Understanding and Managing Organizational Structure (A)

BA 152

Today’s Questions 1.

2.

3.

4.

What do we mean by the term, “structure?” What influences the structural choices made by managers?

What are two of the most popular organizational structures?

What are the relative advantages and disadvantages of these structures?

Characteristics of Organizations Environment Goals Strategies Structures Technologies Systems People 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 Making Things President Vice-Presidents Middle Managers Supervisors First-Line Employees

Vertical Complexity

Selling Things Getting Money Designing Things

Horizontal Complexity

Dealing with People

Becoming an Organization

Complexity

Vertical Horizontal

Centralization Formalization

Influences on Structure Environment Industry FIT!

Strategic Choice/Goals Organizational Size Technology

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

D =M S

 Equipment sits idle, and we lose possible economies of scale

Structuring Work

A Functional Approach

=D =M DMS Corp. Functions =S

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

1.

2.

Characteristics of Functional Structures Those doing the “same thing” are in the same function.

More standardized methods and procedures within each function

3.

4.

5.

Characteristics of Functional Structures Higher degree of control/centralization within each function and at the top of the organization.

The functions are organized as

cost centers.

This structure is competitive in stable environments demanding efficiency.

Kenan-Flagler Business School

Functional Structure

DEAN

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.

Operations Dept.

Chairman Full Profs.

Assoc.

Profs.

Assist.

Profs.

President Functional Structure Vice-President Manufacturing Vice-President Engineering Vice-President Finance & Accounting  Advantages –

Economies of scale

– Supervision/training by specialists – Promotion within specialty Vice-President Marketing

President Functional Structure Vice-President Manufacturing Vice-President Engineering Vice-President Finance & Accounting Vice-President Marketing  Disadvantages – Short-term time perspective within functions – Conflicts across functions – – – – Coordination problems

between

functions Goal displacement Less innovation Less flexibility

Ways to Coordinate Activities across Functions

Task forces (temporary) Task Teams (permanent)

Functional Structure

with task forces/teams

President Engineering Marketing

Manufacturing

R&D Task Force

Functional Structure

with task forces/teams

President Engineering Marketing

Manufacturing

R&D Task Team

Functional Structure

with task teams

President Task Team Task Team Task Team Task Team Task Team

Structuring Work

A Divisional Approach

DMS Corp.

Division =D =M

East Region

=S =D =M

Central Region

=S =D =M

West Region

=S

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 Eastern Region Vice-President Southern Region Vice-President Northern Region Vice-President Western Region

Director New England Director New York Metro By smaller regions By smaller regions Director Mid-Atlantic •

Engineering

•

Manufacturing

•

F&A

•

Marketing

By smaller regions

Characteristics of Divisional Structures 1.

2.

Those doing “different things” are in the same division.

Less standardized methods and procedures across divisions

3.

4.

5.

Characteristics of Divisional Structures Lower degree of control and centralization within divisions and at the top of the organization The divisions are organized as

profit

centers This structure is competitive in dynamic environments requiring flexibility and responsiveness

Kenan-Flagler Business School

Divisional Structure

DEAN

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 Executive Program Director Acct.

Faculty Mkt.

Faculty Mgt.

Faculty Finance Faculty Ops.

Faculty

President Divisional Structures

Vice-President Eastern Region Vice-President Southern Region Vice-President Northern Region Vice-President Western Region

 Advantages –

Increased flexibility

– Decreased response times – Better coordination

within

divisions – Good training for general managers

President Divisional Structures

Vice-President Eastern Region Vice-President Southern Region Vice-President Northern Region Vice-President Western Region

 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

Corporate Offices Southwest Midwest Southeast Northwest Northeast International

K-Mart Reorganization

New Structure

Corporate Offices West Southeast Super Centers Northeast International

Volkswagen:

Restructuring from Individual Brands to Operational Divisions

Original Structure Audi President/CEO Bugatti Bentley VW Lamborghini Skoda Seat Scania AB VW Trucks

Volkswagen:

Restructuring from Individual Brands to Operational Divisions

Propsed Structural Change President/CEO Luxury Division Audi Bugatti Bentley Lamborghini Mass-Car Division Commerical Vehicles VW Skoda Seat VW Trucks Scania AB

Volkswagen:

Restructuring from Individual Brands to Operational Divisions

 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 Propsed Structural Change President/CEO Luxury Division Audi Bugatti Bentley Lamborghini Mass-Car Division Commerical Vehicles VW Skoda Seat VW Trucks Scania AB

Today’s Take-aways 1.

2.

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

Today’s Take-aways 3.

4.

Divisional structures work well when the organization’s environment is relatively uncertain and requires responsiveness and adaptability from the organization.

But what happens when the environment demands both efficiency and adaptability? Stay tuned!

Next Time C & C Grocery Stores