Understanding and Managing Organizational Structure (A) BA 152

Today’s Questions 1. What do we mean by the term, “structure?” 2. What influences the structural choices made by managers? 3. What are two of the most popular organizational structures? 4. What are the relative advantages and disadvantages of these structures?

Characteristics of Organizations Environment Systems People Technologies Structures Strategies Goals FIT! Cultures

What is Structure? The allocation of responsibilities Formal reporting channels The systems that coordinate effort The way the company is put together.

Becoming an Organization Complexity Vertical Horizontal

Vertical/Horizontal Division of Labor Vertical Complexity Horizontal Complexity

Becoming an Organization Complexity Vertical Horizontal Centralization Formalization

Influences on Structure Environment Technology Industry Strategic Choice/Goals Organizational Size FIT!

Structuring Work A Craft Approach DMS Corp. D =M S D =M S D =M S D = Design, M = Make, and S = Sell

Structuring Work A Craft Approach  Advantages  Close supervision  Experts doing all of the tasks  Quality should be higher  Disadvantages  Difficult to find experts  Unable to meet increased demands  Equipment sits idle, and we lose possible economies of scale D =M S

Structuring Work A Functional Approach DMS Corp. Functions =D =M =S

A Functional Organization Vice-President Manufacturing Director Quality Control Director Inventory Control Director Product Scheduling Vice-President Engineering By engineering specialties Finance & Accounting Vice-President By F&A specialties Vice-President Marketing By marketing specialties President

Characteristics of Functional Structures 1. Those doing the “same thing” are in the same function. 2. More standardized methods and procedures within each function

Characteristics of Functional Structures 3. Higher degree of control/centralization within each function and at the top of the organization. 4. The functions are organized as cost centers. 5. This structure is competitive in stable environments demanding efficiency.

DEAN Kenan-Flagler Business School Functional Structure Operations Dept. Chairman Full Profs. Assoc. Profs. Assist. Profs. Accounting Dept. Chairman Full Profs. Assoc. Profs. Assist. Profs. Marketing Dept. Chairman Full Profs. Assoc. Profs. Assist. Profs. Management Dept. Chairman Full Profs. Assoc. Profs. Assist. Profs. Finance Dept. Chairman Full Profs. Assoc. Profs. Assist. Profs.

Functional Structure n Advantages –Economies of scale –Supervision/training by specialists –Promotion within specialty Vice-President Manufacturing Vice-President Engineering Finance & Accounting Vice-President Marketing President

Functional Structure Vice-President Manufacturing Vice-President Engineering Finance & Accounting Vice-President Marketing President n Disadvantages –Short-term time perspective within functions –Conflicts across functions –Coordination problems between functions –Goal displacement –Less innovation –Less flexibility

Task forces (temporary) Task Teams (permanent) Ways to Coordinate Activities across Functions

President EngineeringMarketing Manufacturing R&D Task Force Functional Structure with task forces/teams

President EngineeringMarketing Manufacturing R&D Task Team Functional Structure with task forces/teams

Task Team Functional Structure with task teams Task Team Task Team Task Team Task Team President

Structuring Work A Divisional Approach DMS Corp. Division =D=M=S East Region =D=M=S Central Region =D=M=S West Region

Bases for Divisionalization  Products – Buick, Cadillac, Chevrolet  Technologies – mass production, custom  Projects – buildings, software  Geography – such as...  Customers – retail, government, industrial

A Divisional Organization President Vice-President Southern Region By smaller regions Vice-President Northern Region By smaller regions Vice-President Western Region By smaller regions Vice-President Eastern Region Director New England Director New York Metro Director Mid-Atlantic Engineering Manufacturing F&A Marketing

Characteristics of Divisional Structures 1. Those doing “different things” are in the same division. 2. Less standardized methods and procedures across divisions

Characteristics of Divisional Structures 3. Lower degree of control and centralization within divisions and at the top of the organization 4. The divisions are organized as profit centers 5. This structure is competitive in dynamic environments requiring flexibility and responsiveness

Kenan-Flagler Business School Divisional Structure DEAN Executive Program Director Acct. Faculty Mkt. Faculty Mgt. Faculty Finance Faculty Ops. Faculty Undergrad. Program Director Acct. Faculty Mkt. Faculty Mgt. Faculty Finance Faculty Ops. Faculty MBA Program Director Acct. Faculty Mkt. Faculty Mgt. Faculty Finance Faculty Ops. Faculty Phd Program Director Acct. Faculty Mkt. Faculty Mgt. Faculty Finance Faculty Ops. Faculty

Divisional Structures President Vice-President Southern Region Vice-President Northern Region Vice-President Western Region Vice-President Eastern Region n Advantages –Increased flexibility –Decreased response times –Better coordination within divisions –Good training for general managers

Divisional Structures President Vice-President Southern Region Vice-President Northern Region Vice-President Western Region Vice-President Eastern Region n Disadvantages –Lose economies of scale –Poor coordination between divisions –Lose depth of competence in some specialties –Advancement outside of specialty –Professional isolation

K-Mart Reorganization Original Structure SouthwestNorthwest MidwestNortheast SoutheastInternational Corporate Offices

K-Mart Reorganization New Structure WestNortheast SoutheastInternational Super Centers Corporate Offices

Volkswagen: Restructuring from Individual Brands to Operational Divisions Original Structure

Volkswagen: Restructuring from Individual Brands to Operational Divisions

n Why reorganize? –To give luxury brands more independence –To make luxury brands distinct from mass brands in customers’ eyes –To reduce CEO’s span of control –To allow CEO to become more involved in operations –To add new lines/companies with less difficulty –To reduce operating costs

Today’s Take-aways 1. To be successful a structure must “fit” with the other major organizational characteristics 2. Functional structures work well when the organization’s environment is relatively certain and requires efficiency from the organization.

Today’s Take-aways 3. Divisional structures work well when the organization’s environment is relatively uncertain and requires responsiveness and adaptability from the organization. 4. But what happens when the environment demands both efficiency and adaptability? Stay tuned!

Next Time C & C Grocery Stores