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Thomson Learning 2004 3-1
Chapter Three
Fundamentals of
Organization Structure
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Thomson Learning 2004 3-2
A Sample Organization
Chart
C h i e f
A c c o u
B u d g
A n a l y
V i c e P r F i n a n c
P l a n t
S u p e r i n
M a i n t e
S u p e r i n
V i c e P r M a n u f a
T r a i n i
S p e c i
B e n e
A d m i n
D i r e c tH u m a n
C E O
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Thomson Learning 2004 3-3
The Relationship of OrganizationDesign to Efficiency vs. Learning
Outcomes
Horizontal Organization
Designed for Learning
Vertical Organization
Designed for Efficiency
Dominant
Structural
Approach
Horizontal structure is dominant Shared tasks, empowerment
Relaxed hierarchy, few rules
Horizontal, face-to-face
communication
Many teams and task forces
Decentralized decision makingVertical structure is dominant
Specialized tasks
Strict hierarchy, many rules
Vertical communication and reporting systems
Few teams, task forces or integrators
Centralized decision making
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Thomson Learning 2004 3-4
Ladder of Mechanisms forHorizontal Linkage and
Coordination
HIGHLOW
LOWInformation Systems
Direct Contact
Task Forces
Full-time Integrators
Teams
Am
ountofHorizonta
l
Coo
rdinationRequire
d
Cost of Coordination in
Time and Human Resources
H IGH
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Thomson Learning 2004 3-5
Project Manager Location
in the StructurePresident
Finance
DepartmentFinancial
Accountant
Budget
Analyst
Management
Accountant
Engineering
Department
Product
Designer
Draftsperson
Electrical
Designer
Marketing
Department
Market
Researcher
Advertising
Specialist
Market
Planner
Purchasing
Department
Buyer
Buyer
Buyer
Project Manager
New
Product B
Project Manager
New
Product A
Project Manager
New
Product C
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Thomson Learning 2004 3-6
Teams Used for HorizontalCoordination at Wizard
Software Company
Videogames
Chief Engineer
Programming Vice Pres
Customer Service
Manager
Videogames Basic Research
Supervisor
Research Vice Pres
Applications and Testing
Supervisor
Procurement
Supervisor
Videogames
Sales Manager
Marketing Vice Pres.
Memory Products
International Manager
Advertising Manager
Memory Products
Chief Programmer
Memory Products
Research Supervisor
Memory Products
Sales Manager
President
Videogames Product Team
Memory Products Team
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St th d W k f
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Thomson Learning 2004 3-8
Strengths and Weaknesses ofFunctional Organization
Structure STRENGTHS:
Allows economies of scalewithin functionaldepartments
Enables in-depth knowledgeand skill development
Enables organization toaccomplish functional goals
Is best with only one or afew products
WEAKNESSES: Slow response time to
environmental changes
May cause decisions topile on top, hierarchyoverload
Leads to poor horizontalcoordination amongdepartments
Results in less innovation Involves restricted view of
organizational goals
Source: Adapted from Robert Duncan, What Is the Right
Organization Structure? Decision Tree Analysis Provides the Answer,
Organizational Dynamics (Winter 1979): 429.
St th d W k f
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Thomson Learning 2004 3-9
Strengths and Weaknesses ofDivisional Organization
Structure STRENGTHS:
Suited to fast change in unstableenvironment
Leads to client satisfaction
because product responsibility andcontact points are clear Involves high coordination across
functions Allows units to adapt to
differences in products, regions,clients
Best in large organizations withseveral products
Decentralizes decision-making
WEAKNESSES: Eliminates economies
of scale in functionaldepartments
Leads to poorcoordination acrossproduct lines
Eliminates in-depthcompetence andtechnical specialization
Makes integration andstandardization acrossproduct lines difficult
Source: Adapted from Robert Duncan, What Is theRight Organization Structure? Decision Tree Analysis
Provides the Answer, Organizational Dynamics
(Winter 1979): 431.
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Thomson Learning 2004 3-10
Reorganization from FunctionalStructure to Divisional Structure at
Info-Tech
R&D Manufacturing Accounting Marketing
Info-Tech
PresidentFunctional
Structure
R & M f A c M k
E l e c t
P u b l i
R & M f A c M k
O f f i c
A u t o m
R & M f A c M k
V i r t u
R e a l
I n f o -
P r e s
Divisional
Structure
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Thomson Learning 2004 3-12
Structural Design Options forGrouping Employees
(Continued)Horizontal
GroupingCEO
FinanceHuman Resources
Core
Process 2
Core
Process 1
Source: Adapted from David Nadler and Michael Tushman,
Strategic Organization Design (Glenview, Ill.: Scott Foresman,
1988), 68.
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Thomson Learning 2004 3-13
Geographical Structurefor Apple Computer
CEO
Steve Jobs
Apple
Europe
Apple
Pacific
France
Apple
Products
Asia
Japan
Australia
Apple
Americas
Canada
Latin
America/Caribbean
Sales
Service and
Marketing
to Regions
Source: www.apple.com
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Thomson Learning 2004 3-14
Product
Manager A
Product
Manager B
Product
Manager C
Product
Manager D
Director
of ProductOperations
Design
VicePresident
Mfg
VicePresident
Marketing
VicePresident Controller
Procure-
mentManager
President
Dual-Authority Structure in
a Matrix Organization
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Thomson Learning 2004 3-15
STRENGTHS: Achieves coordination necessary to
meet dual demands fromcustomers
Flexible sharing of human
resources across products Suited to complex decisions and
frequent changes in unstableenvironment
Provides opportunity for bothfunctional and product skilldevelopment
Best in medium-sized organizations
with multiple products
WEAKNESSES: Causes participants to experience dual
authority, which can be frustrating andconfusing
Means participants need goodinterpersonal skills and extensive training Is time consuming; involves frequent
meetings and conflict resolution sessions Will not work unless participants
understand it and adopt collegial ratherthan vertical-type relationships
Requires great effort to maintain powerbalance
reng s an ea nessesof Matrix Organization
Structure
Source: Adapted from Robert Duncan, What Is the Right
Organization Structure? Decision Tree Analysis Provides the
Answer,Organizational Dynamics (Winter 1979): 429.
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Thomson Learning 2004 3-16
Matrix Structure forWorldwide Steel Company
President
IndustrialRelations
VicePresident
Mfg.Services
VicePresident
FinanceVice
President
MarketingVice
President
Mfg.Vice
President
MetallurgyVice
President
Field SalesVice
President
Open DieBusiness Mgr.
Ring ProductsBusiness Mgr.
Wheels & AxlesBusiness Mgr.
SteelmakingBusiness Mgr.
Vertical Functions
Horizont
alProductLines
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Thomson Learning 2004 3-17
A Horizontal Structure
Team3
Team2
Team1
Top
Management
Team
Team
3
Team
2
Team
1
Customer
Customer
ProcessOwner
Process
Owner
TestingProduct
PlanningResearch
Market
Analysis
New Product Development Process
Distrib.Material
FlowPurchasingAnalysis
Procurement and Logistics Process
Sources: Based on Frank Ostroff,
The Horizontal Organization, (New York:
Oxford University Press, 1999); John A. Byrne,
The Horizontal Corporation, Business Week,
December 20, 1993, 76-81; and Thomas A. Stewart,The Search for the Organization of Tomorrow,
Fortune, May 19, 1992, 92-98.
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Thomson Learning 2004 3-18
Weaknesses of Horizontal
Structure STRENGTHS:
Flexibility and rapid response to changesin customer needs
Directs the attention of everyone towardthe production and delivery of value to
the customer Each employee has a broader view of
organizational goals Promotes a focus on teamwork and
collaborationcommon commitment tomeeting objectives
Improves quality of life for employees by
offering them the opportunity to shareresponsibility, make decisions, and beaccountable for outcomes
WEAKNESSES: Determining core processes to
organize around is difficult and time-consuming
Requires changes in culture, job
design, management philosophy, andinformation and reward systems Traditional managers may balk when
they have to give up power andauthority
Requires significant training ofemployees to work effectively in ahorizontal team environment
Can limit in-depth skill development
Sources: Based on Frank Ostroff, The Horizontal Organization: What the
Organization of the Future Looks Like and How It Delivers Value to
Customers, (New York: Oxford University Press, 1999);
and Richard L. Daft, Organization Theory and Design, 6th ed.,
(Cincinnati, Ohio: South-Western College Publishing, 1998) 253.
H b id St t
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Thomson Learning 2004 3-19
FunctionalStructure
Hybrid StructurePart 1. Sun Petrochemical
ProductsPresident
TechnologyVice
President
FinancialServices
Vice Pres.
HumanResources
Director
Chief
Counsel
Chemicals
VicePresident
Lubricants
VicePresident
Fuels
VicePresident
ProductStructure
Sources: Based on Linda S. Ackerman, Transition Management:
An In-Depth Look at Managing Complex Change,
Organizational Dynamics (Summer 1982): 46-66;
and Frank Ostroff, The Horizontal Organization,
(New York: Oxford University Press, 1999), Fig. 2.1, 34.
H b id St t
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Thomson Learning 2004 3-20
Hybrid StructurePart 2. Ford Customer Service
Division
Director and
Process Owner
Director and
Process Owner
Sources: Based on Linda S. Ackerman, Transition Management:
An In-Depth Look at Managing Complex Change,Organizational Dynamics
(Summer 1982): 46-66; and Frank Ostroff,The Horizontal Organization,
(New York: Oxford University Press, 1999), Fig. 2.1, 34.
Human
Resources
Strategy and
CommunicationFinance
Vice President and
General Manager
Teams
Teams
Director and
Process Owner Teams
Technical Support Group
Vehicle Service Group
Parts Supply / Logistics Group
Functional
Structure
HorizontalStructure
Teams
Teams
Organization Contextual
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Thomson Learning 2004 3-21
Organization ContextualVariables that Influence
Structure
Structure
(learning vs.
efficiency)
Environment
Chapters 4, 6
Culture
Chapter 10
Size
Chapter 9
Strategy,
Goals
Chapter 2
Technology
Chapters 7,8
Sources: Adapted from Jay R. Galbraith,
Competing with Flexible Lateral Organizations, 2nd ed.
(Reading, Mass.: Addison-Wesley, 1994), Ch.1;
Jay R. Galbraith, Organization Design (Reading, Mass.:
Addison-Wesley, 1977), Ch. 1.
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Thomson Learning 2004 3-22
The Relationship of Structure toOrganizations Need for Efficiency
vs. LearningHorizontal
Structure
Dominant
Structural
Approach
Horizontal:
Coordination
Learning
Innovation
FlexibilityVertical:
Control
Efficiency
Stability
Reliability
Matrix
StructureDivisional
Structure
Functional with
cross-functional
teams, integrators
Functional
Structure
Modular
Structure
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Thomson Learning 2004 3-23
Symptoms of
Structural Deficiency Decision making is delayed or
lacking in quality
The organization does not respondinnovatively to a changingenvironment
Too much conflict is evident
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