese and the Chinese rely more heavily on informalization • Nemawasi: informal decision making that occurs outside of meetings in Japan • Guanxi: informal, reciprocal business relationships in China

18. 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 Centralization and Decentralization

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

20. Functional Structure Adapted from Exhibit 7.6

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. Product Structure Adapted from Exhibit 7.7

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. Division Structure Adapted from Exhibit 7.8

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. Customer Structure Adapted from Exhibit 7.9

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. Geographical/Regional Structure Adapted from Exhibit 7.10

29. 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 Geographical/Regional Structure

30. CEO Health Beauty Cleaning Food NA AP EMEA LA Matrix Structure Adapted from Exhibit 7.11 Adapted from Exhibit 7.11: Matrix Structure

31. 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

32. Mixed (or Hybrid) Structure Adapted from Exhibit 7.12

33. Mixed (or Hybrid) Structure (cont.) Adapted from Exhibit 7.12

34. Networked Structures Formal or informal relationships among units or organizations (along the firm’s value chain) • Low-networked: • Quantity and magnitude of externally networked activities is limited • High-networked: • Larger quantity and magnitude of externally networked activities

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

36. Network Structure Adapted from Exhibit 7.14 Adapted from Exhibit 7.14: Network Structure

37. Environment Complexity • Breadth and depth of differences and similarities in an organization’s external environment Dimensions of Environmental Complexity

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

39. International Strategy and Structure High Foreign Sales Geographic Structure Matrix Structure Worldwide Product Division Low Foreign Sales International Division Low International Product Diversity High International Product Diversity Adapted from Exhibit 7.16 Adapted from Exhibit 7.15: Matrix of Organizational Uncertainty