Organizational Structure2

Effective structures provide: Stability Flexibility

Structural stability provides: The capacity required to consistently and

predictably manage daily work routines Structural flexibility provides for:

The opportunity to explore competitive possibilities

The allocation of resources to activities that shape needed competitive advantages

Functional organizational structure Employees are grouped together according to

their similar tasks, skills or activities. Functional structures are suitable for SMEs with high level of specialization. The decision making is centralized at the

top of the organization.

Benefits of functional organizational structure

Efficient use of resources;

In-depth skill development;

Clear career paths;

Strategic decisions are made on the top of the organization.

Disadvantages od functional design

Slow decision making

Less innovative.

Performance responsibility is unclear;

Limited management training.

Poor coordination across functions.

Divisional organizational structure It is suitable for medium sized to big

companies, Expanding geographically or on

customer base. A Divisional design means that all

activities needed to produce a good or service are grouped into an anonymous unit.

Differences between functional and divisional design

Functional designs are based on groupings by input;

Each department is not an independent profit center;

Divisional design considers output such as product, customer or location.

Each division is independent profit center;

Forms of divisional responsible design

Product division.

• Each unit is for a single product or a group of related products. Division by products is created when there is specific in the production process;

Customer division.

• Organization sells products to diverse group of customers.

Geographic division.

• It is advantageous when is necessary to locate facilities close to customers who have differences in regional tastes or needs.

Strengths of divisional design:

Adaptation to unstable environme

nt;High customer satisfaction;

High task coordination;

Clear performance responsibility;

General management training.

Weaknesses of divisional design

Inefficient use of resources;

Low-in depth training. Decrease of the number of personnel reduces

the specialization;

Focus on division’s objectives.

Difficult coordination

between headquarter and

the division.Loss of control.

Hybrid design

Hybrid design is one that has divisional units but also have functional departments specialized and centralized in the headquarter.

Matrix design

It implements functional and divisional structures simultaneously in each department.

The worker in each department is being supervised by two bosses at the same time.

It is suitable for the following situations:

Environmental

pressure exists for a dual focus;

Large amount of information needs to

be processed;

Innovations are

performed

Organization is

working on several projects together.

Efficiency is needed in the use

of resources.

Strengths of matrix design

Provides flexibility;

Encourages resource

efficiency;

Enhances skill development;

Increase motivation and commitment;

Helps top management in planning process.

Weaknesses of Matrix Design

Confusion

Cross Responsibili

tiesRisk of inefficie

ncy

Group task

Give example of organizations having functional, divisional design.

For which industry is functional design more appropriate and when divisional is suitable?

Hierarchical Functional Matrix Product

Ringed- Fence (Virgin)

Keiretsu

Book Additional

Zaibatsu

Rich Merchants in Edo Period (Gosho)

Sumitomo

-16c Adopt Western copper refining, copper trade (Kyoto)-17c Move to Osaka-Besshi Copper Mine (under Bakufu’s commission)<Transition to Meiji>

Manager: Saihei Hirose-Avoiding gov’t confiscation-Introducing Western mining technology to renovate Besshi-Business diversification

MITSUI

-17c From Matsuzaka-Kimono trade & money exchange in Edo, Kyoto, Osaka – huge success<Transition to Meiji>

Manager: Rizaemon Minomura-Cope with bakufu policy to protect Mitsui business-Support and work with new government-Internal reform: from gosho to zaibatsu-1876 Establish Mitsui Bank & Mitsui Trading Company

Yataro Iwasaki (1835-85)

Seisho ( 政商 ) from Tosa, founder of Mitsubishi Zaibatsu

Shipping company--grew fast with government support (receiving gov’t ships, contract for military transport)

Established Nippon Yusen (NYK Line), fierce battle with Kyodo Unyu (anti-Mitsubushi company), 1883-85

Expanded to many areas: trade, banking, shipbuilding, coal, mining (later, more)

Keiretsu

Mitsubishi

Mitsui

Sumitomo Fuji

Dai-Ichi Kangyo (DKB)

Sanwa

DKB

Asahi Mutual Life Insurance (DKB)

The Dai-ichi Mutual Life Insurance Company (DKB)

Daiichi Sankyo Dentsu (DKB) Fujitsu (Furukawa) Hitachi (Hitachi) Ishikawajima-Harima Heavy

Industries (IHI) Isuzu (IHI) ITOCHU (DKB) JFE Holdings (Kawasaki) Kawasaki Heavy Industries

(Kawasaki) Kao (DKB)

K Line (Kawasaki) Kobe Steel (Suzuki) Meiji Seika (DKB) Mizuho (Mizuho Financial

Group) Seibu Department Stores

(DKB) Sojitz (Suzuki) Sompo Japan Insurance (DKB) Taiheiyo Cement (Asano) Tokyo Dome (DKB) The Tokyo Electric Power

Company (DKB) Tokyo FM (DKB) Yokohama Rubber Company

(Furukawa)

DKB

Asahi Mutual Life Insurance (DKB)

The Dai-ichi Mutual Life Insurance Company (DKB)

Daiichi Sankyo Dentsu (DKB) Fujitsu (Furukawa) Hitachi (Hitachi) Ishikawajima-Harima Heavy

Industries (IHI) Isuzu (IHI) ITOCHU (DKB) JFE Holdings (Kawasaki) Kawasaki Heavy Industries

(Kawasaki) Kao (DKB)

K Line (Kawasaki) Kobe Steel (Suzuki) Meiji Seika (DKB) Mizuho (Mizuho Financial

Group) Seibu Department Stores

(DKB) Sojitz (Suzuki) Sompo Japan Insurance (DKB) Taiheiyo Cement (Asano) Tokyo Dome (DKB) The Tokyo Electric Power

Company (DKB) Tokyo FM (DKB) Yokohama Rubber Company

(Furukawa)

Keiretsu Structure

Horizontal keiretsu (kinyû keiretsu) Affiliated `brother and sister` companies

spanning different industries

Horizontal Keiretsus

Typical of a Japanese horizontal keiretsu is Mitsubishi where the Bank of Tokyo-Mitsubishi sits at the top of the keiretsu.

Also part of the core group is Mitsubishi Motors and Mitsubishi Trust and Banking followed by Meiji Mutual Life Insurance Company which provides insurance to all members of the keiretsu.

Mitsubishi Shoji is the trading company for the Mitsubishi keiretsu.

Vertical Keretsu

• Assembled parts move up to the parent through a pyramid of supply companies

Manufactoring keiretsu (sangyô)

• The parent sends finished goods down through a pyramid of distributors to retailers

Distribution keiretsu (ryûtsû)

Vertical Keiretsu

Group of companies within the horizontal keiretsu such as Toyota.

Toyota's success is dependent on suppliers and manufacturers for parts, employees for production, real estate for dealerships, steel, plastics and electronics suppliers for cars as well as wholesalers.

All ancillary companies operate within the vertical keiretsu of Toyota but are members of the larger horizontal keiretsu, although much lower on the organizational chart.

Vertical Integration