Principles of Organizational Structure

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Organizational structure The sum of ways an organization divides its labor into distinct, coordinated tasks Control, coordination, and motivation issues

Organizational design • Assessing the organization’s strategy and environmental demands and determining the appropriate organizational structure

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 • Structure is more complex than organizational charts

Differentiation

Differentiation

• Division of tasks into subtasks that are performed by individuals with specialized skills • Two types of differentiation: – Task differentiation – Cognitive differentiation

Integration

Integration

• The extent to which various parts of the organization interact, coordinate and cooperate with each other • Driving forces of integration include: – Interdependence: degree to which each unit or each person depends on other units or people to accomplish a required task • Pooled, sequential, reciprocal – Uncertainty: the extent to which future input, process, and output factors cannot be forecast accurately • Integration and coordination can be accomplished through rules, goals, and values

Formalization

Formalization

• The official and defined structures and systems in decision making, communication, and control in an organization – Line of authority – who reports to whom – Unity of command – should only have one boss – Span of control – number of employees reporting to a given supervisor • The greater the reliance on rules and SOPs the more formal the structure

Tall Organizational Structures

Levels = 4 Span of Control = 3 Total Employees = 40

Adapted from Exhibit 7.4

Flat Organizational Structures

Levels = 3 Span of Control = 7 Total Employees = 57

Adapted from Exhibit 7.4

Informalization

Informal organization

• Consists of the unofficial but influential means of communication, decision making, and control • Not noted on organizational charts • Can vary from company to company and country to country

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

Functional Structure

CEO Vice President Marketing Market Research Vice President Sales East region Vice President Manufacturing Purchasing Vice President Human Resources Recruiting Advertising South region Operations Training Promotion West Region Logistics Compensation

Adapted from Exhibit 7.6

Functional Structure

Strengths • Small- to medium-sized firms with limited product diversification • Specialization of functional knowledge • Less duplication of functional resources • Facilitates coordination within functional areas

Product Structure

CEO Vice President Product A Marketing Vice President Product B Marketing Vice President Product C Marketing Vice President Product D Marketing Operations Operations Operations Operations Sales Sales Sales Sales

Adapted from Exhibit 7.7

Product Structure

Strengths • More focus on products and customers • Easier to evaluate performance of the product • Product responsiveness to market changes • Less burden on the top executive in making operating decisions

Division Structure

Vice President Medical Systems Anesthesia CEO Vice President Bioscience Labware Vice President Clinical Vacutainer Hypodermic Infusion Cell Biology Immunology Diagnostics Consulting

Adapted from Exhibit 7.8

Division Structure

Strengths • Reduced functional duplication • Customer focus can increase • Cross-product coordination is eased • Cross-regional coordination is often eased

Vice President Retail

Customer Structure

CEO Vice President Industrial Vice President Military Small Domestic Army Midsize International Navy

Adapted from Exhibit 7.9

Customer Structure

Strengths • In-depth understanding of specific customers • Responsiveness to changes in customer preferences and needs • Responsiveness to moves by competitors to better serve customers

Geographical/Regional Structure

CEO Vice President North America Vice President Europe Vice President Southeast Asia Vice President Latin America Vice President Africa

Adapted from Exhibit 7.10

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

NA AP EMEA LA

Matrix Structure

CEO Health Beauty Cleaning Food

Adapted from Exhibit 7.11

Matrix Structure

Strengths • Information flow • Decision quality • Suited to a changing and complicated business environment • Flexible use of human resources

Mixed (or Hybrid) Structure

CEO Vice President Finance Vice President Human Resources Vice President Operations Vice President Product A Vice President Product B Marketing Recruiting Purchasing Retail Education Accounting Training Manufacturing Industrial Government Treasury Compensation Logistics

Adapted from Exhibit 7.12

Mixed (or Hybrid) Structure (cont.)

CEO Vice President North America Vice President Latin America Vice President Asia/Pacific Vice President EMEA Marketing Marketing Marketing Marketing Operations Operations Operations Operations Sales Sales Sales Sales

Adapted from Exhibit 7.12

Networked Structures

Formal or informal relationships among units or organizations (along the firm’s value chain)

• Low-networked: – Quantity and magnitude of externally networked activities is limited • High-networked: – Larger quantity and magnitude of externally networked activities

Support Activities

Outsourced Structure

Outsourced to EDS Primary Activities

Adapted from Exhibit 7.13

Network Structure

Designing Organizations:

Environmental Complexity and Dynamism Simple Low uncertainty Low demands placed on structure to facilitate extent or speed of coordination Moderate uncertainty Low demands placed on structure for broad coordination, high for speed of coordination Complex Moderate Uncertainty High uncertainty High demands placed on structure to facilitate extent or speed of coordination, low demand on speed High demands placed on structure to facilitate both extent and speed of coordination Static Dynamic

Adapted from Exhibit 7.15

Designing Organizations:

Organizational Strategy

• Structure needs to fit strategy as well as environment • No hard and fast rules for fitting structure to strategy • Structure must enable strategy and and strategy implementation Adapted from Exhibit 7.16

International Strategy and Structure

High Foreign Sales Low Foreign Sales Geographic Structure International Division Low International Product Diversity Matrix Structure Worldwide Product Division High International Product Diversity

Adapted from Exhibit 7.16

International Strategy and Structure

• Evolution of international Strategy and Structure – Export Departments – International Divisions – Advanced Global Structures • Geographic, product, customer, division, global matrix • Organizing to Think Globally and Act Locally – Global efficiencies vs. Local responsiveness • Integrating and Coordinating Mechanisms – Direct Contact – Liaisons – Teams (cross-functional) Adapted from Exhibit 7.16