Fundamentals of Organization Structure

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0 Chapter Three Fundamentals of Organization Structure Thomson Learning © 2004 

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A Sample Organization Chart 

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Relationship of Organization The 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 tralized decision making || Vertical structure is dominant * Specialized tasks + Strict hierarchy, many rules * Vertical communication and reporting systems + Few teams, task forces or ۱ Dominant Structura Approach VerticabOraan Designed for Efficiency Thomson Learning © 2004 33 

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Ladder of Mechanisms for Horizontal Linkage and fp Coordination 22 = ها Amount of Horizontal Coordination Requires 6 Lo HG > Cost of Coordination in ee Time and Human Resources Thomson Learning © 2004 

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Project Manager Location in the Structure President ۱ 1 1 Finance | Engineering [Marketing| [Purchasing Department Pepartment Departmen! Pepartmen Financial laccountant| | Product 0/0 ‏و‎ ‎Market New Designer | JResearcher| Product A Buyer—}— Budget Analyst | raftsperso —ladwertising Iroject Manager Specialist_| New Buyer_| | Product 8 anagemen| lAccountant} |} Electrical elect Manager Designer Market New Planner Buyer_| ۵۵ Thomson Learning © 2004 3-5 

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Teams Used for Horizontal Coordination at Wizard Software Company President. 1 rogramming Vice Preg Marketing Vice Pres. Research Vice Pres ۲ ideogames Basic Researc logames Videogames Manager Chief Engineer Supervisor ‘ations and Testing Supervisor [Memory Products [[ Memory Products [|_| Memory Products | Sales Manager hief Programmer|] _ | Research Supervisor f Memory Products Tnternational Manager [ Customer Service 2-0-5 [Advertising Manager Manager Supervisor Thomson Learning © 2004 36 

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Structural Design Options for Grouping Employees into ۳۹ Departments DP —= ‏سب‎ 

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Strengths and Weaknesses of Functional Organization Structure = STRENGTHS: = WEAKNESSES: * Allows economies of = Slow response time to scale within functional environmental changes departments 5 50 * Enables in-depth May cause decisions to knowledge and skill pile on top, hierarchy development overload * Enables organization = Leads to poor horizontal to accomplish coordination among functional goals departments = Is best with only one = Results in less innovation or a few products = Involves restricted view of organizational goals *““Fhomson Learning © 2004 38 

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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 39 = 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 Thomson Learning © 2004 8 STRENGTHS: Sure: ape fm Robt Duan, “Wit the ] ‏لس‎ 

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Reorganization from Functional Structure to Divisional Structure at ۳۹ Info-Tech Ep ae Cresta | Info-Tech President ace Virtual Autom ation Reality Electronic Publishing وا او | و | | ‎[rao‏ | واا وم | وا | ‎wate] [neo‏ ۱۱۱ | ] ۷۱ ۷ Thomson Learning © 2004 3-10 

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Structural Design Options for Grouping Employees fe (Continued) i ‏ىر‎ Thomson Learning © 2004 

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Structural Design Options for Grouping Employees fe (Continued) 

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Geographical Structure + for Apple Computer 

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Dual-Authority Structure in a Matrix Organization President Bz IT] Procure- Vice Controller ment _President_ ‏ال‎ al Es] Thomson Learning © 2004 

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otrengtns and Weaknesses of Matrix Organization Structure = STRENGTHS: = WEAKNESSES: * Achieves coordination = Causes participants to experience necessary to meet dual dual authority, which can be demands from customers __ frustrating and confusing Flexible sharing of human * Means participants need good resources across products __ interpersonal skills and extensive = Suited to complex training decisions and frequent —_* Is time consuming; involves frequent changes in unstable meetings and conflict resolution environment sessions = Provides opportunity for = Will not work unless participants both functional and understand it and adopt collegial product skill development _rather than vertical-type = Best in medium-sized relationships organizations with multiple * Requires great effort to maintain products power balance ‘Segntenton sruturer Deca Tees Anais Proves tneT HOMSON Learning Aawer"Orpuntationa Dynamics Winter 1979) 42 © 2004 3-15 

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Matrix Structure for Worldwide Steel Company 3۳۳1۳ ‏ون جع ام بمب‎ Mtg. ‏اديه‎ ‎Mfg. [Marketing Financ jetallurdsfeld Sal] “لي ععالا | | ۷6۵ | زک | عتلا | | الا | | معنا : ‎Vice |‏ لالت نعم ماله نكمم تر بر و يي لالت متعم مكلك تممه اله 0 لمم 1 ‎Open Die‏ ‎siness Mg‏ 0 ۶ ‎siness Mg‏ ‎ ‎ ‎ ‎ ‎ ‎ ‎ ‎ ‎ ‎Thomson Learning © 2004 ‎ ‎ ‎ ‎ 

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‎Horizontal Structure‏ دز © © © 55 ‎CS ‏موس‎ tai Gate) ۳ 9 9 @ ‎ ‎ ‎ ‎10050 

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Strengths and Weaknesses of Horizontal Structure = STRENGTHS: = WEAKNESSES: * Flexibility and rapid response to * Determining core processes to changes in customer needs organize around is difficult Directs the attention of everyone _ and time-consuming toward the production and delivery Requires changes in culture, of value to the customer job design, management = Each employee has a broader view Philosophy, and information of organizational goals and reward systems * Promotes a focus on teamwork anti Traditional managers may balk collaboration—common when they have to give up commitment to meeting objectives Power and authority = Improves quality of life for * Requires significant training of employees by offering them the employees to work effectively opportunity to share responsibility, in a horizontal team make decisions, and be environment accountable for outcomes * Can limit in-depth skill development Source: Base on Fras Ost TheHanzstal Ogio at the ‏ا‎ THOMSON Learning sad Ricar Da Ocpeniaton Taco’ and Dene Set, © 2004 3-18 

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Hybrid Structure Part 1. Sun Petrochemical ۳۹ Products i Functional Structure Product - Structure 

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Human Resources Hybrid Structure Part 2. Ford Customer Service Division Vice President and General Manager Strategy and Finance ‘ommunicatio Technical Support Group Ant dept ont a tanapaty Campi ‏لسن سس‎ 0۳0500 Learning 3-20 04 هه Director and / ۲ rocess Owner Neem fehicle Service Grot Director and rocess Owner Director and rocess Owner Functional [Structure Horizontal Structure 

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Organization Contextual Variables that Influence Structure Strategy, Technology Goals 78 © ۱ للع جوم اندم ‎‘Chapters 4, 6‏ Thomson Learning © 2004 

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The Relationship of Structure to Organization’s Need for Efficiency vs. Learning Functional with ۱ ۱ Functionakross-functionalDivisional Matrix Horizon Modula Structurteams, integratorStructure Structu _ tal a ee ۰٩ ee | Horizontal: Coordinatio Dominan' a) n Structura See * Learning Approach| ۱ ‏نز‎ * Innovation * Efficiency ibility * Stability * Reliability Thomson Learning © 2004 3-22 

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Symptoms of Structural Deficiency = Decision making is delayed or lacking in quality = The organization does not respond innovatively to a changing environment = Too much conflict is evident Thomson Learning © 2004 

Chapter Three Fundamentals of Organization Structure Thomson Learning © 2004 3-1 A Sample Organization Chart C EO Vi c e Pre s i d e n t Fi n a n c e Ch ie f Ac c o u n t a n t Bu d g e t An a l y s t Vi c e Pre s i d e n t M a n u fa c t u ri n g Pl a n t Su p e ri n t e n d e n t M a in t e n a n ce Su p e ri n t e n d e n t Thomson Learning © 2004 D i re c t o r Hu m a n Re s o u rc e s Tra i n i n g Sp e c i a l i s t Be n e fi t s Ad m i n i s t ra t o r 3-2 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 Vertical Organization • Centralized decision making Designed for Efficiency Thomson Learning © 2004 3-3 Amount of Horizontal Coordination Required Ladder of Mechanisms for Horizontal Linkage and Coordination Teams H IGH Full-time Integrators Task Forces Direct Contact LO W Information Systems LO W Cost of Coordination in Time and Human Resources Thomson Learning © 2004 HIG H 3-4 Project Manager Location in the Structure President Finance Department Financial Accountant Budget Analyst Management Accountant Engineering Department Product Designer Draftsperson Electrical Designer Marketing Department Purchasing Department Market Researcher Buyer Buyer Project Manager New Product B Buyer Project Manager New Product C Advertising Specialist Market Planner Thomson Learning © 2004 Project Manager New Product A 3-5 Teams Used for Horizontal Coordination at Wizard Software Company President Marketing Vice Pres. Programming Vice Pres Videogames Chief Engineer Videogames Sales Manager Research Vice Pres Videogames Basic Research Supervisor Applications and Testing Supervisor Videogames Product Team Memory Products Sales Manager Memory Products International Manager Advertising Manager Memory Products Chief Programmer Memory Products Research Supervisor Memory Products Team Customer Service Manager Thomson Learning © 2004 Procurement Supervisor 3-6 Structural Design Options for Grouping Employees into Departments Functional Grouping CEO Engineering Divisional Grouping P ro d u c t Div is io n 1 Marketing Manufacturing C EO P ro d u c t Div is io n 2 P ro d u c t Div is io n 3 Source: Adapted from David Nadler and Michael Tushman, Strategic Organization Design (Glenview, Ill.: Scott Foresman, 1988), 68. Thomson Learning © 2004 3-7 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 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. Thomson Learning © 2004 3-8 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 decisionmaking Source: Adapted from Robert Duncan, “What Is the Right Organization Structure? Decision Tree Analysis Provides the Answer,” Organizational Dynamics (Winter 1979): 431. Thomson Learning © 2004 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 3-9 Reorganization from Functional Structure to Divisional Structure at Info-Tech Info-Tech President Functional Structure R&D Manufacturing Divisional Structure M fg Marketing I n fo -T e c h P re s id e n t E le c tro n ic P u b lis h in g R&D Accounting A c c tg O ffi c e A u to m a tio n M k tg R&D M fg A c c tg Thomson Learning © 2004 V irtu a l R e a lity M k tg R&D M fg A c c tg M k tg 3-10 Structural Design Options for Grouping Employees (Continued) Multifocused Grouping CEO Marketing Manufacturing Product Division 1 Product Division 2 Source: Adapted from David Nadler and Michael Tushman, Strategic Organization Design (Glenview, Ill.: Scott Foresman, 1988), 68. Thomson Learning © 2004 3-11 Structural Design Options for Grouping Employees (Continued) Horizontal Grouping CEO Human Resources Finance Core Process 1 Core Process 2 Source: Adapted from David Nadler and Michael Tushman, Strategic Organization Design (Glenview, Ill.: Scott Foresman, 1988), 68. Thomson Learning © 2004 3-12 Geographical Structure for Apple Computer CEO Steve Jobs Apple Products Apple Americas Apple Europe Apple Pacific Canada France Australia Latin America/ Caribbean Sales Service and Marketing to Regions Source: www.apple.com Thomson Learning © 2004 Japan Asia 3-13 Dual-Authority Structure in a Matrix Organization President Director of Product Operations Design Vice President Mfg Vice President Marketing Vice President Controller Procurement Manager Product Manager A Product Manager B Product Manager C Product Manager D Thomson Learning © 2004 3-14 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 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 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 Will not work unless participants understand it and adopt collegial rather than vertical-type relationships Requires great effort to maintain power balance Thomson Learning © 2004 Organization Structure? Decision Tree Analysis Provides the Answer,”Organizational Dynamics (Winter 1979): 429. 3-15 Matrix Structure for Worldwide Steel Company Horizontal Product Lines President Vertical Functions Mfg. Industrial Mfg. Marketing Finance Metallurgy Field Sales Services Relations Vice Vice Vice Vice Vice Vice Vice PresidentPresidentPresident PresidentPresident President President Open Die Business Mgr. Ring Products Business Mgr. Wheels & Axles Business Mgr. Steelmaking Business Mgr. Thomson Learning © 2004 3-16 A Horizontal Structure Top Management Team Process Owner Team 1 Market Analysis Team 2 Product Research Planning Team 3 Testing Customer New Product Development Process Process Owner Sources: Based on Frank Ostroff, The Horizontal Organization , (New York: Team 1 Team 2 Material Analysis Purchasing Flow Team 3 Distrib. Customer Procurement and Logistics Process 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. Thomson Learning © 2004 3-17 Strengths and Weaknesses of Horizontal Structure  STRENGTHS:       WEAKNESSES: 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 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., Thomson Learning © 2004 (Cincinnati, Ohio: South-Western College Publishing, 1998) 253. Determining core processes to organize around is difficult and timeconsuming 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 significant training of employees to work effectively in a horizontal team environment Can limit in-depth skill development 3-18 Hybrid Structure Part 1. Sun Petrochemical Products President Functional Chief Structure Counsel Product Structure Human Resources Director Fuels Vice President Technology Vice President Lubricants Vice President Financial Services Vice Pres. Chemicals 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. Thomson Learning © 2004 3-19 Hybrid Structure Part 2. Ford Customer Service Division Vice President and General Manager Horizontal Structure Functional Structure Strategy and Communication Finance Director and Process Owner Human Resources Teams Parts Supply / Logistics Group Director and Process Owner Teams Vehicle Service Group Director and Process Owner Teams Technical Support Group Thomson Learning © 2004 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. 3-20 Organization Contextual Variables that Influence Structure Culture Chapter 10 Strategy, Goals Chapter 2 Size Chapter 9 Structure (learning vs. efficiency) Technology Chapters 7,8 Environment Chapters 4, 6 Sources: Adapted from Jay R. Galbraith, Competing with Flexible Lateral Organizations, 2nd ed. (Reading, Mass.: Addison-Wesley, 1994), Ch.1; Jay R. Galbraith, Organization Design (Reading, Mass.: Addison-Wesley, 1977), Ch. 1. Thomson Learning © 2004 3-21 The Relationship of Structure to Organization’s Need for Efficiency vs. Learning Functional with Functionalcross-functionalDivisional Matrix Horizon Modula r tal Structure teams, integrators Structure Structu re Structur Structu re e Horizontal: • Coordinatio n • Learning • Innovation • Flexibility Dominant Structural Vertical: • Control Approach • Efficiency • Stability • Reliability Thomson Learning © 2004 3-22 Symptoms of Structural Deficiency    Decision making is delayed or lacking in quality The organization does not respond innovatively to a changing environment Too much conflict is evident Thomson Learning © 2004 3-23