Chapter Three Fundamentals of Organization Structure A Sample Organization Chart CEO Vice President Vice President Director Fianance Manufacturing Human Resources Chief Budget Plant Maintenance Training BenefitsAccountant Analyst Superintendent Superintendent Specialist Administrator
The Relationship of Organization Design to Efficiency vs. Learning Outcomes Horizontal Organization Designed for Learning Horizontal structure is dominant • Shared tasks, empowerment • Relaxed hierarchy, few rules • Horizontal, face -to-face communicationDominant • Many teams and task forces • Decentralized decision makingStructural Vertical structure is dominant • Specialized tasksApproach • Strict hierarchy, many rules • Vertical communication and reporting systems • Few teams, task forces or integrators • Centralized decision making Vertical Organization Designed for Efficiency Ladder of Mechanisms for Horizontal Linkage and Coordination H IGH Teams Coordination Required Full-time Integrators Amount of Horizontal Task Forces Direct Contact LOW Information Systems LOW HIGH Cost of Coordination in Time and Human Resources
Project Manager Location in the Structure President Finance Engineering Marketing PurchasingDepartment Department Department Department Financial Project ManagerAccountant Product Market New Designer Researcher Product A Buyer Budget Analyst Draftsperson Advertising Project Manager Specialist New Buyer Product BManagementAccountant Electrical Project Manager Designer Market New Planner Buyer Product C Teams Used for HorizontalCoordination at Rodney Hunt Company President Marketing Vice Pres. Engineering Vice Pres Manufacturing Vice Pres Water Control Equip. Water Control Equip. Foundry General Supervisor Sales Manager Chief Engineer Water Control Product Team Machine Shop General Supervisor Textile Machinery Textile Machinery Stainless Steel Domestic Sales Manager Chief Engineer General Supervisor Textile Machinery Textile Product Team Export Manager Customer Service, Purchasing, Shipping and Yard Advertising Manager Production Manager Supervisor
Structural Design Options for Grouping Employees into Departments Functional Grouping CEO Engineering Marketing Manufacturing Divisional Grouping CEO Product Product Product Division 1 Division 2 Division 3Source: Adapted from David Nadler and Michael Tushman ,Strategic Organization Design (Glenview, Ill.: Scott Foresman , 1988), 68. Strengths and Weaknesses of Functional Organization Structureb STRENGTHS: b WEAKNESSES: • Allows economies of • Slow response time to scale within functional environmental changes departments • May cause decisions to pile • Enables in-depth on top, hierarchy overload knowledge and skill • Leads to poor horizontal development coordination among • Enables organization to departments accomplish functional • Results in less innovation goals • Involves restricted view of • Is best with only one or organizational goals few productsSource: Adapted from Robert Duncan, “What Is the RightOrganization Structure? Decision Tree Analysis Provides the Answer,”Organizational Dynamics (Winter 1979): 429.
Strengths and Weaknesses of Divisional Organization Structureb STRENGTHS: b WEAKNESSES: • Suited to fast change in unstable • Eliminates economies of environment scale in functional • Leads to client satisfaction departments because product responsibility and contact points are clear • Leads to poor coordination across product lines • Involves high coordination across functions • Eliminates in-depth • Allows units to adapt to competence and technical differences in products, regions, specialization clients • Makes integration and • Best in large organizations with standardization across several products product lines difficult • Decentralizes decision-makingSource: Adapted from Robert Duncan, “What Is theRight Organization Structure? Decision Tree AnalysisProvides the Answer,” Organizational Dynamics(Winter 1979): 431. Reorganization from Functional Structure to Divisional Structure at Info-Tech Functional Info-Tech President Structure R&D Manufacturing Accounting Marketing Divisional Info-Tech Structure President Electronic Office Virtual Publishing Automation Reality R&D Mfg Acctg Mktg R&D Mfg Acctg Mktg R&D Mfg Acctg Mktg
Structural Design Options for Grouping Employees (Continued) Multi-focused Grouping CEO Marketing Manufacturing Product Division 1 Product Division 2Source: Adapted from David Nadler and MichaelTushman , Strategic Organization Design (Glenview, Ill.:Scott Foresman , 1988), 68. Structural Design Options for Grouping Employees (Continued) Horizontal Grouping CEO Human Resources Finance Core Process 1 Core Process 2Source: Adapted from David Nadler and Michael Tushman ,Strategic Organization Design (Glenview, Ill.: Scott Foresman ,1988), 68.
Geographical Structure for Apple Computer CEO Steve Jobs Apple Apple Apple Apple Products Americas Europe Pacific Canada France Australia Latin America/ Japan Caribbean Sales Far East Service and Marketing to RegionsSource: www.apple.com Dual-Authority Structure in a Matrix Organization President Director Design Mfg Marketing Procure- of Product Vice Vice Vice Controller ment Operations President President President Manager Product Manager A Product Manager B Product Manager C Product Manager D
Strengths and Weaknesses of Matrix Organization Structureb STRENGTHS: b WEAKNESSES: • Achieves coordination • Causes participants to experience dual necessary to meet dual authority, which can be frustrating and demands from customers confusing • Flexible sharing of human • Means participants need good resources across products interpersonal skills and extensive • Suited to complex decisions training and frequent changes in • Is time consuming; involves frequent unstable environment meetings and conflict resolution • Provides opportunity for both sessions functional and product skill • Will not work unless participants development understand it and adopt collegial rather • Best in medium-sized than vertical-type relationships organizations with multiple • Requires great effort to maintain power products balanceSource: Adapted from Robert Duncan, “What Is the RightOrganization Structure? Decision Tree Analysis Provides theAnswer,”Organizational Dynamics (Winter 1979): 429. Matrix Structure for Worldwide Steel Company President Vertical Functions Mfg. Industrial Mfg. Marketing Finance Metallurgy Field Sales Services Relations Vice Vice Vice Vice Vice Vice Vice President President President President President President President Horizontal Functions Open Die Business Mgr. Ring Products Business Mgr. Wheels & Axles Business Mgr. Steelmaking Business Mgr.
A Horizontal Structure Top Management Team Process Team Team Team Owner 1 2 3 Market Product Analysis Research Planning Testing Customer New Product Development Process Process Team Team Team Owner 1 2 3 Material Analysis Purchasing Flow Distrib. Customer Sources: Based on Frank Ostroff, Procurement and Logistics Process 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, 92-9 8 . Strengths and Weaknesses of Horizontal Structureb STRENGTHS: b WEAKNESSES: • Flexibility and rapid response to • Determining core processed to changes in customer needs organize around is difficult and • Directs the attention of everyone time-consuming toward the production and delivery of • Requires changes in culture, job value to the customer design, management • Each employee has a broader view of philosophy, and information and organizational goals reward systems • Promotes a focus on teamwork and • Traditional managers may balk collaboration—common commitment when they have to give up power to meeting objectives and authority • Improves quality of life for employees • Requires significant training of by offering them the opportunity to employees to work effectively in share responsibility, make decisions, a horizontal team environment and be accountable for outcomes • Can limit in-depth skillSources: Based on Frank Ostroff, The Horizontal Organization: What theOrganization of the Future Looks Like and How It Delivers Value to developmentCustomers, (New York: Oxford University Press, 1999);and Richard L. Daft, Organization Theory and Design, 6 t h ed.,(Cincinnati, Ohio: South -Western College Publishing, 1998) 253.
Hybrid Structure Part 1. Sun Petrochemical Products President Functional Chief Human Technology Financial Structure Resources Vice Services Counsel Director President Vice Pres. Product Fuels Lubricants Chemicals Vice Vice Vice Structure President President PresidentSources: Based on Linda S. Ackerman, “Transition Management:An In-Depth Look at Managing Complex Change,”Organizational Dynamics (Summer 1982): 46-6 6 ;and Frank Ostroff, The Horizontal Organization,(New York: Oxford University Press, 1999), Fig. 2.1, 34. Hybrid Structure Part 2. Ford Customer Service Division Vice President and General Manager Functional Strategy and Human Structure Finance Communication Resources Director and Process Owner Teams Horizontal Structure Parts Supply / Logistics Group Director and Process Owner Teams Vehicle Service and Programs Group Director and Process Owner Teams Technical Support Group Sources: Based on Linda S. Ackerman, “Transition Management: An In-Depth Look at Managing Complex Change,” Organizational Dynamics (Summer 1982): 46 -66; and FrankOstroff , The Horizontal Organization, (New York: Oxford University Press, 1999), Fig. 2.1, 34.
Organization Contextual Variables that Influence Structure Culture Size Chapter 9 Chapter 8 Structure (learning vs. Strategy, efficiency) Technology Goals Chapters 6,7 Chapter 2 Environment Chapters 4, 5Sources: Adapted from Jay R. Galbraith,Competing with Flexible Lateral Organizations, 2 n d ed.(Reading, Mass.: Addison-Wesley, 1994), Ch.1;Jay R. Galbraith, Organization Design (Reading, Mass.:Addison-Wesley, 1977), Ch. 1. The Relationship of Structure to Organization’s Need for Efficiency vs. Learning Functional with Functional cross-functional Divisional Matrix Horizontal Structure teams, integrators Structure Structure Structure Horizontal: • Coordination • ChangeDominant • LearningStructural Vertical: • Innovation • ControlApproach • Flexibility • Efficiency • Stability • Reliability
Symptoms of Structural Deficiencyb Decision making is delayed or lacking in qualityb The organization does not respond innovatively to a changing environmentb Too much conflict from departments being at cross purposes is evident