1. Organization Structure

2. Organization Structure Organization Design
The framework
for dividing,
assigning, and
coordinating work
Developments in
or changes to
the structure of
an organization
At the beginning of this course, we spoke about the 4 key management activities. One of those activities was “organizing.” We will now look at what occurs in this activity.
The structure of the organization is the framework or skeleton for dividing, assigning and coordinating work.
Whenever managers develop or change the structure, it is called “organization design.” 4

3. Contingency Variables Affecting Structure
MECHANISTIC
Rigid hierarchical relationships
Fixed duties
Formal communication channels
Centralized authority
ORGANIC
Collaboration (both vertical and horizontal)
Adaptable duties
Information communication
Decentralized authorized
Structure in the contemporary business environment will depend on a number of contingency variables.
Above are two forms. Another name for a mechanistic organization is a bureaucracy because there is a high degree of specialization, centralization with authority and responsibility concentrated at the top of the organization. The span of control is small at the top creating tall and impersonal structures. There is also lots of distance between top management and the front-line employees.
This is in contrast to the organic organization which is loose and flexible without rigid job duties or division of labour. This structure is low in centralization so that problems can be responded to quickly.
We’ll now turn to the variables that need to be considered when deciding to have the structure more mechanistic or more organic. 16

4. Key Elements of Organization Structure
Work
Specialization
Authority and
Responsibility
Chain
of Command
Centralization vs.
Decentralization
We will be examining in depth these six elements of structure: work specialization, chain of command, Span of control, authority and responsibility, centralization vs. decentralization, and departmentalization.
Span of Control
Departmentalization 5

5. The Chain of Command District A B C D E F G Region 1 2 3 4 5 Vice
President
Chief Executive
Officer
Executive
Vice President
The next component is the chain of command--the principle that no person should report to more than one boss. As you can see in this example, one individual only reports to another individual. 7

6. Linkages: Vertical: Horizontal: Hierarchical Referrals Rules & Plans
Liaison Roles
Task Forces
Full-time Integrators
Teams

7. Ways to Departmentalize
Functional
Product/Divisional/SBU’s
Geographic
Modular
Horizontal
Multi-focused
Traditionally, work activities have been specialized and grouped into departments. Those specialists are under the direction of a manager. There are several ways in which these activities can be grouped.
Activities can be grouped according to function to pursue economies of scale by placing employees with shared skills and knowledge into work-groups. These are referred to as functional departments. Examples would be engineering, accounting, human resources, and marketing.
Tasks can also be grouped according to a specific product, thus placing all activities related to the product under one manager. This is called product departmentalization. Exhibit 5-6 in your text on page 126 shows an example of this.
Jobs may be grouped according to the type of customer served by the organization. For example, in an organization like Staples or Grand and Toy, it could break the departments into those that serve retail customers, home-based business customers, or government customers.
If an organization’s customers are geographically dispersed, it can group jobs based on geography. For example, Coca-Cola has two broad geographic areas--the North American sector and the international sector.
Lastly, an organization can departmentalize based on the basis of work flow or customer flow. This is referred to as process departmentalization.
While large organizations tend to still be organizational around functional, product or geographic, the trend is to reduce rigid departmentalization and use teams that cross traditional departmental lines. What is important to remember is that there is no single structure that will fit all situations. 15

8. Multiple Forms of Departmentalization
President
Vice President
Marketing
Production
Finance
Functional Departmentalization
Texas Plant
Manager
Oregon Plant
Florida Plant
Geographical Departmentalization
Consumer
Products
Industrial
Product Departmentalization
6 - 8

9. Line and Staff Organization—Line do the mainline functions/Staff assist
Clark Equipment Corp.
Forks & Small Earthmovers Division
Trucks Division
Tools Division
Human Resources Department
Engineering Department
Staff
Managers
Line
Managers
Purchasing
Materials Handling
Fabrication
Painting
Assembly
Sales
Distribution
6 - 9

10. Flat Organizational Structure --Vertical Structure.
Characteristic of decentralized companies with relatively few layers of management and relatively wide spans of control
Typical Law Firm
Chief Partner
Partners
Associates
Relatively wide span of control
5 - 10

11. Tall Organizational Structure -Vertical
United States Army
General
Colonels
Characteristic of centralized companies with multiple layers of management and relatively narrow spans of control
Majors
Captains & Lieutenants
Warrant Officers
Relatively narrow span of control.
Sergeants
Corporals
At lower levels, where tasks are similar and simpler, span of control widens.
Privates
5 - 11

12. Organization Strategy
Porters Competitive Strategy
Miles & Snow’s Strategy
The choice between centralization and decentralization is frequently based on the business-level strategy implemented in each division
Cost Leadership
Decentralization
Differentiation
Centralization

13. The Simple Structure Centralized Authority Little Formalization Few
Departments
Wide Spans
of Control
The Simple
Structure
Many organizations start out as entrepreneurial ventures where the owner makes more of the decisions as all the employees report to the owner. This is referred to as a simple structure where there are wide spans of control and the decision-making is centralized.
As size increases, decision making becomes slower and can come to a halt as the single executive tries to make all the decisions. If the firm doesn’t change the structure at this point, it may fail. One of the problems with family-run organizations is that much of the power and decision-making is centralized and continues to be so even when the organization becomes large and may need additional division of authority and power. 18

14. Simple Structure Owner / Manager
Owner/Manager makes all major decisions directly and monitors all activities
Difficult to maintain this structure as the firm grows in size and complexity 6

15. Functional Structure

16. Chief Executive Officer
Functional Structure
Chief Executive Officer
Production
Finance
Engineering
Accounting
Sales &
Marketing
Human
Resources
Company Structured Around Basic Business Functions 18

17. Functional Structure First stage beyond a Simple Structure
Appropriate for single or dominant-business firms
Allows specialization of tasks
* Production
* Finance
* Engineering
* Accounting
* Sales & Marketing
* Human Resources
Functional department heads report to Chief Executive Officer who integrates decisions and actions from a company-wide point of view 17

18. Functional Structure for Cost Leadership Strategy
Office of the President
Marketing
Engineering
Operations
Personnel
Accounting
No emphasis on R&D
Formalized procedures allow for low-cost culture
Structure is mechanical; job roles are highly structured
Work Specialization
Relatively large centralized staff coordinates functions
Centralized
Staff 10

19. Functional Structure for Differentiation Strategy
President and
Limited Staff
Marketing
New Product R&D
Operations
Human
Resources
Finance
R&D
Marketing is the main function for tracking new product ideas
New product R&D is emphasized
Most functions are decentralized
Formalization is limited to foster change and promote new ideas
Overall structure is organic; job roles are less structured 10

22. Functional Structure Advantages Disadvantages
Specialisation – each department focuses on its own work
Accountability – someone is responsible for the section
Clarity – know your and others’ roles
Disadvantages
Less innovation
Departments can become resistant to change
Coordination may take too long
Gap between top and bottom

23. Divisional Structure

24. Divisional Organization
Organizational structure in which corporate divisions operate as autonomous businesses under the larger corporate umbrella
HEINZ
Food Service Division
Infant Foods Division
Condiments Division
Star-Kist Tuna Division
Frozen-Foods Division
Misc. Products Division
Pet Foods Division
Division: Department that resembles a separate business in producing and marketing its own products

25. An Example of Organisation by Product/Activity
Hewlett Packard
Imaging and
Printing Group
Personal
Systems Group
Enterprise
Systems Group
HP Services
HP Financial
Services

26. Organisation by Product/Activity
Advantages
Clear focus on market segment helps meet customers’ needs
Positive competition between divisions
Better control as each division can act as separate profit centre
Disadvantages
Duplication of functions (e.g. different sales force for each division)
Negative effects of competition
Lack of central control over each separate division

27. Multi-Divisional Structure
Each division is operated as a separate business
Appropriate for related-diversified businesses
The goal is to maximize overall firm performance 27

28. 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 -

29. 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

30. 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 -

31. 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

32. SBU Form Related-Linked Strategy President Strategic Business Unit A
Corporate Finance
Corporate R&D
Corporate Marketing
Strategic Planning
Corporate Human
Resources
Division
Division
Strategic Business Unit A
Strategic Business Unit B
Strategic Business Unit C
Strategic Business Unit D
Structural integration exists among divisions within SBUs, but not across SBUs
Each SBU may have its own budget for staff to foster integration
Corporate headquarters staff serve as consultants to SBUs and divisions 43

33. 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 -

34. 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

35. Evolution of Multi-Divisional Structure
Chief Executive Officer
Corporate Office (Staff)
North America
Latin America
Europe
Asia
Africa
Australia
Product A
Product B
Product C
Product D
A Structural evolution based on Geographic lines usually implies a Multi-Domestic International Strategy 41

36. Matrix Multi-focused

37. The Matrix Structure Allocation of Specialists Clear Accountability
Dual Chain
of Command
The Matrix
Structure
Cross-Functional
Coordination
A newer type of structure combines the advantages of both functional and divisional--a matrix structure. It has the advantages of specialization with a greater focus on results.
In a matrix structure, specialists from functional areas comes together to work on a project. The next slide slows an example of an aerospace firm with such a structure. 20

38. Matrix Organization at Martha Stewart
Area Specialists
Media Group
Merchandising Group
Magazines
Books
Internet
Radio/ Newspaper
Network/ Cable TV
K-mart Line
Sears Paint
Catalog Line
Specialty/ Retailing
Cooking
Entertainment
Weddings
Crafts
Gardening
Home
Holidays
Children
6 - 38

39. 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 -

40. 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 -

42. Geographical Structure

43. International Organization
Approaches to organizational structure developed in response to the need to manufacture, purchase, and sale in global markets
CEO
Steve Jobs
Apple
America
Apple Europe
Apple Pacific
Latin America
Latin America
Asia
Australia
Japan

44. 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 -

45. 1 2 4 3 Geographic Structure CEO Regional Operations Central Support
Functions
Individual
stores 1 2 4 3
4 -
4-31

46. Hewlett-Packard’s Headquarters Worldwide
Organisation by Area
Hewlett-Packard’s Headquarters Worldwide
Hewlett Packard
Americas
Houston, Texas
Europe, Middle East, Africa
Geneva, Switzerland
Asia Pacific
Hong Kong

47. Organisation by Area Advantages Disadvantages Serve local needs better
Positive competition
More effective communication between firm and local customers
Disadvantages
Conflict between local and central management
Duplication of resources and functions

48. Virtual-Modular Structure

49. Virtual Organization Core Organization
Contracted Manufacturing in Asia
Contracted Administrative Services
Core Organization
Accounting
Human Resources
Finance
Operations
Management
Contracted Sales & Marketing
Contracted Distribution & Logistics
6 - 49

50. (editorial service module) Creative Design Inc. (graphic module)
Strawberry Hill
(editorial service module)
Creative Design Inc.
(graphic module)
Premiere Plus
Publishing
Target Communications
(public relations module)
A-Z Printshops
(printing module)

51. Horizontal Structure

52. Caters to customer needs Resistance from traditional managers
Employee Empowerment
Teamwork
Caters to customer needs
Resistance from traditional managers
Change in job design
Significant training
Advantages
Disadvantages

53. Reengineering

54. 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 -

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

56. Prepare a new Organization Structure for C & C Grocery Stores Inc.
Case study
Prepare a new Organization Structure for C & C Grocery Stores Inc.

57. Thank you