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Business Management S Mahelal 2012
COMBS – Lecture 5 Business Management S Mahelal 2012
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Organizational Structure
Learning Objectives: Explain the concepts of organizational structure and design Identify the common structures used by organizations and describe their strengths and weaknesses of each of these structures
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Principles of Organizational Structure
The sum of ways an organization divides its labor into distinct, coordinated tasks Organizational design Assessing the organization’s strategy and environmental demands Determining the appropriate organizational structure
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Principles of Organizational Structure
Organizational charts Illustration of relationships Units Lines of authority among supervisors and subordinates Illustrated by use of labeled boxes and connecting lines Organizational charts illustrate relationships among units and lines of authority among supervisors and subordinates through the use of labeled boxes and connecting lines.
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Suncor Energy Organizational Structure
CEO Executive Vice-President Oil Sands Marketing and Refining Natural Gas and Alternative Energy Senior Major Projects For example, this is the organizational chart of Suncor Energy. Suncor divides its tasks into different divisions of its business: oil sands, marketing and refining, natural gas and alternative energy, and major projects. These divisions are further split into other, more specific tasks, accompanied by the people who perform these tasks. Adapted from Exhibit 7.1
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Line of Authority A line of authority specifies who reports to whom CEO Vice President Marketing Manufacturing Human Resources Brand Manager Using the hypothetical example above, explain that line of authority specifies who reports to whom. The organizational chart illustrates that the four vice-presidents report direct to the CEO, who represents the direct supervisor in this case. The brand manager reports to the vice president of marketing. Thus, the line of authority starting with the brand manager is: brand manager vice president of marketing CEO.
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Unity of Command CEO An employee should have only one boss
Vice President Marketing Manufacturing Human Resources Brand Manager Unity of command suggests that an employee should have only one boss. Thus, the brand manager above (in green) reports only to the Vice President of Marketing, who then reports only to the CEO. However, hybrid structures that appear later in the chapter defy the notion of unity of command, as an employee may have more than one boss.
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Span of Control The number of employees reporting to a given supervisor CEO Vice President Marketing Manufacturing Human Resources Span of control refers to the number of employees reporting to a given supervisor. In the example above, CEO’s span of control includes the three vice presidents along with anyone else who reports to those vice presidents, and anyone else who reports to those who reports to the vice presidents, etc.
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Tall Organizational Structures
Levels = 4 Span of Control = 3 Total Employees = 40 Tall organizational structures show narrow spans of control and have multiple layers with significant vertical differentiation. In the example above, there are only three people (blue) who report to top management (red), therefore, there is a longer distance from the bottom to the top of the organization. Tall organizational structures are appropriate for organizations with stable external environments, where change is slight or slow and important decision-making is made at the top. Adapted from Exhibit 7.4
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Flat Organizational Structures
A flat organizational structure has a wider span of control and fewer layers. Above, there are seven people (blue) who report to top management (red). Flat organizational structures are appropriate where the external environment is constantly changing and people must be able to make decisions without getting so much managerial approval. This requires human resources with high capabilities. Levels = 3 Span of Control = 7 Total Employees = 57 Adapted from Exhibit 7.4
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Centralization and Decentralization
Centralized organizations Restrict decision making to fewer individuals, usually at the top of the organization Decentralized organizations Tend to push decision-making authority down to the lowest level possible Centralization and decentralization refer to the level at which decisions are made, at the top of the organization or at lower levels. Centralized organizations restrict decision making to fewer individuals, usually at the top of the organization. Japanese companies are usually centralized and involve many layers of decision-making, sometimes frustrating Western firms. Decentralized organizations push decision making authority down to the lowest possible level. Philips, the Dutch electronics giant, is a decentralized organization that gives autonomy to its larger country units.
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Combinations of Formal/Informal and Centralized/Decentralized
U.S. Military Philips Electronics Informal Mitsubishi Club Med This slides provides combinations of the last two concepts – formal versus informal organizations and centralized versus decentralized organizations. Starting your discussion with the U.S. Military as an example of a formal, centralized organization will help students contrast the other combination forms. Centralized Decentralized Adapted from Exhibit 7.5
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Functional Structure CEO Vice President Marketing Sales Manufacturing
Human Resources Market Research Advertising Promotion East region South region West Region Purchasing Operations Logistics Recruiting Training Compensation The functional structure is used to organize the firm around traditional functional areas such as accounting, finance, marketing, operations, etc. This structure is very common because it separates the specialized knowledge of each functional area through horizontal differentiation and can direct that knowledge toward the firm's key products or services. Adapted from Exhibit 7.6
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Functional Structure Strengths Weaknesses
Small- to medium-sized firms with limited product diversification Specialization of functional knowledge Less duplication of functional resources Facilitates coordination within functional areas Weaknesses Weak coordination across functional groups Restricted view of overall organizational goals Limits customer attention Slower response to market changes Burdens chief executives with decisions
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Geographical/Regional Structure
CEO Vice President North America Europe Southeast Asia Latin America Africa In a geographic or regional structure, regional executives are generally responsible for all functional activities and products in their regions. For example, an organization might be divided into regions of the world, each headed by a vice president for that region. Adapted from Exhibit 7.10
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Geographical/Regional Structure
Strengths: Facilitates local responsiveness Develops in-depth knowledge of specific regions/countries Creates accountability by region Facilitates cross-functional coordination within regions Weaknesses: Often creates cross-regional coordination difficulties Can inhibit ability to capture global scale economies Duplicates resources and functions across regions
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Matrix Structure CEO Health Beauty Cleaning Food NA AP EMEA LA
A matrix structure consists of two organizational structures superimposed on each other. As a consequence, there are dual reporting relationships. That is, one person essentially reports to two bosses. These two structures can be a combination of the general forms already discussed. Adapted from Exhibit 7.11 Adapted from Exhibit 7.11: Matrix Structure
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Matrix Structure Strengths Weaknesses Information flow
Decision quality Suited to a changing and complicated business environment Flexible use of human resources Weaknesses Complexity of performance evaluations Inhibited ability to respond to changing conditions Diffused accountability Conflicts between differing perspectives and objectives
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Mixed (or Hybrid) Structure (cont.)
CEO Vice President North America Latin America Asia/Pacific EMEA Marketing Operations Sales Another example of a mixed structure combines a geographic structure (at the top of the organization) with a functional structure (at the bottom of the organization). Adapted from Exhibit 7.12
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