Business 5301 Fundamentals of Organisational Structure

1. Business 5301Fundamentals of Organisational Structure Information-Processing Perspective on Structure Organisation Design Alternatives Functional, Divisional and Geographical Designs Matrix Structure Horizontal Structure Hybrid Structure Applications of Structural Design

2. Page 2 Business 5301 Organisation Structure The three key components in the definition of organisation structure are: Organisation structure designates formal reporting relationships, including the number of levels in the hierarchy and the span of control of managers and supervisors Organisation structure identifies the grouping together of individuals into departments and of departments into the total organisation Organisation structure includes the design of systems to ensure effective communication, coordination and integration of effort across departments

3. Page 3 Business 5301 Organisation Structure The three key elements pertain to both vertical and horizontal aspects of organising. Organisation structure is reflected in the organisation chart which is the visual representation of a whole set of underlying activities and processes in an organisation Historically, a hierarchical organisation structure existed, but now we see a number of different organisation structures existing to take advantage of advances in technology, communication and globalisation. Information-Processing Perspective on Structure The organisation should be designed to provide both vertical and horizontal information flow as necessary to accomplish the organisation�s overall goals If the structure doesn�t fit the information requirements of the organisation, people will have either too little information or will spend time processing information that is not vital to their tasks Vertical linkages are designed primarily for control, horizontal linkages are designed for co-ordination and collaboration, which usually means reducing control Traditional organisations are designed for more vertical communication structures while more contemporary ones are designed for horizontal communicationInformation-Processing Perspective on Structure The organisation should be designed to provide both vertical and horizontal information flow as necessary to accomplish the organisation�s overall goals If the structure doesn�t fit the information requirements of the organisation, people will have either too little information or will spend time processing information that is not vital to their tasks Vertical linkages are designed primarily for control, horizontal linkages are designed for co-ordination and collaboration, which usually means reducing control Traditional organisations are designed for more vertical communication structures while more contemporary ones are designed for horizontal communication

4. Page 4 Business 5301 A Sample Organization Chart

5. Page 5 Business 5301 The Relationship of Organization Design to Efficiency vs. Learning Outcomes

6. Page 6 Business 5301 Vertical Information Linkages Vertical linkages are used to co-ordinate activities between the top and bottom of an organisation and are designed primarily for control of the organisation Organisations may use any of a variety of structural devices to achieve vertical linkage, including hierarchial referrals, rules, plans and formal management information systems. The three main methods of vertical linkage are: Hierarchical referral Rules and Plans Vertical Information Systems (which includes periodic reports, written information and computer-based communications distributed to managers).

7. Page 7 Business 5301 Horizontal Information Linkages Horizontal linkage refers to the amount of communication and co-ordination horizontally across organisation departments Horizontal linkage mechanisms often are not drawn on the organisation chart, but nevertheless are part of organisation structure. Some of these include: Information Systems Direct contact (a person in a liaison role between departments) Tasks force Full-time integrator Integrator (such as a project or brand manager) Teams

8. Page 8 Business 5301 Ladder of Mechanisms for Horizontal Linkage and Coordination

9. Page 9 Business 5301 Project Manager Locationin the Structure

10. Page 10 Business 5301 Organisation Design Alternatives The overall design of organisation structure indicates three things needed defined worked activities, reporting relationships and departmental groupings Defined work activities Reporting relationships Departmental Grouping Defined work activities � departments are created to perform tasks considered strategically important to the company. Defining a specific department is a way to accomplish tasks deemed valuable by the organisation to accomplish its goals Reporting relationships � often called the chain of command are represented by vertical lines on an organisation chart. The definition of departments are the drawing of reporting relationships defines how employees are to be grouped into departments. Departmental grouping options � options for departmental grouping including functional grouping, divisional grouping and multi-focused grouping and horizontal groupings. Departmental grouping affects employees because they share a common supervisor and common resources, are jointly responsible for performance and tend to identify and collaborate with one another Functional grouping � places employees together who perform similar functions or work processes or who bring similar knowledge and skills to bear Defined work activities � departments are created to perform tasks considered strategically important to the company. Defining a specific department is a way to accomplish tasks deemed valuable by the organisation to accomplish its goals Reporting relationships � often called the chain of command are represented by vertical lines on an organisation chart. The definition of departments are the drawing of reporting relationships defines how employees are to be grouped into departments. Departmental grouping options � options for departmental grouping including functional grouping, divisional grouping and multi-focused grouping and horizontal groupings. Departmental grouping affects employees because they share a common supervisor and common resources, are jointly responsible for performance and tend to identify and collaborate with one another Functional grouping � places employees together who perform similar functions or work processes or who bring similar knowledge and skills to bear

11. Page 11 Business 5301 Organisation Design Alternatives Divisional grouping � means people are organised to what the organisation produces Multi-focused grouping � means an organisation embraces two structural grouping alternatives simultaneously. These structural forms are often called matrix or hybrid Horizontal grouping � means employees are organised around core work processes, the end-to-end work, information and material flows that provide value directly to customers

12. Page 12 Business 5301 Structural Design Options for Grouping Employees into Departments

13. Page 13 Business 5301 Functional, Divisional and Geographical Designs Functional structure � activities are grouped together by common functions from the bottom to the top of the organisation. Strengths � all human knowledge and skills with respect to specific activities are consolidated, providing a valuable depth of knowledge for the organisation. This is most effective when in-depth expertise is critical to meeting organisational goals. It also promotes economies of scale � through co-location and and sharing facilities. The main weakness is a slow response to environmental changes that require co-ordination across departments.

14. Page 14 Business 5301 Strengths and Weaknesses of Functional Organisation Structure Strengths Allows economies of scale within functional departments Enables in-depth knowledge and skill development Enables organisation 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 co-ordination among departments Results in less innovation Involves restricted view of organisational goals

15. Page 15 Business 5301 Functional Structure with Horizontal Linkages Shift towards flatter, more horizontal structures Horizontal linkages are introduced in the organisation Divisional structure � could also be called product structure or strategic business units With this structure, divisions can be organised according to individual products, services, product groups, major projects or programmes, divisions, businesses or profit centres See Exhibit 3.8 � the divisional structure decentralises decision making � and has its strengths in achieving co-ordination across functional departments

16. Page 16 Business 5301 Strengths and Weaknesses of Divisional Organisation Structure Strengths Suited to fast change in unstable environment Leads to client satisfaction because product responsibility and contact points are clear Involves high co-ordination across functions Allows units to adapt to differences in products, regions and clients Best in large organisations with several products Decentralises decision making Weaknesses Eliminates economies of scale in functional departments Leads to poor co-ordination across product lines Eliminates in-depth competence and technical specialisation Makes integration and standardisation across product lines difficult

17. Page 17 Business 5301 Reorganization from Functional Structure to Divisional Structure at Info-Tech

18. Page 18 Business 5301 Structural Design Options for Grouping Employees (Continued)

19. Page 19 Business 5301 Structural Design Options for Grouping Employees (Continued)

20. Page 20 Business 5301 Geographical Structure Structure is around the organisation�s users or customers � the most common structure in this category is geography Each region of the country may have distinct tastes and needs. Each geographic unit includes all functions required to produce and market products in the region The organisation can adapt to specific needs of its own region and employees identify with regional goals rather than with national goals. Horizontal co-ordination within a region is emphasised rather than linkages across regions or to the national office

21. Page 21 Business 5301 Geographical Structurefor Apple Computer

22. Page 22 Business 5301 Matrix Structure When organisation needs to multi-focused in that both product and function or product and geography are emphasised at the same time � this is the objective of the matrix structure Emphasis is on horizontal linkage � both product division and functional structures are implemented simultaneously Conditions for the matrix � the matrix is the correct structure when the following conditions are met. Pressures exist to share scarce resources across product lines Environmental pressures exists for two or more critical outputs � such as industry and product knowledge The environmental domain of the organisation is both complex and uncertain

23. Page 23 Business 5301 Matrix Structure The matrix formalises horizontal teams along with the traditional vertical hierarchy and tires to give equal balance to both � however, there may be a shift one way or the other � which results in either the functional or the product matrix � which determines authority and co-ordinating activities Strengths and weaknesses � The matrix structure is best when environmental change is high and when goals reflect a dual requirement, such as for both product and functional goals. It facilitates communication and coordination to cope with rapid environmental change and enables an equal balance between product and functional bosses Weakness - some employees experience dual authority which is frustrating and confusing � tendency as well to spend lots of time in meetings

24. Page 24 Business 5301 Dual-Authority Structure in a Matrix Organization

25. Page 25 Business 5301 Matrix Structure forWorldwide Steel Company

26. Page 26 Business 5301 Horizontal Structure Organizes employees around core processes Organizations typically shift towards a horizontal structure during a procedure called re-engineering. Re-engineering � or business process re-engineering � basically means the re-design of a vertical organization along its horizontal workflows and processes. Processes � refers to an organized group of related tasks and activities that work together to transform inputs into outputs that create value for customers

27. Page 27 Business 5301 A Horizontal Structure

28. Page 28 Business 5301 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

29. Page 29 Business 5301 Virtual Network Structure Extends the scope of horizontal co-ordination and collaboration beyond the boundaries of the traditional organization. Outsourcing � means to contract out certain corporate functions, such as manufacturing, information technology, or credit processing, to other companies. Virtual Network Structure � (also called a modular structure) � the firm subcontracts many or most of its major processes to separate companies and co-ordinates its activities frm a small headquarters organization.

30. Page 30 Business 5301 Partial Virtual Network Structure at TiVo

31. Page 31 Business 5301 Virtual Network Structure

32. Page 32 Business 5301 Hybrid Structure Hybrid structure combines characteristics of various approaches tailored to specific needs. Most companies combine characteristics of functional, divisional, geographic or horizontal structures Hybrid structures tend to be used in rapidly changing environments because they ffer the organisation greater flexibility Different types of hybrid � functional and divisional structures, as well as functional and horizontal structures Large organisations may have many different types of hybrid organisations

33. Page 33 Business 5301 Hybrid StructurePart 1. Sun Petrochemical Products

34. Page 34 Business 5301 Hybrid StructurePart 2. Ford Customer Service Division

35. Page 35 Business 5301 The Relationship of Structure to Organization�s Need for Efficiency vs. Learning

36. Page 36 Business 5301 Symptoms of Structural Deficiency Decision making is delayed or lacking in quality The organization does not respond innovatively to a changing environment Too much conflict is evident