Copyright 1998 by Houghton Mifflin Company. All rights reserved. 11-1 Chapter 11: Designing...

Copyright 1998 by Houghton Mifflin Company. All rights reserved.

11-1

Chapter 11: Designing Chapter 11: Designing Organizational StructureOrganizational Structure

Text byCharles W. L. HillGareth R. Jones

Multimedia Slides byMilton M. Pressley

Univ. of New Orleans


11-2

PreviewPreview

The Role of Organizational Structure

Vertical Differentiation Horizontal Differentiation Integration and Integrating

Mechanisms


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The Role of Organizational The Role of Organizational StructureStructure

• Organizational Structure Organizational Structure DefinedDefined

• Building BlocksBuilding Blocks– DifferentiationDifferentiation

• VerticalVertical• HorizontalHorizontal

– IntegrationIntegration

• Bureaucratic CostsBureaucratic Costs


11-4Figure 11.1: How Organizational Figure 11.1: How Organizational

Design Increases ProfitabilityDesign Increases Profitability

Economizes on theBureaucratic Costs of

Organizational Structure

Enhancesa Company’s Value-Creation

Skills

Leading to a Low-costAdvantage

Leading to DifferentiationAdvantages and Ability toCharge a Premium Price

Which Increases Profit

GoodOrganizational

Design


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Vertical DifferentiationVertical Differentiation• Span of ControlSpan of Control


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Figure 11.2: Figure 11.2: Tall and Flat StructuresTall and Flat Structures

8

7

6

5

4

3

2

1

3

2

1

Tall Structure (8 levels) Flat Structure (3 levels)

Vertical DifferentiationVertical Differentiation• Span of ControlSpan of Control


11-7

Vertical Differentiation Vertical Differentiation (Continued)(Continued)

Problems with Tall HierarchiesProblems with Tall Hierarchies


11-8

Figure 11.3: Relationship Between Figure 11.3: Relationship Between Company Size and Number of Company Size and Number of

Hierarchical LevelsHierarchical Levels

Employees

Nu

mb

er

of

Hie

rarc

hic

al L

ev

els

1000 2000 3000 10,000

10 9 8 7 6 5 4


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• Minimum Chain of Command Minimum Chain of Command PrinciplePrinciple

Problems with Tall HierarchiesProblems with Tall Hierarchies


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Figure 11.4: Sources of Figure 11.4: Sources of Bureaucratic CostsBureaucratic Costs

Number ofMiddle

Managers

MotivationalProblems

CoordinationProblem

InformationDistortion

BureaucraticCosts


11-11


• Coordination ProblemsCoordination Problems• Information DistortionInformation Distortion• Motivational ProblemsMotivational Problems• Number of Middle ManagersNumber of Middle Managers

Problems With Tall HierarchiesProblems With Tall Hierarchies

• Minimum Chain of CommandMinimum Chain of Command Principle Principle


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• Centralization DefinedCentralization Defined• Decentralization DefinedDecentralization Defined• Advantages of DecentralizationAdvantages of Decentralization

– Information Overload ReductionInformation Overload Reduction– Increase of Motivation and Accountability Increase of Motivation and Accountability

(Increases Flexibility and Reduces (Increases Flexibility and Reduces Bureaucratic Costs)Bureaucratic Costs)

– Fewer Managers Needed (Reduced Fewer Managers Needed (Reduced Bureaucratic Costs)Bureaucratic Costs)

Centralization or Decentralization?Centralization or Decentralization?


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• Advantages of CentralizationAdvantages of Centralization– Easier Coordination of Activities Easier Coordination of Activities

Needed to Pursue Firm’s StrategyNeeded to Pursue Firm’s Strategy– Decisions Fit Broad Organizational Decisions Fit Broad Organizational

ObjectivesObjectives– Strong, Focused Leadership Allows for Strong, Focused Leadership Allows for

Speedy DecisionSpeedy Decision


Centralization or Decentralization?Centralization or Decentralization?


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Horizontal DifferentiationHorizontal Differentiation

• Simple StructureSimple Structure• Functional StructureFunctional Structure


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Figure 11.5: Functional StructureFigure 11.5: Functional Structure

CEO

Engineer-ing

Engineer-ing

Researchand Devel-

opment

Researchand Devel-

opment

Salesand

Marketing

Salesand

Marketing

MaterialsManage-

ment

MaterialsManage-

ment

Manufact-uring

Manufact-uring


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Horizontal Differentiation Horizontal Differentiation (Continued)(Continued)

• Simple StructureSimple Structure• Functional StructureFunctional Structure• Advantages of Functional StructuresAdvantages of Functional Structures

– People Learn from Each Other and People Learn from Each Other and Become More Specialized and Become More Specialized and ProductiveProductive

– Gives Managers Greater Control of Gives Managers Greater Control of Organizational ActivitiesOrganizational Activities


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Horizontal Differentiation Horizontal Differentiation (Continued)(Continued)

• Problems With Functional StructuresProblems With Functional Structures– Communications ProblemsCommunications Problems– Measurement ProblemsMeasurement Problems– Location ProblemsLocation Problems– Strategic ProblemsStrategic Problems


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Multidivisional StructureMultidivisional Structure

• Two Main InnovationsTwo Main Innovations– Each SBU in Its Own Self-Contained Each SBU in Its Own Self-Contained

DivisionDivision– Office of Corporate Headquarters Office of Corporate Headquarters

Staff Monitors and Exercises Financial Staff Monitors and Exercises Financial Control Over Divisional ActivitiesControl Over Divisional Activities


11-19

Figure 11.6: Multidivisional StructureFigure 11.6: Multidivisional Structure

Oil Division(Functional Structure)

PharmaceuticalsDivision (ProductTeam Structure)

Plastics Division(Matrix Structure)

Typical ChemicalTypical ChemicalCompanyCompany

Corporate Headquarters Staff

CEO


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Multidivisional Structure Multidivisional Structure (Continued)(Continued)

• Strategic ResponsibilityStrategic Responsibility

• Two Main InnovationsTwo Main Innovations- Each SBU in Its Own Self-Contained- Each SBU in Its Own Self-Contained DivisionDivision- Office of Corporate Headquarters Staff- Office of Corporate Headquarters Staff Monitors and Exercises FinancialMonitors and Exercises Financial Control Over Divisional Activities Control Over Divisional Activities

• Operating ResponsibilityOperating Responsibility


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• Enhanced Corporate Financial ControlEnhanced Corporate Financial Control• Enhanced Strategic ControlEnhanced Strategic Control• GrowthGrowth• Stronger Pursuit of Internal EfficiencyStronger Pursuit of Internal Efficiency

• Advantages of Multidivisional Advantages of Multidivisional StructureStructure


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• Difficulty of Establishing the Divisional-Corporate Difficulty of Establishing the Divisional-Corporate Authority RelationshipAuthority Relationship

• Distortion of InformationDistortion of Information• Competition for ResourcesCompetition for Resources• Transfer PricingTransfer Pricing• Short-Term Research and Development FocusShort-Term Research and Development Focus• Bureaucratic CostsBureaucratic Costs

• Disadvantages of Multidivisional Disadvantages of Multidivisional Structure Structure


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Matrix StructureMatrix Structure

• Matrix Structure DefinedMatrix Structure Defined


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Figure 11.7: Two Boss EmployeesFigure 11.7: Two Boss Employees

R&D Finance R&DSales &

MarketingPurchasing

Pro

j/Pro

du

ct

Mg

rs Proj A

Proj C

Proj B

Proj D

FunctionalManagers

President


11-25

Matrix Structure Matrix Structure (Continued)(Continued)

• Speedy Product DevelopmentSpeedy Product Development• Autonomy and Flexibility Suitable Autonomy and Flexibility Suitable

for Professional Employeesfor Professional Employees• Makes Maximum Use of Employee Makes Maximum Use of Employee

Skills As Existing Projects are Completed and Skills As Existing Projects are Completed and New New Projects DevelopProjects Develop

• Leaves Top Management Leaves Top Management Free to Concentrate on Free to Concentrate on Strategic IssuesStrategic Issues

• AdvantagesAdvantages


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Matrix Structure Matrix Structure (Continued)(Continued)

• High Bureaucratic CostsHigh Bureaucratic Costs• High New Project Startup CostsHigh New Project Startup Costs• Conflict Between Functions and Conflict Between Functions and

Projects Over ResourcesProjects Over Resources• Difficult to Operate Difficult to Operate

Because Task and Because Task and Role Relationships Role Relationships Become ComplexBecome Complex

• DisadvantagesDisadvantages


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Product Team StructureProduct Team Structure

• Product Team Structure Product Team Structure DefinedDefined


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Figure 11.8: Product Team Figure 11.8: Product Team StructureStructure

Sales andMarketing

R&DMaterials

ManagementEngineering

CEO

ProductTeams

Manufacturing Units


11-29

Product Team Structure Product Team Structure (Continued)(Continued)

• Product Team Structure Product Team Structure DefinedDefined

• Advantages Similar to Matrix Advantages Similar to Matrix Structure (But, Easier and Structure (But, Easier and Less Costly to Operate)Less Costly to Operate)


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Geographic StructureGeographic Structure

• Geographic Structure DefinedGeographic Structure Defined


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Figure 11.9: Geographic StructureFigure 11.9: Geographic Structure

Regional Operations

Re

gio

na

l Op

era

tio

ns

Re

gio

na

l Op

era

tion

s

Regional Operations

Central Operations

CEO


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Geographic Structure Geographic Structure (Continued)(Continued)

• More Responsive to Regional More Responsive to Regional Customers’ NeedsCustomers’ Needs

• Reduces Transportation CostsReduces Transportation Costs• Provides More Control Than Functional Provides More Control Than Functional

StructureStructure• Economies of Scale AchievedEconomies of Scale Achieved• Reduction of Coordination and Reduction of Coordination and

Communications ProblemsCommunications Problems

• AdvantagesAdvantages


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Integration and Integrating Integration and Integrating MechanismsMechanisms

• Integration Integration • Relationship Between Relationship Between

Differentiation and IntegrationDifferentiation and Integration• Forms of Integrating MechanismsForms of Integrating Mechanisms

– Direct ContactDirect Contact– Interdepartmental Liaison RolesInterdepartmental Liaison Roles– Temporary Task ForcesTemporary Task Forces– Permanent TeamsPermanent Teams– Integrating RolesIntegrating Roles– Integrating DepartmentsIntegrating Departments– Matrix StructureMatrix Structure


11-34

Table 11.1: Types and Examples Table 11.1: Types and Examples of Integrating Mechanismsof Integrating Mechanisms

DirectContact

Sales and production managers

LiaisonRolesTask Forces

Teams

IntegratingRolesIntegrating

DepartmentsMatrix


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DirectContact


LiaisonRoles

Assistant sales and plant managers

Task Forces

Teams


DepartmentsMatrix


11-36

Figure 11.10: Forms of Figure 11.10: Forms of Integrating MechanismsIntegrating Mechanisms

Production Sales

(a) Liaison Role(a) Liaison Role


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DirectContact


LiaisonRoles


Task Forces Representatives from sales, production, andresearch and development

Teams


DepartmentsMatrix


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DirectContact


LiaisonRoles



Teams Organizational executive committee


DepartmentsMatrix


11-39

Figure 11.10: Forms of Integrating Figure 11.10: Forms of Integrating Mechanisms Mechanisms (Continued)(Continued)

Sales Production

EngineeringResearch

& Develop-ment

(b) Task Force or Team(b) Task Force or Team


11-40


DirectContact


LiaisonRoles




IntegratingRoles

Assistant vice-president for strategicplanning or vice president without portfolio

IntegratingDepartmentsMatrix


11-41

Figure 11.10: Forms of Figure 11.10: Forms of Integrating Mechanisms Integrating Mechanisms

(Continued)(Continued)

(c) Integrating Role(c) Integrating Role

PlasticsDivision

OilDivision

IntegratingRole

IntegratingRole


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DirectContact


LiaisonRoles




IntegratingRoles


IntegratingDepartments

Corporate headquarters staff

Matrix


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DirectContact


LiaisonRoles




IntegratingRoles


IntegratingDepartments

Corporate headquarters staff

Matrix All roles are integrating roles


11-44

Integration and Integrating Integration and Integrating Mechanisms Mechanisms (Continued)(Continued)

• Integration Integration • Relationship Between Relationship Between

Differentiation and IntegrationDifferentiation and Integration• Forms of Integrating MechanismsForms of Integrating Mechanisms

– Direct ContactDirect Contact– Interdepartmental Liaison RolesInterdepartmental Liaison Roles– Temporary Task ForcesTemporary Task Forces– Permanent TeamsPermanent Teams– Integrating RolesIntegrating Roles– Integrating DepartmentsIntegrating Departments– Matrix StructureMatrix Structure

• Integration and ControlIntegration and Control


11-45

Chapter SummaryChapter Summary

THE ROLE OF ORGANIZATIONAL STRUCTURE

VERTICAL DIFFERENTIATION

HORIZONTAL DIFFERENTIATION

INTEGRATION AND INTEGRATING MECHANISMS

Copyright 1998 by Houghton Mifflin Company. All rights reserved. 11-1 Chapter 11: Designing...

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Transcript of Copyright 1998 by Houghton Mifflin Company. All rights reserved. 11-1 Chapter 11: Designing...