Chapter Three

1
Chapter Three

• Fundamentals of
• Organization Structure

2
A Sample Organization Chart
3
The Relationship of Organization Design to
Efficiency vs. Learning Outcomes
Horizontal Organization Designed for Learning

• Horizontal structure is dominant
• Shared tasks, empowerment
• Relaxed hierarchy, few rules
• Horizontal, face-to-face
• communication
• Many teams and task forces
• Decentralized decision making

Dominant Structural Approach

• Vertical structure is dominant
• Specialized tasks
• Strict hierarchy, many rules
• Vertical communication and reporting
• systems
• Few teams, task forces or integrators
• Centralized decision making

Vertical Organization Designed for Efficiency
4
Vertical and Horizontal Linkages in Organizations

• Vertical emphasis on efficiency and control
• Specialized tasks
• Strict hierarchy, many rules
• Vertical communication and reporting
• systems
• Few teams, task forces or integrators
• Centralized decision making

5
Vertical and Horizontal Linkages in Organizations

• Horizontal emphasis on learning
• Shared tasks, empowerment
• Relaxed hierarchy, few rules
• Horizontal, face-to-face
• communication
• Many teams and task forces
• Decentralized decision making

6
Vertical Information Linkages

• Used to coordinate activities between different
  levels of an organization
• Designed mainly to facilitate control and create
  efficiency
• Formalized systems

7
Vertical Information Linkages

• Hierarchical referral
• Chain of command to pass information up and down
  the organization
• Rules and plans
• Procedures for responding to routine or
  repetitive tasks without communicating up the
  hierarchy
• Vertical information systems
• Reports that pass information up and down the
  hierarchy without face-to-face communication

8
Horizontal Information Linkages

• Primarily designed to overcome barriers between
  departments and coordinate employees in unity of
  effort
• Bring people together for learning, creativity
  and teamwork
• Used to aid rather than control activities

9
Horizontal Information Linkages

• Information systems knowledge sharing
• Direct contact - creation of a liaison person
  located in one department but responsible for
  communicating and coordinating with another
• Task forces temporary committees composed of
  representatives from many departments

10
Horizontal Information Linkages

• Full-time integrator product/project/
• program/brand manager located outside of the
  various departments but is responsible for
  coordinating several departments
• Need excellent people skills, be able to span
  boundaries of departments with different
  priorities and perspectives
• Must be able to build trust and coalitions and
  resolve problems

11
Project Manager Location in the Structure
12
Horizontal Information Linkages

• Teams
• Permanent task forces that are used with
  full-time integrators when activities require
  strong coordination over a long time across
  several functions
• Virtual teams one made up of organizationally
  or geographically dispersed members who are
  linked through technology

13
Ladder of Mechanisms for Horizontal Linkage and
Coordination
Teams
H IGH
Full-time Integrators
Task Forces
Amount of Horizontal Coordination Required
Direct Contact
LOW
Information Systems
HIGH
LOW
Cost of Coordination in Time and Human Resources
14
Structural Design Options for Grouping Employees
into Departments

• Places employees who perform similar functions,
  bring similar knowledge and skills, together

Functional Grouping
CEO
Engineering
Marketing
Manufacturing
Source Adapted from David Nadler and Michael
Tushman, Strategic Organization Design (Glenview,
Ill. Scott Foresman, 1988), 68.
15
Strengths and Weaknesses of Functional
Organization Structure

• STRENGTHS
• Allows economies of scale within functional
  departments
• Enables in-depth knowledge and skill development
• Enables organization to accomplish functional
  goals
• Is best with only one or a few products

Source Adapted from Robert Duncan, What Is the
Right Organization Structure? Decision Tree
Analysis Provides the Answer, Organizational
Dynamics (Winter 1979) 429.
16
Strengths and Weaknesses of Functional
Organization Structure

• WEAKNESSES
• Slow response time to environmental changes
• May cause decisions to pile on top, hierarchy
  overload
• Leads to poor horizontal coordination among
  departments
• Results in less innovation
• Involves restricted view of organizational goals

Source Adapted from Robert Duncan, What Is the
Right Organization Structure? Decision Tree
Analysis Provides the Answer, Organizational
Dynamics (Winter 1979) 429.
17
Structural Design Options for Grouping Employees
into Departments

• Organizing people together according to what the
  firm produces

Divisional Grouping
Source Adapted from David Nadler and Michael
Tushman, Strategic Organization Design (Glenview,
Ill. Scott Foresman, 1988), 68.
18
Strengths and Weaknesses of Divisional
Organization Structure

• STRENGTHS
• Suited to fast change in unstable environment
• Leads to client satisfaction because product
  responsibility and contact points are clear
• Involves high coordination across functions
• Allows units to adapt to differences in products,
  regions, clients
• Best in large organizations with several products
• Decentralizes decision-making

Source Adapted from Robert Duncan, What Is
the Right Organization Structure? Decision Tree
Analysis Provides the Answer, Organizational
Dynamics (Winter 1979) 431.
19
Strengths and Weaknesses of Divisional
Organization Structure

• WEAKNESSES
• Eliminates economies of scale in functional
  departments
• Leads to poor coordination across product lines
• Eliminates in-depth competence and technical
  specialization
• Makes integration and standardization across
  product lines difficult

Source Adapted from Robert Duncan, What Is
the Right Organization Structure? Decision Tree
Analysis Provides the Answer, Organizational
Dynamics (Winter 1979) 431.
20
Structural Design Options for Grouping Employees
(Continued)

• The organization embraces two structural
  groupings simultaneously matrix or hybrid

Source Adapted from David Nadler and Michael
Tushman, Strategic Organization Design
(Glenview, Ill. Scott Foresman, 1988), 68.
21
Dual-Authority Structure in a Matrix Organization
President
Director
Design
Mfg
Marketing
Procure- ment
of Product
Vice President
Vice President
Vice President
Controller
Operations
Manager
Product
Manager A
Product
Manager B
Product
Manager C
Product
Manager D
22
Matrix Structure

• Appropriate when the organizations structure
  needs to be multifocused (i.e. product and
  function) at the same time
• Strong form of horizontal linkage
• Product and functional managers have equal
  authority similar to integrator roles

23
Matrix Structure Conditions

• Pressure exists to share scarce resources across
  product lines
• Medium sized business that needs to be flexible
  in its use of resources
• Environmental pressure exists for two or more
  outputs
• Balance of power between functions and products

24
Matrix Structure Conditions

• Environment is uncertain and complex
• Frequent changes and high interdependence between
  departments needs lots of coordination and
  information sharing (vertical and horizontal)

25
Strengths and Weaknesses of Matrix Organization
Structure

• STRENGTHS
• Achieves coordination necessary to meet dual
  demands from customers
• Flexible sharing of human resources across
  products
• Suited to complex decisions and frequent changes
  in unstable environment

Source Adapted from Robert Duncan, What Is the
Right Organization Structure? Decision Tree
Analysis Provides the Answer,Organizational
Dynamics (Winter 1979) 429.
26
Strengths and Weaknesses of Matrix Organization
Structure

• STRENGTHS
• Provides opportunity for both functional and
  product skill development
• Best in medium-sized organizations with multiple
  products

Source Adapted from Robert Duncan, What Is the
Right Organization Structure? Decision Tree
Analysis Provides the Answer,Organizational
Dynamics (Winter 1979) 429.
27
Strengths and Weaknesses of Matrix Organization
Structure

• WEAKNESSES
• Causes participants to experience dual authority,
  which can be frustrating and confusing
• Means participants need good interpersonal skills
  and extensive training
• Is time consuming involves frequent meetings and
  conflict resolution sessions

Source Adapted from Robert Duncan, What Is the
Right Organization Structure? Decision Tree
Analysis Provides the Answer,Organizational
Dynamics (Winter 1979) 429.
28
Strengths and Weaknesses of Matrix Organization
Structure

• WEAKNESSES
• Will not work unless participants understand it
  and adopt collegial rather than vertical-type
  relationships
• Requires great effort to maintain power balance

Source Adapted from Robert Duncan, What Is the
Right Organization Structure? Decision Tree
Analysis Provides the Answer,Organizational
Dynamics (Winter 1979) 429.
29
Structural Design Options for Grouping Employees
(Continued)

• Employees are organized around core work
  processes. All people who work on a core process
  are brought together in a group rather than
  separated into functional departments

Horizontal Grouping
CEO
Finance
Human Resources
Core Process 1
Core Process 2
Source Adapted from David Nadler and Michael
Tushman, Strategic Organization Design (Glenview,
Ill. Scott Foresman, 1988), 68.
30
A Horizontal Structure
Sources Based on Frank Ostroff, The Horizontal
Organization, (New York Oxford University Press,
1999) John A. Byrne, The Horizontal
Corporation, Business Week, December 20, 1993,
76-81 and Thomas A. Stewart, The Search for the
Organization of Tomorrow, Fortune, May 19, 1992,
92-98.
31
Horizontal Structure

• Organizes employees around core processes
• Supporting activities cross processes (i.e. HR)
• Generally made after a shift in focus business
  process reengineering

32
Horizontal Structure

• Structure based on core processes rather than
  tasks
• Processes ? Business Development, Technical
  Support
• Tasks ? Market Research, Call Centres
• Self-directed teams rather than individuals
• Process owners are responsible for all tasks
  within the core process

33
Horizontal Structure

• Team members provided skills, tools, motivation,
  and authority to manage processes and
  cross-trained to perform each others jobs
• Freedom to think creatively and flexibly

34
Horizontal Structure

• Customer driven rather than task driven
• Effectiveness measured by end-of-process
  performance objectives
• Culture of openness, trust and collaboration
  focused on continuous improvement

35
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

Sources Based on Frank Ostroff, The Horizontal
Organization What the Organization of the
Future Looks Like and How It Delivers Value to
Customers, (New York Oxford University Press,
1999) and Richard L. Daft, Organization Theory
and Design, 6th ed., (Cincinnati, Ohio
South-Western College Publishing, 1998) 253.
36
Strengths and Weaknesses of Horizontal Structure

• STRENGTHS
• Promotes a focus on teamwork and
  collaborationcommon 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

Sources Based on Frank Ostroff, The Horizontal
Organization What the Organization of the
Future Looks Like and How It Delivers Value to
Customers, (New York Oxford University Press,
1999) and Richard L. Daft, Organization Theory
and Design, 6th ed., (Cincinnati, Ohio
South-Western College Publishing, 1998) 253.
37
Strengths and Weaknesses of Horizontal Structure

• 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

Sources Based on Frank Ostroff, The Horizontal
Organization What the Organization of the
Future Looks Like and How It Delivers Value to
Customers, (New York Oxford University Press,
1999) and Richard L. Daft, Organization Theory
and Design, 6th ed., (Cincinnati, Ohio
South-Western College Publishing, 1998) 253.
38
Strengths and Weaknesses of Horizontal Structure

• WEAKNESSES
• 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

Sources Based on Frank Ostroff, The Horizontal
Organization What the Organization of the
Future Looks Like and How It Delivers Value to
Customers, (New York Oxford University Press,
1999) and Richard L. Daft, Organization Theory
and Design, 6th ed., (Cincinnati, Ohio
South-Western College Publishing, 1998) 253.
39
Hybrid StructurePart 1. Sun Petrochemical
Products
President
Technology Vice President
Financial Services Vice Pres.
Human Resources Director
Chief Counsel
Chemicals Vice President
Lubricants Vice President
Fuels Vice President
Sources Based on Linda S. Ackerman, Transition
Management An In-Depth Look at Managing
Complex Change, Organizational Dynamics (Summer
1982) 46-66 and Frank Ostroff, The Horizontal
Organization, (New York Oxford University
Press, 1999), Fig. 2.1, 34.
40
Hybrid StructurePart 2. Ford Customer Service
Division
Vice President and General Manager
Functional Structure
Human Resources
Strategy and Communication
Finance
Director and Process Owner
Teams
Teams
Parts Supply / Logistics Group
Director and Process Owner
Horizontal Structure
Teams
Teams
Vehicle Service Group
Director and Process Owner
Teams
Technical Support Group
Sources Based on Linda S. Ackerman, Transition
Management An In-Depth Look at Managing Complex
Change, Organizational Dynamics (Summer 1982)
46-66 and Frank Ostroff, The Horizontal
Organization, (New York Oxford University
Press, 1999), Fig. 2.1, 34.
41
The Relationship of Structure to Organizations
Need for Efficiency vs. Learning
Horizontal Structure
Matrix Structure
Divisional Structure
Functional with cross-functional teams,
integrators
Functional Structure
Modular Structure

• Horizontal
• Coordination
• Learning
• Innovation
• Flexibility

Dominant Structural Approach

• Vertical
• Control
• Efficiency
• Stability
• Reliability

42
Symptoms of Structural Deficiency

• Organizational structure needs to be evaluated
  periodically to make sure there are no
  deficiencies
• Decision making is delayed or lacking in quality
• The organization does not respond innovatively to
  a changing environment
• Employee performance declines and goals are not
  being met
• Too much conflict is evident