2. Creating Effective Organizational Designs
Chapter 10
Creating Effective Organizational Designs
McGraw-Hill/Irwin
Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

3. After studying this chapter, you should have a good understanding of:
Learning Objectives
After studying this chapter, you should have a good understanding of:
The importance of organizational structure and the concept of the boundaryless organization in implementing strategies
The growth patterns of major corporations and the relationship between a firm’s strategy and its structure
Each of the traditional types of organizational structure—simple, functional, divisional, and matrix
The relative advantages and disadvantages of traditional organizational structures
The implications of a firm’s international operations for organizational structure
The different types of boundaryless organizations—barrier-free, modular, and virtual—and their advantages and disadvantages

4. Growth Patterns of Large Corporations
Exhibit 10.1
Phase 1
Strategy: Low revenue base; simple product-market scope
Structure: Simple
Phase 2
Strategy: Increase in revenues; engage in vertical integration
Structure: Functional
Phase 3
Strategy: Expand into new, related product-markets and/or geographical areas
Structure: Divisional
Phase 4
Strategy: Expand into international markets
Structure: International Division, Geographic Area, Worldwide Product Division, Worldwide Functional, or Worldwide Matrix

5. Functional Structure Chief Executive Officer or President Exhibit 10.2
Manager Production
Manager Engineering
Manager Marketing
Manager R&D
Manager Personnel
Manager Accounting
Lower-level managers, specialists, and operating personnel

6. Functional Structure Advantages Disadvantages
Pooling of specialists enhances coordination and control
Centralized decision making enhances an organizational perspective across functions
Efficient use of talent
Career paths and professional development in specialized areas are facilitated
Differences in functional orientations impede communication and coordination
Tendency for specialists to develop a short-term perspective and a narrow functional orientation
Functional area conflicts may overburden top level decision makers
Difficult to establish uniform performance standards

7. Chief Executive Officer or President Organized similarly to Division 1
Divisional Structure
Exhibit 10.3
Chief Executive Officer or President
Corporate Staff
Division A
General Manager
Division B
Division C
Manager Production
Manager Engineering
Manager Marketing
Manager R&D
Manager Personnel
Manager Accounting
Organized similarly to Division 1
Lower-level managers, specialists, and operating personnel

8. Divisional Structure Advantages Disadvantages
Increases strategic and operational control, permits executives to address strategic issues
Quick response to environmental changes
Increased focus on products and markets
Minimizes problems associated with sharing resources across functions
Facilitates development of general managers
Increased costs incurred through duplication of personnel, operations, and investment
Dysfunctional competition among divisions may detract from corporate performance
Difficulty in maintaining uniform corporate image
Overemphasis on short-term performance

9. Matrix Structure Exhibit 10.4 Chief Executive Officer or President
Corporate Staff
Manager Administration and Human Resources
Manager Projects
Manager Manufacturing
Manager Engineering
Manager Marketing
Manager Public Relations
Project A
Project B
Project C
Project D

10. Matrix Structure Advantages Disadvantages
Increases market responsiveness through collaboration and synergies
Allows more efficient utilization of resources
Improves flexibility, coordination, and communication
Increases professional development through broader responsibilities
Dual reporting relationships can result in uncertainty regarding accountability
Intense power struggles may lead to increased levels of conflict
Working relationships may be more complicated and resources duplicated
Excessive reliance on teamwork may impede timely decision making

11. The 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 structure based on geographic lines usually
implies a multi-domestic international strategy 41

12. The Multi-Divisional Structure
Chief Executive Officer
Corporate Office (Staff)
Product A
Product B
Product C
Product D
A structure based on product lines usually implies a global international strategy 39

13. The Multi-Divisional Structure
A Transnational International Strategy
is likely to utilize a structure that results in emphasis on
both geographic and product structures 42

14. Boundaryless Organizational Designs
Barrier-Free
Under-defined
Fluid
Team-based
Modular
-Value-Chain, not Hierarchy
-Specialization and Outsourcing
Virtual
-The Organization as a Dynamic Network
-Strategic Alliances
-Networking

15. Pros and Cons of the Barrier-Free Organization
Exhibit 10.6
Pros and Cons of the Barrier-Free Organization
Pros
Cons
Leverages the talents of all employees
Enhances cooperation, coordination, and information-sharing with internal and external constituencies
Enables a quicker response to market changes
Difficult to overcome political and authority boundaries both inside and outside the organization
A lack of leadership and vision can lead to coordination problems.
Time-consuming and difficult-to-manage democratic processes
A lack of high levels of trust can impede performance

16. Pros and Cons Of the Modular Organization
Exhibit 10.7
Pros and Cons Of the Modular Organization
Pros
Cons
Directs a firm to its critical activities
Maintains full strategic control over most the critical activities—core competencies
Achieves “best in class” performance throughout the value chain
Leverages core competencies by outsourcing with smaller capital commitment
Encourages information sharing and accelerates organizational learning
Inhibits common vision through reliance on outsiders
Diminishes future competitive advantages if critical technologies or competences are outsourced
Increases the difficulty of bringing activities back into the firm
May lead to an erosion of cross-functional skills
Decreases operational control and potential loss of control over a supplier

17. Pros and Cons of the Virtual Organization
Exhibit 10.8
Pros
Cons
Enables the sharing of costs, skills, risks
Enhances access to global markets
Increases market responsiveness
Creates a “best of everything” organization since each partner brings their core competencies
Encourages both individual and organizational knowledge-sharing and accelerates organizational learning
Harder to determine where one company ends and another begins due to close interdependencies
Leads to potential loss of operational control among partners
Results in loss of strategic control over emerging technology
Requires new and difficult-to-acquire managerial skills