This document discusses organizational design and structure. It begins by explaining the basic considerations in designing an organizational structure, such as grouping activities by function, product, geography, process or customer. It then outlines some common organizational structure types like functional, divisional, matrix, team-based and virtual structures. For each structure type, it discusses the key elements, advantages and disadvantages. It emphasizes that the optimal structure depends on balancing centralization vs decentralization and aligning the structure with business strategy and customer needs.

1. Organizational Design – Organizational Structure Team teaching Laboratory of Sytem Development and Industrial Management (PSMI) Departemen of Industrial Engineering Institut Teknologi Sepuluh Nopember (ITS) 2011

2. Group Discussion Discuss the following topics concerning with your study case! Look at your organization, Explore the structure – whether it is established or not, why do they choose this structure, is there any changes from the first launch of the structure? What are the consideration? Explore the issue of: Vertical vs horizontal integration Communication Response to challenge and environmental changes Authority & Control 4. Discuss the autority and control within your organization, and link with your exploration (point 1-2) Copyright 2004 Prentice Hall 2

3. Alignment Framework Business Strategy Organization Structure Human Resources Management “HR systems and theorganization structure should be managed in a way that is congruent withorganizational strategy (hence the name ‘matching model)” (Fombrun et al, 1984). 3

4. 4 Naomi Stanford, 2007, “Guide to Organisational Design” 4

5. By the end of today’s class, students will: Be able to explain what organizational design is Be able to explain the main consideration of designing the organization Session objectives 5

6. Organizational Design: Organizational Structure 6

7. Economies and Diseconomies of Work Specialization © 2003 Prentice Hall Inc. All rights reserved. 7

9. Product

10. Geography

11. Process

12. Customer8

13. What Is Organizational Structure? (cont’d) 9 © 2003 Prentice Hall Inc. All rights reserved.

14. © 2003 Prentice Hall Inc. All rights reserved. Common Organization Designs A Simple Structure:Jack Gold’s Men’s Store 10

15. Functional Structure Copyright 2004 Prentice Hall 11

16. 12 Functional Structure A functional structure is a design that groups people on the basis of their common skills and expertise or resources they use. Functional structure is the bedrock of horizontal differentiation. An organization groups tasks into functions to increase the effectiveness with which it achieves its goals.

17. Figure 1: Functional Structure 13

18. Functional Structure: Advantages 14 Provides people with the opportunity to learn from one another and become more specialized and productive People who are grouped together by common skills can supervise one another and control each other’s behavior. People develop norms and values that allow them to become more effective at what they do.

19. Control Problems in a Functional Structure Communication Problems: As more organizational functions develop, each with their own hierarchy, they become increasingly distant from one another. Measurement Problems: Information needed to measure the profitability of any functional group is difficult to obtain. Location Problems: Does not allow handling of sales on a geographic basis 15

20. Functional Structure: Control Problems 16 Customer Problems: Servicing needs of new kinds of customers are difficult. Strategic Problems: Top managers spend too much time finding ways to improve coordination.

21. 17 Solving the Control Problem Managers can solve control problems by redesigning the functional structure between functions.

22. Divisional Structure Product Structure Geographical Structure Market Structure Copyright 2004 Prentice Hall 18

23. 19 Divisional Structure I: Product Structure Product structure: a divisional structure in which products (goods or services) are grouped into separate divisions according to their similarities or differences Organizations need to decide how to coordinate its product activities with support functions. Three kinds of product structure

24. 20 Product Division Structure Product division structure: a structure in which a centralized set of support functions service the needs of a number of different product lines Divided into product-oriented teams of functional specialists who focus on the needs of one particular product division

25. Figure 2: Product Division Structure 21

26. Figure 3: Product Team Structure 22

27. 23 Divisional Structure II: Geographic Structure When the control problems that companies experience are a function of geography, a geographic divisional structure is appropriate. Allows the organization to adjust its structure to align its core competences with the needs of customers in different geographic regions Allows some functions to be centralized and others decentralized

28. Figure 4. Geographic Structure 24

29. Divisional Structure III : Market Structure A market structure aligns functional skills and activities with the needs of different customer groups. Each customer group has a different marketing focus, and the job of each group is to develop products to suit the needs of its specific customers. Each customer group makes use of centralized support function. 25

30. 26 Figure 5.Market Structure

32. Facilitates coordination of complex and interdependent activities.

33. Breaks down unity-of-command concept.27

34. Figure 6. Matrix Structure 28

35. Matrix Structure (College of Business Administration) (Director) (Dean) Employee 29

37. Decentralizes decision making to the team level.

38. Requires employees to be generalists as well as specialists.

39. Creates a “flexible bureaucracy.”30

40. © 2003 Prentice Hall Inc. All rights reserved. New Design Options (cont’d) Concepts: Provides maximum flexibility while concentrating on what the organization does best. Disadvantage is reduced control over key parts of the business. 31

41. © 2003 Prentice Hall Inc. All rights reserved. A Virtual Organization 32

42. Another reference for organizational structure 33 Review the lecture note of general courses presented by Patdono Suwignjo, PhD

43. Assignment for next Week Copyright 2004 Prentice Hall 34