FUNCTIONAL ORGANIZATIONAL STRUCTURES

1. FUNCTIONAL ORGANIZATIONAL STRUCTURES A. The building blocks of a “typical” organization structure General Manager Engineering Manufacturing Marketing Finance and Accounting Personnel Research and Development B. The building blocks of a process-oriented functional structure General Manager Foundry and Castings Milling and Grinding Screw Machining Finishing and Heat Treating Inspection Loading and Shipping Customer Service Billing and Accounting

2. ADVANTAGES OF A FUNCTIONAL STRUCTURE • Structure is tied to key activities within the business • Enhances operating efficiency where tasks are routine and repetitive • Preserves centralized control of strategic results • Allows benefits of specialization and learning/experience curve effects to be fully exploited • Promotes high emphasis on craftsmanship and professional standards • Well suited to developing distinctive competencies in one or more functional areas • Simplifies training of management specialists Environment: Best in low uncertainty, stable Size: Best for small to medium Goals/Strategy: Internal efficiency & technical specialization

3. DISADVANTAGES OF A FUNCTIONAL STRUCTURE • Forces profit responsibility to the top. • May lead to uneconomically small units or under utilization of specialized facilities and manpower. • Functional myopia often works against entrepreneurship, against adapting to change, and against attempts to restructure. • Limits development of general managers. • Functional specialists often attach more importance to what’s best for the functional area than to what’s best for the whole business. • Poses problems of functionalcoordination. • Can lead to interfunctional rivalry, conflict, and empire building. • May promote overspecialization and narrow management viewpoints.

4. A DECENTRALIZED BUSINESS/PRODUCT TYPE OF ORGANIZATION STRUCTURE Chief Executive Officer Vice President, Administration Vice President, Corporate Support Services Finance Engineering Services Accounting Research & Development Planning Personnel Marketing Services Legal Affairs Manufacturing Services Public Relations General Manager Business Division B General Manager Business Division C General Manager Business Division A Quality Control Quality Control Quality Control Personnel Personnel Personnel Purchasing Purchasing Purchasing Manufacturing Manufacturing Manufacturing Marketing Marketing Marketing

5. ADVANTAGES OF BUSINESS/PRODUCT TYPE STRUCTURE • Puts responsibility for business strategy in closer proximity to each business’s unique environment • Offers logical and workable means of decentralizing responsibility and delegating authority in diversified organizations • Allows critical tasks and specialization to be organized to fit business strategy • Frees CEO to handle corporate strategy issues • Creates clear profit/loss accountability Environment: Moderate to high uncertainty, changing Size: Moderate to very large Goals/Strategy: Customer responsiveness & external effectiveness

6. DISADVANTAGES OF BUSINESS/PRODUCT TYPE STRUCTURE • Leads to proliferation of staff functions, policy inconsistencies between divisions, and problems of coordination of divisional operations • May lead to excessive divisional rivalry for corporate resources and attention • Business/division autonomy works against achieving coordination of related activities in different business units • Poses a problem of how much authority to centralize and how much to decentralize • Raises issue of how to allocate corporate level overhead

7. A MATRIX ORGANIZATION STRUCTURE General Manager Heads of Functional Departments - R&D, Engineering, Manufacturing, Marketing, Finance, Personnel Functional Specialists Functional Specialists Functional Specialists Functional Specialists Managers of Business Units, Venture Teams, Product Lines, Geographic Areas, and/or Projects. Functional Specialists Functional Specialists Functional Specialists Functional Specialists Functional Specialists Functional Specialists Functional Specialists Functional Specialists Functional Specialists Functional Specialists Functional Specialists Functional Specialists (Arrows indicate reporting channels)

8. ADVANTAGES OF A MATRIX STRUCTURE • Promotes making trade-off decisions on the basis of “what’s best for the organization as a whole.” • Creates checks and balances among competing viewpoints • Permits more attention to each dimension of strategic priority • Facilitates simultaneous pursuit of different types of strategic initiatives • Encourages cooperation, consensus building, conflict resolution, and coordination of related activities Environment: High uncertainty Size: Small to moderate Goals/Strategy: Flexibility & specialization

9. DISADVANTGES OF A MATRIX STRUCTURE • It is hard to move quickly and decisively without getting clearance from many other people • Promotes an organizational bureaucracy and hamstrings creative entrepreneurship • Violation of the scalar chain principle of one manager • Very complex to manage • Hard to maintain “balance” between the two lines of authority • So much shared authority can result in a transactions logjam and disproportionate amounts of time being spent on communications