Designing Organizational Structure: Specialization & Coordination

1. Designing Organizational Structure: Specialization & Coordination Chapter 6

2. FunctionalStructure • People grouped based on: • Common skills/ expertise (SBA Faculty) • Shared resources (AV Services) • The result of horizontal differentiation • Simplest structure • As tasks requirements emerge, functions emerge & become specialized, & core competences develop.

3. Advantages of Functional Structure • Opportunities to learn skills from one another & become more specialized & productive • Most skilled are promoted • Monitor, control & supervise peers • Why is that important? • Norms & values develop over time more committed, more effective(stronger culture)

4. Disadvantages of Functional Structure • Subunit orientationSolution? • Hard to measure each function’s contributions & profitability Necessary why? • Finding balance decentralized/ centralized D/M with different geographical locations • Time spent on coordination & integration rather than on long-term strategy • Control problems

5. Disadvantages of Functional Structure • Control problems: • Core competences develop allowing org to produce wider variety of G/S • Creates more value & customer demand increases • Becomes more difficult for organization to provide service • Production costs increase • Pressure to stay in business with quality product. Now what?

6. Functional Structure Ideal When: • Producing small number of similar G/S • Production in one or few locations • Servicing only one type of customer …..Otherwise, control problems develop & we need to move to a more complex structure. How do we do this?

7. Designing a More Complex Structure • Increase horizontal differentiation (Product teams or product divisions) • Increase vertical differentiation • Integrate subunits (Figure 6-3, Page 150) --- When a functional structure faces control problems, the most common design change is towards a divisional structure.

8. Divisional Structures If control problem due to: -Complexity of products Product structure -Number of locations Geographic structure -Large number different customers Market structure

9. Product Structure Products are grouped into separate divisions, according to similarities or differences Why?Smaller, more manageable subunits  control Two choices: • Centralize support functions • Create multiple support functions(1 per division) • The decision depends on…? How similar or different the products are. Can they share resources?

10. Types of Product Structure • Similar products & similar markets Product division structure • Different products & different markets Multidivisional structure • Technologically complex products & rapidly changing customer needs Product team structure

11. Product Division StructureP. 152 • Similar products & markets Ex: Food processors (Heinz), furniture makers, paper products (Kimberly Clark). • Horizontal differentiation separates product lines • Centralized support functions.Why? • Each division has is own manufacturing unit &product division manager (PDM) which increases vertical differentiation What is PDM’s role? • Each support function is divided into product oriented teams that focus on 1 product.Page 153

12. Multidivisional Structurep. 153 • Wide range of complex products, many markets (GE, Johnson & Johnson, most Fortune 500 Co.) • Distinguishing Factors: 1. Self-contained divisions with own set (decentralized) support functions. Why? Increases __ Differentiation 2. Corporate headquarters staffis new level of managers needed to do what? Increases __ Differentiation

13. What integrating mechanisms are we using in the multidivisional structure? • Integrating Role  Corporate Managers- who integrate corporate HQ and divisional managers • Integrating Department  Corporate HQ

14. Multidivisional Structure Advantages: • Increased organizational effectiveness- How? • Increased control- How? • Monitor profitable growth- How & why? • Internal labor market- Benefit? Allows a corporation to operate many different businesses. Each division can be a different business with its own structure. P. 156

15. Multidivisional Structure Disadvantages: • Managing divisional- corporate relationship How much to centralize or decentralize? • Competition among divisions Over what? • Transfer pricing Ea division wants to maximize its profits to get more resources. How do we overcome this & promote coordination? • Bureaucratic costs Why so high? • Distorted communication Why?

16. Product Team Structure p. 159 • Ideal for rapidly changing market & customer needs; high tech industry (Hallmark Cards, Chrysler) • Specialists from every support function are combined into product development teams(PDT) that specialize in 1 product. The benefit? • Each team has a product team manager (PTM) who heads the self-contained division • Is D/M centralized or decentralized?Why? • VD? HD? Integrating mechanism?

17. Geographic Structure p. 161 • For org. located in many different geographical areas Crown, Cork and Seal Nieman-Marcus • Some functions are centralized at HQ location & others are decentralized at regional location. Why? • Divisions are established based on manufacturing demands • Creates new level of hierarchy to increase control Regional Managers (their role?)

18. MarketStructure p. 163 • Divisions established based on marketing different customers’ needs (Mellon Bank) • Ea. division focuses on the needs of a specific customer group • Not a specific product • Centralized support functions. Why? • Marketing focus allows organization to rapidly respond to changing consumers’ needs.

19. Matrix Structurep. 165 Groups people & resources by both function & product (TRW Systems, hospitals) Flat with decentralized authority Two-boss employees report to both functional managers & product team managers Cross-functional product teams coordinate & integrate different functions Organic structure: task & authority relationships are vague; empowered; use mutual adjustment

20. Matrix StructureCross Functional Team (Highlighted)

21. Traditional Top-Down StructureNote duplication of core functional skills across each product line.

22. Redesign to Matrix StructureEliminates duplication of skills & responsibilities.Cross functional teams are used instead.

23. Matrix Advantages: • Reduces subunit orientation • Opens communication between functions • Maximizes use of skilled professionals • Promotes concern for both quality & cost • Ability to respond to rapidly changing environment Disadvantages: • Role conflict & role ambiguity(lacks bureaucratic structure) • Conflict over resources(vague hierarchy of authority) -Power struggles & political maneuvering

24. Sample of Matrix Structure

25. Network Structure • Cluster of organizations coordinated bycontracts & agreements(with suppliers,manufacturers, distributors)rather than formal hierarchy • Outsourcing of many value creation activities Why outsource? • Use information technology to manage relationships. Nike’s R&D in Beaverton can use CAD to design shoes then send electronically to manufacturers in China.

26. Network Advantages: • Network with partner who can create value at less cost • Reduced BC Why? • Organic structure– can develop new relationships & sever links with partners quickly in response to changing environmental situations Disadvantages: • Doesn’t work well for high tech, complex companies where mutual adjustment is high (coordination/motivation problems when not f-to-f)

27. Boundaryless Organization • People linked by faxes, computers, videoconferencing • People not formal members of organization, but act as functional experts • Experts fulfill obligations of contract & move on.