Understanding and Managing Organizational Structure (A)
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Understanding and ManagingOrganizational Structure (A)
BA 152
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Today’s Questions1. What do we mean by the term,
“structure?”2. What influences the structural choices
made by managers?3. What are two of the most popular
organizational structures?4. What are the relative advantages and
disadvantages of these structures?
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Characteristics of Organizations
Environment
SystemsPeople
TechnologiesStructures
StrategiesGoals
FIT!Cultures
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What is Structure?
The allocation of responsibilities
Formal reporting channels
The systems that coordinate effort
The way the company is put together.
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Becoming an Organization
ComplexityVertical
Horizontal
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M ak ing T hings S elling T h ings G etting M oney D es igning T hings Dealing with People
F irst-Line Em ployees
S uperv isors
M iddle M anagers
V ice-P res idents
P res ident
Vertical/Horizontal Division of Labor
VerticalComplexity
Horizontal Complexity
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Becoming an Organization
ComplexityVertical
HorizontalCentralizationFormalization
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Influences on StructureEnvironment
Technology
Industry
Strategic Choice/Goals
Organizational Size
FIT!
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Structuring WorkA Craft Approach
DMS Corp. D=MS
D=MS
D=MS
D = Design, M = Make, and S = Sell
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Structuring WorkA Craft Approach
Advantages Close supervision Experts doing all of
the tasks Quality should be
higher
Disadvantages Difficult to find
experts Unable to meet
increased demands Equipment sits idle,
and we lose possible economies of scale D
=M S
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Structuring WorkA Functional Approach
DMS Corp. Functions
=D
=M
=S
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A Functional Organization
Vice-PresidentManufacturing
DirectorQuality Control
DirectorInventory Control
DirectorProduct Scheduling
Vice-PresidentEngineering
By engineering specialties
Finance & Accounting
Vice-President
By F&A specialties
Vice-PresidentMarketing
By marketing specialties
President
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Characteristics of Functional Structures
1. Those doing the “same thing” are in the same function.
2. More standardized methods and procedures within each function
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Characteristics of Functional Structures
3. Higher degree of control/centralization within each function and at the top of the organization.
4. The functions are organized as cost centers.
5. This structure is competitive in stable environments demanding efficiency.
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DEAN
Kenan-Flagler Business SchoolFunctional Structure
OperationsDept.
Chairman
FullProfs.
Assoc.Profs.
Assist.Profs.
AccountingDept.
Chairman
FullProfs.
Assoc.Profs.
Assist.Profs.
MarketingDept.
Chairman
FullProfs.
Assoc.Profs.
Assist.Profs.
ManagementDept.
Chairman
FullProfs.
Assoc.Profs.
Assist.Profs.
FinanceDept.
Chairman
FullProfs.
Assoc.Profs.
Assist.Profs.
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Functional Structure
Advantages– Economies of scale– Supervision/training by specialists– Promotion within specialty
Vice-PresidentManufacturing
Vice-PresidentEngineering
Finance & Accounting
Vice-PresidentVice-President
Marketing
President
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Functional Structure
Vice-PresidentManufacturing
Vice-PresidentEngineering
Finance & Accounting
Vice-PresidentVice-President
Marketing
President
Disadvantages– Short-term time perspective within functions– Conflicts across functions– Coordination problems between functions– Goal displacement– Less innovation– Less flexibility
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Task forces (temporary)
Task Teams (permanent)
Ways to Coordinate Activities across Functions
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President
Engineering Marketing Manufacturing R&D
TaskForce
Functional Structurewith task forces/teams
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President
Engineering Marketing Manufacturing R&D
TaskTeam
Functional Structurewith task forces/teams
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TaskTeam
Functional Structurewith task teams
TaskTeam
TaskTeam
TaskTeam
TaskTeam
President
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Structuring WorkA Divisional Approach
DMS Corp.Division
=D =M =SEast Region
=D =M =SCentral Region
=D =M =SWest Region
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Bases for DivisionalizationProducts – Buick, Cadillac, ChevroletTechnologies – mass production, customProjects – buildings, softwareGeography – such as . . .Customers – retail, government, industrial
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A Divisional OrganizationPresident
Vice-PresidentSouthern Region
By smaller regions
Vice-PresidentNorthern Region
By smaller regions
Vice-PresidentWestern Region
By smaller regions
Vice-PresidentEastern Region
DirectorNew England
DirectorNew York MetroDirectorMid-Atlantic
•Engineering•Manufacturing•F&A•Marketing
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Characteristics of Divisional Structures
1. Those doing “different things” are in the same division.
2. Less standardized methods and procedures across divisions
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Characteristics of Divisional Structures
3. Lower degree of control and centralization within divisions and at the top of the organization
4. The divisions are organized as profit centers
5. This structure is competitive in dynamic environments requiring flexibility and responsiveness
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Kenan-Flagler Business SchoolDivisional Structure
DEAN
ExecutiveProgramDirector
Acct.Faculty
Mkt.Faculty
Mgt.Faculty
FinanceFaculty
Ops.Faculty
Undergrad.ProgramDirector
Acct.Faculty
Mkt.Faculty
Mgt.Faculty
FinanceFaculty
Ops.Faculty
MBAProgramDirector
Acct.Faculty
Mkt.Faculty
Mgt.Faculty
FinanceFaculty
Ops.Faculty
PhdProgramDirector
Acct.Faculty
Mkt.Faculty
Mgt.Faculty
FinanceFaculty
Ops.Faculty
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Divisional StructuresPresident
Vice-PresidentSouthern Region
Vice-PresidentNorthern Region
Vice-PresidentWestern Region
Vice-PresidentEastern Region
Advantages– Increased flexibility– Decreased response times– Better coordination within divisions– Good training for general managers
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Divisional StructuresPresident
Vice-PresidentSouthern Region
Vice-PresidentNorthern Region
Vice-PresidentWestern Region
Vice-PresidentEastern Region
Disadvantages– Lose economies of scale– Poor coordination between divisions– Lose depth of competence in some
specialties– Advancement outside of specialty– Professional isolation
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K-Mart Reorganization
Original Structure
Southwest Northwest
Midwest Northeast
Southeast International
Corporate Offices
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K-Mart Reorganization
New Structure
West Northeast
Southeast International
Super Centers
Corporate Offices
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Volkswagen: Restructuring from Individual Brands to Operational Divisions
Original Structure
President/CEO
Audi Bugatti
Bentley Lamborghini
VW Skoda
Seat VW Trucks
Scania AB
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Propsed S tructural C hange
Audi
Bugatti
Bentley
Lam borghin i
Luxury D ivision
VW
Skoda
Seat
Mass-Car D ivision
VW Trucks
Scania AB
Comm erical Vehicles
President/CE O
Volkswagen: Restructuring from Individual Brands to Operational Divisions
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Volkswagen: Restructuring from Individual Brands to Operational Divisions
Why reorganize?– To give luxury brands more independence– To make luxury brands distinct from mass brands in
customers’ eyes– To reduce CEO’s span of control– To allow CEO to become more involved in operations– To add new lines/companies with less difficulty– To reduce operating costs
Propsed Structural C hange
Audi
Bugatti
Bentley
Lam borghin i
Luxury D ivision
VW
Skoda
Seat
Mass-Car D ivision
VW Trucks
Scania AB
Com merical Vehicles
President/CE O
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Today’s Take-aways1. To be successful a structure must “fit”
with the other major organizational characteristics
2. Functional structures work well when the organization’s environment is relatively certain and requires efficiency from the organization.
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Today’s Take-aways3. Divisional structures work well when the
organization’s environment is relatively uncertain and requires responsiveness and adaptability from the organization.
4. But what happens when the environment demands both efficiency and adaptability? Stay tuned!
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Next Time
C & C Grocery Stores