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Organizational structure and design Organizational structure (overview) Organization structure Defines how tasks are allocated Specifies reporting relationships Defines formal coordinating mechanisms and interaction patterns Organizational structure (overview)

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Organizational structure and design

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Organizational structure and design l.jpg

Organizational structure and design

S V Horner 2008


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Organizational structure (overview)

  • Organization structure

    • Defines how tasks are allocated

    • Specifies reporting relationships

    • Defines formal coordinating mechanisms and interaction patterns

S V Horner 2008


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Organizational structure (overview)

  • Balances two conflicting forces

    • Need for division of tasks into meaningful groupings: division of labor

    • Need to integrate groupings for effectiveness and efficiency

  • Changes in response to organizational growth

S V Horner 2008


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Simple structure

  • Low departmentalization

  • Wide spans of control

  • Authority centralized in a single person

  • Low formalization

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Simple structure

  • Start ups and small firms

  • Centralized in owner-manager

    • “walk around management”

    • Strategic controls at corporate level

  • Flexible, innovative, responsive

  • Most appropriate for focused business level strategies

S V Horner 2008


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Functional Structure

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Chief Executive Officer or President

Manager Production

Manager Purchasing

Manager Marketing

Manager R&D

Manager HR

Manager IT

Lower-level managers, specialists, and operating personnel

Functional Structure

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Functional structure

  • Workers grouped according to similar functions and work activities

  • Relatively centralized with CEO as key coordinator

  • Growth of rules, policies, and procedures

  • Strengths: economies of scale, worker expertise

  • Weaknesses: slow responsiveness, over centralization, low coordination between departments, potential conflict

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The Divisional Structure

Chief Executive Officer

Corporate Office (Staff)

Product A

Product B

Product C

Product D

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Divisional structure

  • Organized by type of output

  • Decentralized operations with central control

  • Semi-autonomous units functionally organized

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Divisional structure

  • Strengths: responsiveness, internal coordination, decentralized

  • Weaknesses: less efficiency, coordination, and integration across divisions, less functional expertise

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Divisional structure

  • Three important outcomes

    • Allows accurate monitoring and control

    • Facilitates comparison across product lines

    • Provides feedback for improving division performance

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Variations of divisional structure

  • Strategic business unit (SBU)

  • Holding company (conglomerate)

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SBU form of divisional structure

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SBU form and related diversification

  • Related diversification or mix of related and unrelated businesses; i.e., limited links

  • Three levels: corporate headquarters (president and staff), strategic business units, product or geographic divisions

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SBU form and related diversification

  • Divisions within SBUs are integrated with one another, but SBUs are independent of each other

  • Corporate staff oversees and consults with SBUs but provides little direct input into product strategy

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SBU form

  • Advantages

    • greater decentralization

    • simplifies planning and control at corporate level

    • low synergies among SBUs

  • Disadvantages

    • added hierarchy

    • increases expenses

    • further removes corporate management from operations

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Holding company structure

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Holding company structure

  • Used when corporate portfolio is unrelated

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Matrix structure: Dual authority

  • Matrix bosses

    • Department head: responsible for functional expertise, maintaining rules, and standards

    • Brand, product, or project manager responsible for coordination, customers, and product performance

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Matrix structure: Dual authority

  • Two-boss employees

    • May be subject to conflicting demands

    • Dual loyalty means dealing effectively with both bosses

  • Top leader directs both command structures

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Matrix structure

  • Strengths

    • Enables coordination possible

    • Better resource utilization

    • Well suited to complex, unstable environment

    • Allows development of either functional (technical) or general management skills

    • Best suited for mid-size organizations with multiple products

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Matrix structure

  • Weaknesses

    • Dual authority violates unity of command principle

    • Requires good people skills and training

    • Involves frequent direct contact and high commitment to matrix form

    • Requires proper environmental conditions

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Matrix structure

  • May be most appropriate when:

    • Sharing scarce resources (e.g., people and/or equipment) across product lines

    • Responding to multiple outcomes (e.g., technical expertise and rapid change in product lines)

    • Environment is complex and unstable

    • Organization is of moderate size with multiple products

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Structure and strategy

  • Structure follows strategy

    • Strategy determines structure, e.g., related diversification forces shift from functional to divisional structure

  • Structure constrains strategy

    • Structure difficult to change

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Summary

  • Four basic types of structure: simple, functional, divisional, matrix

  • Each may be appropriate under certain conditions and strategies

S V Horner 2008


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