Organizational structure and design

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Organizational structure and design
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Organizational structure (overview)

• Organization structure
• Defines how tasks are allocated
• Specifies reporting relationships
• Defines formal coordinating mechanisms and
  interaction patterns

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Organizational structure (overview)

• Balances two conflicting forces
• Need for division of tasks into meaningful
  groupings division of labor
• Need to integrate groupings for effectiveness and
  efficiency
• Changes in response to organizational growth

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Simple structure

• Low departmentalization
• Wide spans of control
• Authority centralized in a single person
• Low formalization

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Simple structure

• Start ups and small firms
• Centralized in owner-manager
• walk around management
• Strategic controls at corporate level
• Flexible, innovative, responsive
• Most appropriate for focused business level
  strategies

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Functional Structure
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Functional Structure
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Functional structure

• Workers grouped according to similar functions
  and work activities
• Relatively centralized with CEO as key
  coordinator
• Growth of rules, policies, and procedures
• Strengths economies of scale, worker expertise
• Weaknesses slow responsiveness, over
  centralization, low coordination between
  departments, potential conflict

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The Divisional Structure
Chief Executive Officer
Corporate Office (Staff)
Product A
Product B
Product C
Product D
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Divisional structure

• Organized by type of output
• Decentralized operations with central control
• Semi-autonomous units functionally organized

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Divisional structure

• Strengths responsiveness, internal coordination,
  decentralized
• Weaknesses less efficiency, coordination, and
  integration across divisions, less functional
  expertise

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Divisional structure

• Three important outcomes
• Allows accurate monitoring and control
• Facilitates comparison across product lines
• Provides feedback for improving division
  performance

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Variations of divisional structure

• Strategic business unit (SBU)
• Holding company (conglomerate)

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SBU form of divisional structure
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SBU form and related diversification

• Related diversification or mix of related and
  unrelated businesses i.e., limited links
• Three levels corporate headquarters (president
  and staff), strategic business units, product or
  geographic divisions

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SBU form and related diversification

• Divisions within SBUs are integrated with one
  another, but SBUs are independent of each other
• Corporate staff oversees and consults with SBUs
  but provides little direct input into product
  strategy

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SBU form

• Advantages
• greater decentralization
• simplifies planning and control at corporate
  level
• low synergies among SBUs
• Disadvantages
• added hierarchy
• increases expenses
• further removes corporate management from
  operations

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Holding company structure
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Holding company structure

• Used when corporate portfolio is unrelated

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Matrix structure Dual authority

• Matrix bosses
• Department head responsible for functional
  expertise, maintaining rules, and standards
• Brand, product, or project manager responsible
  for coordination, customers, and product
  performance

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Matrix structure Dual authority

• Two-boss employees
• May be subject to conflicting demands
• Dual loyalty means dealing effectively with both
  bosses
• Top leader directs both command structures

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Matrix structure

• Strengths
• Enables coordination possible
• Better resource utilization
• Well suited to complex, unstable environment
• Allows development of either functional
  (technical) or general management skills
• Best suited for mid-size organizations with
  multiple products

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Matrix structure

• Weaknesses
• Dual authority violates unity of command
  principle
• Requires good people skills and training
• Involves frequent direct contact and high
  commitment to matrix form
• Requires proper environmental conditions

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Matrix structure

• May be most appropriate when
• Sharing scarce resources (e.g., people and/or
  equipment) across product lines
• Responding to multiple outcomes (e.g., technical
  expertise and rapid change in product lines)
• Environment is complex and unstable
• Organization is of moderate size with multiple
  products

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Structure and strategy

• Structure follows strategy
• Strategy determines structure, e.g., related
  diversification forces shift from functional to
  divisional structure
• Structure constrains strategy
• Structure difficult to change

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Summary

• Four basic types of structure simple,
  functional, divisional, matrix
• Each may be appropriate under certain conditions
  and strategies