Organization Contextual Variables that Influence Structure

  

Fundamentals of

Organization Structure Organization Contextual Variables that Infuence Structure

  Culture Size, Life Cycle

  Structure (learning vs. efficiency)

  Strategy, Technology

  Goals _{Competing with Flexible Lateral Organizations, 2 ed. Sources: Adapted from Jay R. Galbraith, nd} Environment _{Addison-Wesley, 1977), Ch. 1. Jay R. Galbraith, Organization Design (Reading, Mass.:} (Reading, Mass.: Addison-Wesley, 1994), Ch.1;

A Sample Organization Chart

  C h ie f A c c o u n ta n t B u d g e t A n a ly s t

  V ic e P re s id e n t F ia n a n c e P la n t S u p e rin te n d e n t

  M a in te n a n c e S u p e rin te n d e n t

V ic e P re s id e n t

M a n u fa c tu rin g

  T ra in in g S p e c ia lis t B e n e fits A d m in is tra to r

  D ire c to r H u m a n R e s o u rc e s

C E O

STRUCTURE

  Process by which an organization

allocates people and resources to tasks

“How things are divided up.”

Process by which the divided tasks are

recombined and coordinated “How pieces are reconnected”

Principles of Structure

• Prevent overload of members
• Load changes with time

  Ladder of Mechanisms for Horizontal Linkage and Coordination

  HIGH LOW LOW

  Information Systems

Direct Contact

Task Forces Full-time Integrators

  Am ou nt o f H or iz on ta l

  Co or di na tio n Re qu ir ed

  

Cost of Coordination in

Time and Human Resources

  H IGH

Teams

Project Manager Location in the Structure

  Specialist Market

  Product C

  Project Manager New

  New Product A

  Product B Project Manager

  Project Manager New

  Department Buyer Buyer Buyer

  Planner Purchasing

  President Finance

  Department Financial

  Department Market

  Designer Marketing

  Draftsperson Electrical

  Product Designer

  Engineering Department

  Management Accountant

  Accountant Budget Analyst

  Researcher Advertising

Teams Used for Horizontal Coordination

  Water Control Equip.

  Chief Engineer Engineering Vice Pres

  Customer Service, Purchasing,

  Production Manager Foundry General Supervisor

  Manufacturing Vice Pres Machine Shop

  General Supervisor Shipping and Yard

  Supervisor Water Control Equip. Sales Manager Marketing Vice Pres.

  Textile Machinery Export Manager

  Advertising Manager Textile Machinery

  Chief Engineer Stainless Steel

  General Supervisor Textile Machinery

  Domestic Sales Manager President

  Water Control Product Team

Textile Product Team Options for Grouping tasks

Name of Structure Type of Grouping Basis for Grouping

  Functional Functional Task Divisional Product/Line Division Product/Market/

  Customer Geographic Geographic Area Horizontal Process Process Matrix Multifocused Mixed Structural Design Options for Grouping Employees into Departments

Engineering Marketing Manufacturing

CEO

  Functional Grouping Divisional Grouping

  Source: Adapted from David Nadler and Michael Tushman, _{Strategic Organization Design (Glenview, Ill.: Scott Foresman, 1988), 68.}

  P r o d u c t D i v i s i o n 1

P r o d u c t

D i v i s i o n 2

  P r o d u c t D i v i s i o n 3

C E O

  

A functional structure is the bedrock of

horizontal diferentiation. It is the frst

“structure” that organizations adapt as they grow.

  

CEO

Functional Structure

  Research and Sales and Manufacturin Materials Finance Development Marketing g Management

  Strengths and Weaknesses of Functional Organization Structure

• STRENGTHS:
• WEAKNESSES:
• – 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 few products
>– Slow response time to environmental changes
• – May cause decisions to pile on top, hierarchy overload
• – Leads to poor horizontal coordination among departments _{Source: Adapted from Robert Duncan, “What Is the Right Organization Structure? Decision Tree Analysis Provides the Answer,” Organizational Dynamics (Winter 1979): 429.}
Reorganization from Functional Structure to Divisional Structure

  Functional Structure

R&D Manufacturing Accounting Marketing President

Divisional Structure

  R & D M fg A c c t g M k t g E le c t r o n ic P u b lis h in g R & D M fg A c c t g M k t g

  O f f ic e A u t o m a t io n R & D M fg A c c t g M k t g V ir t u a l

  R e a lit y P r e s id e n t Strengths and Weaknesses of Divisional Organization Structure

• STRENGTHS:
• WEAKNESSES:
• – 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 diferences in products, regions, clients
• – Best in large organizations with several products
• – Decentralizes decision-making
>– 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 difcult _{Source: Adapted from Robert Duncan, “What Is the}

Geographical Structure for Apple Computer

  CEO Steve Jobs

  Apple Europe

  Apple Pacific

  France Apple

  Products Far East

  Japan Australia

  Apple Americas

  Canada Latin

  America/ Caribbean

  Sales Service and

  Marketing to Regions Reorganization from Functional Structure to Divisional Structure

  Functional Structure

R&D Manufacturing Accounting Marketing President

Divisional Structure

  R & D M fg A c c t g M k t g E le c t r o n ic P u b lis h in g R & D M fg A c c t g M k t g

  O f f ic e A u t o m a t io n R & D M fg A c c t g M k t g V ir t u a l

  R e a lit y P r e s id e n t

Hybrid Structure

  Vice President Sales and Marketing Vice President

  Research and Development Vice President Materials

  Management CEO Vice President Finance

PDM

PDM

PDM

  Canned Soups Division

  Frozen Vegetable Division

  Frozen Entrees Division

  Baked Goods Division

  PDM Centralized support functions Divisions Hybrid Structure Sun Petrochemical Products

  President Human Technology Financial

  Functional

  Chief Resources Vice Services

  Structure Counsel Director President Vice Pres.

  Fuels Lubricants Chemicals

  Product

  Vice Vice Vice

  Structure

  President President President _{Organizational Dynamics (Summer 1982): 46-66; and Frank Ostroff, The Horizontal Organization, An In-Depth Look at Managing Complex Change,”} Sources: Based on Linda S. Ackerman, “Transition Management:

  

Strengths and Weaknesses of Hybrid

Structure

• STRENGTHS:
• WEAKNESSES:
• – Adaptability and coordination in product divisions
• – Efeciency in centralized functions
• – Better alignment between corporate and divisional goals
• – Coordination within and between product lines
• – Product line and corporate emphasis
>– Potential for excessive administrative overhead.
• – Confict between divisional and corporate staf
• – Requires large staf ^{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, 6 th ed.,} _{(Cincinnati, Ohio: South-Western College Publishing, 1998) 253.}

Multifocused Design for Grouping Employees

  Multi-focused Grouping CEO Marketing Manufacturing

  Product Division 1 Product _{Source: Adapted from David Nadler and Michael} Division 2 _{Scott Foresman, 1988), 68.} Tushman, Strategic Organization Design (Glenview, Ill.: Product Manager A Product Manager B Product Manager C Product Manager D

  Director of Product Operations Design

  Vice President Mfg Vice

  President Marketing Vice President

  Controller Procure- ment Manager

  President Dual-Authority Structure in a Matrix Organization Strengths and Weaknesses of Matrix Organization Structure Source: Adapted from Robert Duncan, “What Is the Right

• STRENGTHS:
• WEAKNESSES:
• – 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
• – Provides opportunity for both functional and product skill development
• – Best in medium-sized organizations with multiple products
• – 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 confict resolution sessions
• – Will not work unless participants understand it and adopt collegial rather than vertical-type relationships
• – Requires great efort to maintain power balance
Matrix Structure for Worldwide Steel Company

  President

  Vertical Functions Mfg. Industrial Mfg. Marketing Finance Metallurgy Field Sales Services Relations Vice Vice Vice Vice Vice Vice

  Vice President President President President President President President ns

   Open Die Business Mgr. tio nc

   Ring Products Fu Business Mgr. al nt

   Wheels & Axles zo ri

  Business Mgr.

  Ho Steelmaking Business Mgr.

Process-based Option for Grouping Employees

  Horizontal Grouping CEO Human Resources Finance

  Core Process 1 Core _{Source: Adapted from David Nadler and Michael Tushman,} Process 2 _{1988), 68.} Strategic Organization Design (Glenview, Ill.: Scott Foresman,

A Horizontal Structure

  Top Management

  Team Process Team Team Team

  Owner

  1

  2

  3 Market Product

  Research Testing

  Customer

  Analysis Planning New Product Development Process

  Process Team Team Team Owner

  1

  2

  3 Material

Analysis Purchasing Distrib.

  Customer _{The Horizontal Organization, (New York: Sources: Based on Frank Ostroff,}

  Flow _{December 20, 1993, 76-81; and Thomas A. Stewart, “The Horizontal Corporation,” Business Week, Oxford University Press, 1999); John A. Byrne,} Procurement and Logistics Process Strengths and Weaknesses of Horizontal Structure

• WEAKNESSES:
• STRENGTHS:
• – Determining core processed to organize around is difcult 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 signifcant training of employees to work efectively in a horizontal team environment
• – Can limit in-depth skill development
• – 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 ofering 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} The Relationship of Organization Design to Efciency vs. Learning Outcomes Horizontal Organization Designed for Learning

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

  Horizontal structure is dominant

Approach

  Hybrid Structure Ford Customer Service Division

  Vice President and General Manager

  Functional

  Strategy and Human

  Structure

  Finance Communication Resources Director and

  Teams Teams Process Owner

  re tu Parts Supply / Logistics Group uc tr

  Director and

  S

  Teams Teams

  al

  Process Owner

  nt zo Vehicle Service and Programs Group ri Ho

  Director and Teams

  Process Owner _{Sources: Based on Linda S. Ackerman, “Transition Management:} Technical Support Group

  

The Relationship of Structure to

Organization’s Need for Efciency vs.

  Learning Horizontal Structure

• Coordination • Change • Learning • Innovation • Flexibility

  Dominant Structural Approach

  Horizontal:

  Vertical:

  Matrix Structure Divisional Structure

  Functional with cross-functional teams, integrators Functional

  Structure

• Control • Efficiency • Stability • Reliability

Mintzberg’s Design Confgurations

• The strategic Apex • The Operating Core • The Middle Line • The Technostructure • The Support Staf

Simple Structure

  Apex Operating Core

Machine Bureaucracy

  Apex Middle Line Operating Core

  Techno- structure Support Staff

Divisional Structure

  Apex Middle Line Techno-

  S.S structure Machine Machine Machine

Bureaucracy Bureaucracy Bureaucracy Professional Bureaucracy Apex e in L e dl id

  Techno- M S.S structure Operating Core

  Adhocracies Operating Core

Comparisons among Designs

  Simple Structure Machine Bureaucracy

  Divisional Structure Professional Bureaucracy

  Adhocracy (Organic) Complexity Low High High High H(h), L(v) Formalization Low High High High Low Centralizatio High High Moderate Low Low Examples Family

  Business Police SAR SUNY/PolyU Film crew Strengths Simplicity Efficiency Accountability Effectiveness Flexible, Creative Weaknesses Limited Applicability

  Bureaucratic, Wastefule Conflict Role Ambiguity

Symptoms of Structural Defciency

• • Decision making is delayed or lacking in

  quality
• The organization does not respond innovatively to a changing environment
• Too much confict from departments being at cross purposes is evident

  Contingency Model Information Processing Information Processing

  Information Information Requirements Requirements

  Processing Processing Capacity Capacity

Goals Goals

Structural Design Choices Structural Design Choices Environment Environment

  FIT

Technology

  

FIT

Technology

  Horizontal Linkages Departmental Grouping Size Departmental Grouping Size

  Effectiveness