organizational design, structure

1. Thomson Learning
© 2004 3-1
Chapter Three
Fundamentals of
Organization Structure

2. Thomson Learning
© 2004 3-2
A Sample Organization Chart
C h ie f
A c c o u n t a n t
B u d g e t
A n a ly s t
V ic e P r e s id e n t
F in a n c e
P la n t
S u p e rin t e n d e n t
M a in t e n a n c e
S u p e rin t e n d e n t
V ic e P r e s id e n t
M a n u f a c tu r in g
T r a in in g
S p e c ia lis t
B e n e f its
A d m in is t r a t o r
D ir e c t o r
H u m a n R e s o u r c e s
C E O

3. Thomson Learning
© 2004 3-3
The Relationship of Organization
Design to Efficiency vs. Learning
Outcomes
Horizontal Organization
Designed for Learning
Vertical Organization
Designed for Efficiency
Dominant
Structural
Approach
Horizontal structure is dominant
• Shared tasks, empowerment
• Relaxed hierarchy, few rules
• Horizontal, face-to-face
communication
• Many teams and task forces
• Decentralized decision making
Vertical structure is dominant
• Specialized tasks
• Strict hierarchy, many rules
• Vertical communication and reporting systems
• Few teams, task forces or integrators
• Centralized decision making

4. Thomson Learning
© 2004 3-4
Ladder of Mechanisms for Horizontal
Linkage and Coordination
HIGHLOW
LOW Information Systems
Direct Contact
Task Forces
Full-time Integrators
Teams
AmountofHorizontal
CoordinationRequired
Cost of Coordination in
Time and Human Resources
H IGH

5. Thomson Learning
© 2004 3-5
Project Manager Location
in the Structure
President
Finance
Department
Financial
Accountant
Budget
Analyst
Management
Accountant
Engineering
Department
Product
Designer
Draftsperson
Electrical
Designer
Marketing
Department
Market
Researcher
Advertising
Specialist
Market
Planner
Purchasing
Department
Buyer
Buyer
Buyer
Project Manager
New
Product B
Project Manager
New
Product A
Project Manager
New
Product C

6. Thomson Learning
© 2004 3-6
Teams Used for Horizontal
Coordination at Wizard Software
Company
Videogames
Chief Engineer
Programming Vice Pres
Customer Service
Manager
Videogames Basic Research
Supervisor
Research Vice Pres
Applications and Testing
Supervisor
Procurement
Supervisor
Videogames
Sales Manager
Marketing Vice Pres.
Memory Products
International Manager
Advertising Manager
Memory Products
Chief Programmer
Memory Products
Research Supervisor
Memory Products
Sales Manager
President
Videogames Product Team
Memory Products Team

7. Thomson Learning
© 2004 3-7
Structural Design Options for
Grouping Employees into
Departments
P r o d u c t
D i v i s i o n 1
P r o d u c t
D i v i s i o n 2
P r o d u c t
D i v i s i o n 3
C E O
Engineering Marketing Manufacturing
CEO
Functional
Grouping
Divisional
Grouping
Source: Adapted from David Nadler and Michael Tushman,
Strategic Organization Design (Glenview, Ill.: Scott Foresman, 1988), 68.

8. Thomson Learning
© 2004 3-8
Strengths and Weaknesses of
Functional Organization Structure
 STRENGTHS:
 Allows economies of
scale within functional
departments
 Enables in-depth
knowledge and skill
development
 Enables organization
to accomplish
functional goals
 Is best with only one
or a few products
 WEAKNESSES:
 Slow response time to
environmental changes
 May cause decisions to pile
on top, hierarchy overload
 Leads to poor horizontal
coordination among
departments
 Results in less innovation
 Involves restricted view of
organizational goals
Source: Adapted from Robert Duncan, “What Is the Right
Organization Structure? Decision Tree Analysis Provides the Answer,”
Organizational Dynamics (Winter 1979): 429.

9. Thomson Learning
© 2004 3-9
Strengths and Weaknesses of
Divisional Organization Structure
 STRENGTHS:
 Suited to fast change in
unstable environment
 Leads to client satisfaction
because product responsibility
and contact points are clear
 Involves high coordination
across functions
 Allows units to adapt to
differences in products,
regions, clients
 Best in large organizations with
several products
 Decentralizes decision-making
 WEAKNESSES:
 Eliminates economies of
scale in functional
departments
 Leads to poor
coordination across
product lines
 Eliminates in-depth
competence and
technical specialization
 Makes integration and
standardization across
product lines difficult
Source: Adapted from Robert Duncan, “What Is the
Right Organization Structure? Decision Tree Analysis
Provides the Answer,” Organizational Dynamics
(Winter 1979): 431.

10. Thomson Learning
© 2004 3-10
Reorganization from Functional
Structure to Divisional Structure at Info-
Tech
R&D Manufacturing Accounting Marketing
Info-Tech
President
Functional
Structure
R & D M fg A c c t g M k t g
E le c t r o n ic
P u b lis h in g
R & D M fg A c c t g M k t g
O ff ic e
A u t o m a t io n
R & D M fg A c c t g M k t g
V ir t u a l
R e a lit y
In f o -T e c h
P r e s id e n t
Divisional
Structure

11. Thomson Learning
© 2004 3-11
Structural Design Options for
Grouping Employees (Continued)
Multifocused
Grouping
CEO
ManufacturingMarketing
Product
Division 2
Product
Division 1
Source: Adapted from David Nadler and Michael
Tushman, Strategic Organization Design (Glenview, Ill.:
Scott Foresman, 1988), 68.

12. Thomson Learning
© 2004 3-12
Structural Design Options for
Grouping Employees (Continued)
Horizontal
Grouping
CEO
FinanceHuman Resources
Core
Process 2
Core
Process 1
Source: Adapted from David Nadler and Michael Tushman,
Strategic Organization Design (Glenview, Ill.: Scott Foresman,
1988), 68.

13. Thomson Learning
© 2004 3-13
Geographical Structure
for Apple Computer
CEO
Steve Jobs
Apple
Europe
Apple
Pacific
France
Apple
Products
Asia
Japan
Australia
Apple
Americas
Canada
Latin
America/
Caribbean
Sales
Service and
Marketing
to Regions
Source: www.apple.com

14. Thomson Learning
© 2004 3-14
Product
Manager A
Product
Manager B
Product
Manager C
Product
Manager D
Director
of Product
Operations
Design
Vice
President
Mfg
Vice
President
Marketing
Vice
President
Controller
Procure-
ment
Manager
President
Dual-Authority Structure in a
Matrix Organization

15. Thomson Learning
© 2004 3-15
 STRENGTHS:
 Achieves coordination
necessary to meet dual
demands from customers
 Flexible sharing of human
resources across products
 Suited to complex decisions
and frequent changes in
unstable environment
 Provides opportunity for
both functional and product
skill development
 Best in medium-sized
organizations with multiple
products
 WEAKNESSES:
 Causes participants to experience
dual authority, which can be
frustrating and confusing
 Means participants need good
interpersonal skills and extensive
training
 Is time consuming; involves
frequent meetings and conflict
resolution sessions
 Will not work unless participants
understand it and adopt collegial
rather than vertical-type
relationships
 Requires great effort to maintain
power balance
Strengths and Weaknesses of
Matrix Organization Structure
Source: Adapted from Robert Duncan, “What Is the Right
Organization Structure? Decision Tree Analysis Provides the
Answer,”Organizational Dynamics (Winter 1979): 429.

16. Thomson Learning
© 2004 3-16
Matrix Structure for
Worldwide Steel Company
President
Industrial
Relations
Vice
President
Mfg.
Services
Vice
President
Finance
Vice
President
Marketing
Vice
President
Mfg.
Vice
President
Metallurgy
Vice
President
Field Sales
Vice
President
Open Die
Business Mgr.
Ring Products
Business Mgr.
Wheels & Axles
Business Mgr.
Steelmaking
Business Mgr.
Vertical Functions
HorizontalProductLines

17. Thomson Learning
© 2004 3-17
A Horizontal Structure
Team
3
Team
2
Team
1
Top
Management
Team
Team
3
Team
2
Team
1
Customer
Customer
Process
Owner
Process
Owner
Testing
Product
Planning
Research
Market
Analysis
New Product Development Process
Distrib.
Material
Flow
PurchasingAnalysis
Procurement and Logistics Process
Sources: Based on Frank Ostroff,
The Horizontal Organization, (New York:
Oxford University Press, 1999); John A. Byrne,
“The Horizontal Corporation,” Business Week,
December 20, 1993, 76-81; and Thomas A. Stewart,
“The Search for the Organization of Tomorrow,”
Fortune, May 19, 1992, 92-98.

18. Thomson Learning
© 2004 3-18
Strengths and Weaknesses of
Horizontal Structure
 STRENGTHS:
 Flexibility and rapid response to
changes in customer needs
 Directs the attention of everyone
toward the production and delivery
of value to the customer
 Each employee has a broader view
of organizational goals
 Promotes a focus on teamwork
and collaboration—common
commitment to meeting objectives
 Improves quality of life for
employees by offering them the
opportunity to share responsibility,
make decisions, and be
accountable for outcomes
 WEAKNESSES:
 Determining core processes
to organize around is difficult
and time-consuming
 Requires changes in culture,
job design, management
philosophy, and information
and reward systems
 Traditional managers may
balk when they have to give
up power and authority
 Requires significant training
of employees to work
effectively in a horizontal
team environment
 Can limit in-depth skill
development
Sources: Based on Frank Ostroff, The Horizontal Organization: What the
Organization of the Future Looks Like and How It Delivers Value to
Customers, (New York: Oxford University Press, 1999);
and Richard L. Daft, Organization Theory and Design, 6th
ed.,
(Cincinnati, Ohio: South-Western College Publishing, 1998) 253.

19. Thomson Learning
© 2004 3-19
Functional
Structure
Hybrid Structure
Part 1. Sun Petrochemical Products
President
Technology
Vice
President
Financial
Services
Vice Pres.
Human
Resources
Director
Chief
Counsel
Chemicals
Vice
President
Lubricants
Vice
President
Fuels
Vice
President
Product
Structure
Sources: Based on Linda S. Ackerman, “Transition Management:
An In-Depth Look at Managing Complex Change,”
Organizational Dynamics (Summer 1982): 46-66;
and Frank Ostroff, The Horizontal Organization,
(New York: Oxford University Press, 1999), Fig. 2.1, 34.

20. Thomson Learning
© 2004 3-20
Hybrid Structure
Part 2. Ford Customer Service
Division
Director and
Process Owner
Director and
Process Owner
Sources: Based on Linda S. Ackerman, “Transition Management:
An In-Depth Look at Managing Complex Change,” Organizational Dynamics
(Summer 1982): 46-66; and Frank Ostroff, The Horizontal Organization,
(New York: Oxford University Press, 1999), Fig. 2.1, 34.
Human
Resources
Strategy and
CommunicationFinance
Vice President and
General Manager
Teams
Teams
Director and
Process Owner Teams
Technical Support Group
Vehicle Service Group
Parts Supply / Logistics Group
Functional
Structure
HorizontalStructure
Teams
Teams

21. Thomson Learning
© 2004 3-21
Organization Contextual
Variables that Influence Structure
Structure
(learning vs.
efficiency)
Environment
Chapters 4, 6
Culture
Chapter 10
Size
Chapter 9
Strategy,
Goals
Chapter 2
Technology
Chapters 7,8
Sources: Adapted from Jay R. Galbraith,
Competing with Flexible Lateral Organizations, 2nd
ed.
(Reading, Mass.: Addison-Wesley, 1994), Ch.1;
Jay R. Galbraith, Organization Design (Reading, Mass.:
Addison-Wesley, 1977), Ch. 1.

22. Thomson Learning
© 2004 3-22
The Relationship of Structure to
Organization’s Need for Efficiency vs.
Learning
Horizontal
Structure
Dominant
Structural
Approach
Horizontal:
• Coordination
• Learning
• Innovation
• FlexibilityVertical:
• Control
• Efficiency
• Stability
• Reliability
Matrix
Structure
Divisional
Structure
Functional with
cross-functional
teams, integrators
Functional
Structure
Modular
Structure

23. Thomson Learning
© 2004 3-23
Symptoms of
Structural Deficiency
 Decision making is delayed or lacking in
quality
 The organization does not respond
innovatively to a changing environment
 Too much conflict is evident