Organizational structure refers to the framework of rules, roles, hierarchies, and relationships that define how an organization operates and how its resources are allocated. It determines how tasks are divided, coordinated, and controlled to achieve the organization's goals. In this comprehensive exploration of organizational structure, we will delve into its importance, various types, factors influencing structure design, and the implications of different structures on organizational behavior and performance. 1. Importance of Organizational Structure: Organizational structure is crucial for several reasons: Clarity and Direction: It provides clarity regarding roles, responsibilities, and reporting relationships, helping employees understand their place within the organization and the expectations associated with their positions. Efficiency: A well-designed structure facilitates the efficient allocation of resources, coordination of activities, and execution of tasks, leading to increased productivity and cost-effectiveness. Flexibility and Adaptability: Organizational structure determines how decisions are made and how information flows within the organization. A flexible structure can adapt to changing internal and external environments, enabling the organization to respond quickly to opportunities and challenges. Accountability: Clear lines of authority and responsibility established by the organizational structure ensure accountability for outcomes and performance, promoting transparency and fairness. Culture and Identity: Organizational structure reflects the organization's values, culture, and identity, influencing employee behavior, attitudes, and morale. 2. Types of Organizational Structure: Organizational structures can vary widely based on factors such as size, industry, culture, and strategic objectives. Some common types of organizational structures include: Functional Structure: In a functional structure, the organization is divided into departments based on functions or activities, such as marketing, finance, operations, and human resources. Each department is responsible for specific tasks related to its function, and employees report to functional managers. Divisional Structure: A divisional structure organizes the organization into semi-autonomous divisions or business units based on products, services, geographic regions, or customer segments. Each division operates as a separate entity with its own functional departments and leadership. Matrix Structure: A matrix structure combines elements of both functional and divisional structures, creating dual reporting relationships. Employees report to both functional managers and project managers or divisional heads, depending on the nature of their work. This structure facilitates cross-functional collaboration and resource sharing. Team-Based Structure: In a team-based structure, the organization is organized around self-managed teams or cross-functional teams responsib

1. Organization Structure

2. 2
Learning Objectives
◆ Describe the most common organization
structures used today and understand their
strengths and weaknesses.
◆ Present the process of downsizing.
◆ Describe and evaluate the reengineering
intervention.

3. Contingencies Influencing Structural Design
3
Structural
Design
Environment
Organization
Strategy
Technology
Organization
Size

4. The Functional Structure
President
VP
Finance
4
VP
Human
Resources
VP
Research
VP
Engineering
VP
Marketing
VP
Manufacturing

5. The Functional Structure
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• Promotes and develops technical specializations
• Reduces duplication of scarce resources and supports flexible deployment
• Enhances career development for specialists within large departments
• Facilitates communication and performance as superiors share expertise
with subordinates
• Supports the development of common processes
Advantages
• Emphasizes routine tasks; encourages short time horizons
• Fosters narrow perspectives by managers, not business metrics and broader
criteria for decision making
• Processes cut across functions making coordination and scheduling more
difficult
• Obscures accountability for overall outcomes; managers and employees may
not have a line of sight to business
• Difficulty developing general management capability
• Stable and certain environment
• Small- to medium-size
• Routine technology, interdependence within functions
• Goals of efficiency and technical quality
Disadvantages
Contingencies

6. The Divisional Structure
President
6
VP
Product B
VP
Product C
VP
Product A
Manager
Sales
Manager
Research
Manager
Manufacturing

7. The Divisional Structure
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◆ Recognizes sources of interdepartmental dependencies, reduces complexity
◆ Allows diversification an expansion of skills and training
◆ Ensures accountability by departmental managers; promotes delegation of
authority
◆ Heightens departmental cohesion and involvement in work
Advantages
◆ May use skills and resources inefficiently; difficult to coordination across
divisions
◆ Limits career advancement by specialists to movements out of their
departments
◆ Impedes specialist’s exposure to others; hard to create common processes
◆ Puts multiple-role demands on people and so creates stress
◆ Line of sight is to business; divisional objectives over organization objectives
◆ Unstable and uncertain environments
◆ Large size
◆ Technological interdependence across functions
◆ Goals of product specialization and innovation
Disadvantages
Contingencies

8. The Matrix Structure
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◆ Makes specialized, functional knowledge available to all projects
◆ Use people flexibly
◆ Maintains consistency by forcing communication between managers
◆ Recognizes and provides mechanisms for dealing with legitimate, multiple
sources of power
◆ Can adapt to environmental changes
Advantages
◆ Can be difficult to implement
◆ Increases role ambiguity, stress, and anxiety
◆ Performance is lowered without power balancing between projects and
functions
◆ Makes inconsistent demands and can promote conflict and short-term crisis
orientation
◆ May reward political skills over technical skills
◆ Dual focus on unique product demands and technical specialization
◆ Pressure for high information-processing capacity
◆ Pressure for shared resources
Disadvantages
Contingencies

9. The Process-Based Structure
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◆ Focuses resources on customer satisfaction
◆ Improves speed and efficiency
◆ Adapts to environmental change rapidly
◆ Reduces boundaries between departments
◆ Increases ability to see total work flow
◆ Enhances employee involvement
◆ Lowers costs dues to overhead
Advantages
◆ Can threaten middle managers and staff specialists
◆ Requires changes in command-and-control mindsets
◆ Duplicates scarce resources
◆ Requires new skills and knowledge to manage lateral relationships and teams
◆ May take longer to make decisions in teams
◆ Can be ineffective if wrong processes are identified
◆ Uncertain and changing environments
◆ Moderate to large size
◆ Non-routine and highly interdependent technologies
◆ Customer-oriented goals
Disadvantages
Contingencies

10. The Customer-Centric Structure
CEO
12
Product 1
Market Facing
Customer
Segment Team
R & D
Customer
Team
Support Groups
Product 2
Service 1
Finance
Human
Resources
Manufacturing
Services
Service 2
Customer
Segment Team

11. The Customer-Centric Structure
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◆ Presents one integrated face to the customer
◆ Generates a deep understanding of customer requirements
◆ Enables organization to customize and tailor solutions for customers
◆ Builds a robust customer response capability
Advantages
◆ Customer teams can be too inwardly focused
◆ Sharing learnings and developing functional skills is difficult
◆ Managing lateral relations between customer-facing and back office units is
difficult
◆ Developing common processes front and back is problematic
◆ Clarifying the marketing function is problematic
◆ Highly complex and uncertain environments
◆ Large Organizations
◆ Goals of customer focus and solutions orientation
◆ Highly uncertain technologies
Disadvantages
Contingencies

12. The Network Structure
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Designer
Organization
Supplier
Organization
Broker
Organization
Producer
Organization
Distributor
Organization

13. Types of Network Markets
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◆ Internal Market Network
◆ Vertical Market Network
◆ Intermarket Network
◆ Opportunity Network

14. The Network-Based Structure
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◆ Enables highly flexible and adaptive responses
◆ Creates a “best of the best” firm to focus resources on customer and market
needs
◆ Each organization can leverage a distinctive competency
◆ Permits rapid global response
◆ Can produce “synergistic” results
Advantages
◆ Difficulty managing lateral relationships across autonomous organizations
◆ Difficulty motivating members to relinquish autonomy to join network
◆ Sustaining membership and benefits can be problematic
◆ May give partners access to proprietary knowledge and technology
◆ Highly complex and uncertain environments
◆ Organizations of all sizes
◆ Goals of organizational specialization and innovations
◆ Highly uncertain technologies
Disadvantages
Contingencies

15. The Downsizing Process
◆ Clarify the organization’s strategy
◆ Assess downsizing options and make relevant choices
◆ Implement the changes
◆ Address the needs of survivors and those who leave
◆ Follow through with growth plans
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16. Three Downsizing Tactics
Downsizing Tactic Characteristics Examples
Workforce reduction ◆ Reduces headcount
◆ Short-term focus
◆ Fosters transition
◆ Attrition
◆ Retirement/buyout
◆ Layoffs
Organization redesign ◆ Changes
organization
◆ Medium-term focus
◆ Fosters transition
and transformation
◆ Eliminates functions,
layers, products
◆ Merge units
◆ Redesign tasks
Systemic redesign ◆ Changes culture
◆ Long-term focus
◆ Fosters
transformation
◆ Change
responsibilities
◆ Foster continuous
improvement
◆ Downsizing is normal
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17. The Reengineering Process
◆ Prepare the organization
◆ Specify the organization’s strategy and objectives
◆ Fundamentally rethink the way work gets done
◆ Identify and analyze core business processes
◆ Define performance objectives
◆ Design new processes
◆ Restructure the organization around the new
business processes
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18. Characteristics of Reengineered Organizations
◆ Work units change from functional departments to
process teams
◆ Jobs change from simple tasks to multidimensional
work
◆ People’s roles change from controlled to empowered
◆ The focus of performance measures and compensation
shifts from activities to results
◆ Organization structures change from hierarchical to flat
◆ Managers change from supervisors to coaches;
executives change from scorekeepers to leaders
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