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Session 19Session 19

Organizational Structure

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Learning Objectives

1. Identify five traditional organizational structures and the pros and cons of each

2. Explain the product-team structure and how it is a prototype of more open/agile structures.

3. What is meant by agile, virtual organizations4. Explain what is meant by boundaryless

organizations and why they are important

11-3Traditional Organizational Structures

• Organizational structure refers to the formalized arrangement of interaction between and responsibility for the tasks, people, and resources in an organization

• It is most often seen as a chart, often a pyramidal chart, with

positions or titles and roles in cascading

fashion

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Division of Labor

Remains the fundamental organizational structuring

philosophy

11-5Winthrop Organization Chart

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February 20, 2007February 20, 2007

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Traditional Structures

• Simple• Functional• Divisional• Matrix• Product-Team

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Simple Organizational Structure• A simple organizational structure is one where

there is an owner and a few employees and where the arrangement of tasks, responsibilities, and communication is highly informal and accomplished through direct supervision

• This type of structure can be very demanding on the owner-manager

• Most businesses in this country and around the world are of this type

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Functional Organizational Structure

• A functional organizational structure is one on which the tasks, people, and technologies necessary to do the work of the business are divided into separate “functional” groups (such as marketing, operations, and finance) with increasingly formal procedures for coordinating and integrating their activities to provide the business’s products and services

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Functional Organization Structures

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Divisional Structure

• A divisional organizational structure is one in which a set of relatively autonomous units, or divisions, are governed by a central corporate office but where each operating division has its own functional specialists who provide products or services different from those of other divisions

• This expedites decision making in response to varied competitive environments

• The division usually is given profit responsibility

11-11Multidivisional (M-Form) Structures

Cooperative M-Form

related divisions/SBUs(concentrically diverse)therefore sharing of information & best practices is mandated by the corporate level

more complex structure

Competitive M-Form

Unrelated divisions/SBUs(conglomerately diverse)therefore no forced

sharing of information & techniques; divisions operate autonomously

holding company modelSimpler structure

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Competitive M-Form

Competitive in what way?

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Divisional Organization Structure

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Strategic Business Unit• The strategic business unit (SBU) is an

adaptation of the divisional structure whereby various divisions or parts of divisions are grouped together based on some common strategic elements, usually linked to distinct product/market differences

• The advantages and disadvantages of the SBU form are very similar to those identified for divisional structures

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Holding Company Structure• A final form of the divisional organization is the

holding company structure, where the corporate entity is a broad collection of often unrelated businesses (more conglomerately diverse) and divisions such that it (the corporate entity) acts as financial overseer “holding” the ownership interest in the various parts of the company but has little direct managerial involvement

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Matrix Organizational Structure• The matrix organizational structure

is one in which functional and staff personnel are assigned to both a basic functional area and to a project or product manager

• The matrix form is intended to make the best use of talented people within a firm by combining the advantages of functional specialization and product-project specialization

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Matrix Organizational Structure

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Product-Team Structure • The product-team structure seeks to simplify

and amplify the focus of resources on a narrow but strategically important product, project, market, customer, or innovation

• The product-team structure assigns functional managers and specialists to a new product, project, or process team that is empowered to make major decisions about their product

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The Product-Team Structure

11-20Trends Affecting Organizationsin the 21st Century

• Globalization

• The Internet

• Speed

11-21Efforts to Improve Traditional Structures

• Redefine the role of corporate headquarters from control to support and coordination

• Balance the demands for control/differentiation with the need for coordination/integration

• Restructure to emphasize and support strategically critical activities

• Reengineer strategic business processes • Downsize and self-manage

11-22Creating Agile, Virtual Organizations

• Virtual organization: a temporary network of independent companies—suppliers, customers, subcontractors, even competitors—linked primarily by information technology to share skills, access to markets, and costs

• An agile organization is one that identifies a set of business capabilities (core competencies from VC analysis) central to high-profitability operations and then builds a virtual organization around those capabilities

11-23Outsourcing—Creating a Modular Organization

• Outsourcing is simply obtaining work previously done by employees inside the companies from sources outside the company

• A modular organization provides products or services using different, self-contained specialists or companies brought together—outsourced—to contribute their primary or support activity to result in a successful outcome

• Business process outsourcing (BPO) is the most rapidly growing segment of the outsourcing services industry worldwide (esp. HR and MIS)

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Types of Boundaries• Horizontal boundaries—between different

departments or functions in a firm. (silos)• Vertical boundaries—between operations and

management, and levels of management, between “corporate” and “division”

• Geographic boundaries—between different physical locations; between different countries or regions of the world and between cultures

• External interface boundaries—between a company and its customers, suppliers, partners, regulators, and competitors

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Becoming Boundaryless• Jack Welch coined the term “boundaryless” to

illustrate his vision for GE

• Achieved via outsourcing, strategic alliances, product-team structures, & reengineering

• Technology, particularly driven by the Internet, has and will be a major driver

11-26Ambidextrous Learning Organization

• The rise of the virtual organizational structure highlights the central role knowledge plays in implementation

• Shift from exploitation to exploration (Ragan) indicates the growing importance of cooperative organizational structures that enable a learning organization to allow global companies the chance to build competitive advantage

• An ambidextrous organization emphasizes coordination over control as well as flexibility