Designing Organizational Structure: Specialization and Coordination

Designing Organizational Structure: Specialization and Coordination Functional Structure From Functional to Divisional Structure Divisional Structure I: Product Structures Divisional Structure II: Geographic Structure Divisional Structure III: Market Structure Matrix Structure Network Structure and the boundary-less organization

Organizational Theory A functional structure is the bedrock of horizontal differentiation. It is the first “structure” that organizations adapt as they grow. Functional Structure Research and Development Sales and Marketing Manufacturing Materials Management Finance CEO 4 -

Organizational Theory Reengineering Functional Structures Reengineering is the process of redesigning how tasks are bundled into roles and functions to improve organizational effectiveness. 4 -

Organizational Theory Before and After Example of Reengineering A. Before Improving Integration in a Functional Structure by Creating a Materials Management Function Manufacturing Purchasing Production Control Distribution Marketing CEO 4 -

Organizational Theory Before and After Example of Reengineering B. After (continued) Manufacturing Materials Management Marketing CEO Purchasing Production Control Distribution 4 -

Organizational Theory Moving to a Divisional Structure The structure adopted to solve the control problems of functional structures (many kinds of products, many different locations, many types of clients) is the divisional structure. 4 -

Organizational Theory Divisional structure— a structure in which functions are grouped together according to the specific demands of products, markets, or customers. The type of divisional structure selected is driven by the specific type of control problem experienced. 4 -

Organizational Theory Divisional Structure I: Three Kinds of Product Structure A product structure is a divisional structure in which products are grouped into separate divisions, according to their similarities or differences. There are three different types of product structures seen in organizations. 4 -

Organizational Theory Product Division Structure—a structure in which centralized support functions service the needs of a number of different product lines. Typically used by organizations whose products are broadly similar and aimed at the same market. 4 -

Product Division Structure Vice President Sales and Marketing Vice President Research and Development Vice President Materials Management CEO Vice President Finance Canned Soups Division PDM Frozen Vegetable Entrees Baked Goods Centralized support functions Divisions 4 - 4-19

Organizational Theory Multidivisional Structure—a structure in which support functions are placed in self-contained divisions. Typically used by an organization whose products are very different and that operates in several different industries. 4 -

Multidivisional Structure. CEO Corporate Headquarters Staff Corporate Senior VP Senior VP Senior VP Senior VP Managers Marketing Finance Materials Research and Management Development Divisional Division A Division B Division C Division D Managers Functional Managers Support functions Support functions Support functions Support functions 4 - 4-21

Organizational Theory Product Team Structure—a divisional structure in which specialists from the support functions are combined into product development teams. Typically used by an organization whose products are very technologically complex or whose characteristics change rapidly to suit customer needs. 4 -

Product Team Structure. Division CEO Functions Development Teams V ice President Research and Sales and Marketing Manufacturing Finance Functional specialist Materials Management PTM Product Team Manager 4 - 4-29

Organizational Theory Divisional Structure II: Geographic Structure When an organization experiences control problems that are a function of geography, a geographic divisional structure is used. Such a structure organizes divisions according to the requirements of different locations. 4 -

Geographic Structure CEO Regional Operations Central Support Functions Individual stores 4 - 4-31

Organizational Theory Divisional Structure III: Market Structure When an organization experiences control problems that are a function of the differences in the various customer groups being served, a market structure is used. Such a structure aligns functional skills and activities with different customer needs. 4 -

Central Support Functions Market Structure Commercial Division Consumer Government Corporate CEO Central Support Functions 4 -

Organizational Theory Matrix Structure The search for better and faster ways to develop products and meet customer needs led to the matrix structure. A matrix structure groups people and resources in two ways simultaneously: -by function and -by product 4 -

Matrix Structure 4 - CEO V ice President Engineering Finance Purchasing Sales and Marketing Research and Development Product A Manager Product B Product C Product D Product Team Two-boss employee 4 -

Organizational Theory A multidivisional matrix structure provides for more integration between corporate and divisional managers and between divisional managers. This structure makes it easier for top executives from the divisions and from corporate headquarters to coordinate organizational activities. 4 -

Multidivisional Matrix Structure CEO Senior Vice President Marketing Finance Research and Development Materials Management Automobile Products Division Personal Computer Consumer Electronics 4 -

Organizational Theory A recent innovation in organizational architecture is the use of network structures. A network structure is a cluster of different organizations whose actions are coordinated by contracts and agreements rather than through a formal hierarchy. 4 -

Organizational Theory Network structures often result from outsourcing. Outsourcing is the process of moving activities that were previously performed inside the organization to the outside (where they are done by other companies). 4 -