BASIC TYPES OF ORGANIZATIONAL

STRUCTURES
major question
How would one describe the seven organizational structures?
THE BIG PICTURE
Seven types of organizational structures are simple, functional, divisional,
matrix, team-based, network, and modular.
Small firm. What type of organizational structure is best suited to a local music
shop…
Culture and structure are often intertwined. Several years ago, the Federal
Railroad Administration (FRA) sent inspectors to Union Pacific’s headquarters
in Omaha, Nebraska, to examine why the railroad had had a series of fatal
accidents. There they learned that the company had a top-down, military-style
hierarchy and culture that seemed to discourage teamwork and communication.
The antiquated style of management had its roots in the days when railroads’
executive ranks were filled with combat-hardened former Civil War officers.
―When something happened,‖ said a railroad vice president explaining the
attitude of leading by fear, ―you pulled out your gun and shot the guy in charge
of the territory.‖ Said the head of the FRA of Union Pacific’s dysfunctional
working arrangements, ―They were separated from each other in a way that
almost guaranteed problems.‖
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We may categorize the arrangements of organizations into seven types of
structures: (1) simple, (2) functional, (3) divisional, (4) matrix, (5) team-
based, (6) network, and (7) modular.
1. The Simple Structure: For the Small Firm
Figure 8.6 Simple Structure: An Example There is only one hierarchical level
of…
The first organizational form is the simple structure. This is the form often
found in a firm’s very early, entrepreneurial stages, when the organization is apt
to reflect the desires and personality of the owner or founder. An organization
with asimple structure has authority centralized in a single person, a flat
hierarchy, few rules, and low work specialization. (See Figure 8.6.)
Hundreds of thousands of organizations are arranged according to a simple
structure—for instance, small mom-and-pop firms running landscaping,
construction, insurance sales, and similar businesses. Examples: Both Hewlett-
Packard and Apple Computer began as two-man garage start-ups that later
became large.
2. The Functional Structure: Grouping by Similar
Work Specialties
The second organizational form is the functional structure. In a functional
structure, people with similar occupational specialties are put together in
formal groups. This is a quite commonplace structure, seen in all kinds of
organizations, for-profit and nonprofit. (See Figure 8.7.)
Figure 8.7 Functional Structure: Two Examples This shows the…
Examples: A manufacturing firm will often group people with similar work
skills in a Marketing Department, others in a Production Department, others in
Finance, and so on. A nonprofit educational institution might group employees
according to work specialty under Faculty, Admissions, Maintenance, and so
forth.
3. The Divisional Structure: Grouping by
Similarity of Purpose
The third organizational form is the divisional structure. In a divisional
structure, people with diverse occupational specialties are put together in
formal groups by similar products or services, customers or clients, or
geographic regions. (See Figure 8.8.)
Figure 8.8 Divisional Structure: Three Examples This shows…
Product Divisions: Grouping by Similar Products or Services
Product divisions group activities around similar products or
services. Examples: The media giant Time Warner has different divisions for
magazines, movies, recordings, cable television, and so on. The Warner Bros.
part of the empire alone has divisions spanning movies and television, a
broadcast network, retail stores, theaters, amusement parks, and music.
Customer Divisions: Grouping by Common Customers or
Clients
Customer divisions tend to group activities around common customers or
clients. Examples: Ford Motor Co. has separate divisions for passenger-car
dealers, for large trucking customers, and for farm products customers. A
savings and loan might be structured with divisions for making consumer loans,
mortgage loans, business loans, and agricultural loans.
Geographic Divisions: Grouping by Regional Location
Geographic divisions group activities around defined regional
locations. Example: This arrangement is frequently used by government
agencies. The Federal Reserve Bank, for instance, has 12 separate districts
around the United States. The Internal Revenue Service also has several
districts.
4. The Matrix Structure: A Grid of Functional &
Divisional for Two Chains of Command
The fourth organizational form is the matrix structure. In a matrix structure, an
organization combines functional and divisional chains of command in a
grid so that there are two command structures—vertical and
horizontal. The functional structure usually doesn’t change—it is the
organization’s normal departments or divisions, such as Finance, Marketing,
Production, and Research & Development. The divisional structure may vary—
as by product, brand, customer, or geographic region.(See Figure 8.9.)
Figure 8.9 Matrix Structure An example of an arrangement that…
A hypothetical example, using Ford Motor Co.: The functional structure
might be the departments of Engineering, Finance, Production, and Marketing,
each headed by a vice president. Thus, the reporting arrangement is vertical.
The divisional structure might be by product (the new models of Taurus,
Mustang, Explorer, and Expedition, for example), each headed by a project
manager. This reporting arrangement is horizontal. Thus, a marketing person,
say, would report to both the Vice President of Marketing and to the Project
Manager for the Ford Mustang. Indeed, Ford Motor Co. used the matrix
approach to create the Taurus and a newer version of the Mustang.
5. The Team-Based Structure: Eliminating
Functional Barriers to Solve Problems
The fifth organizational form is the team-based structure. In a team-based
structure, teams or workgroups, either temporary or permanent, are used
to improve horizontal relations and solve problems throughout the
organization.
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When managers from different functional divisions are brought
together in teams—known as cross-functional teams—to solve particular
problems, the barriers between the divisions break down. The focus on narrow
divisional interests yields to a common interest in solving the problems that
brought them together. Yet team members still have their full-time functional
work responsibilities and still formally report to their own managers above them
in the functional-division hierarchy. (See Figure 8.10.)
Figure 8.10 Team-Based Structure This shows a mix of functional…
Example
Use of a Team-Based Structure: Motorola Designs a Cell Phone
The mood was grim at Motorola, which had watched rival cell-phone maker
Nokia leap to No. 1 worldwide in market share on the basis of its ―candy bar‖
phone designs. But engineers in Motorola’s concept-phone unit had a vision for
something different, having produced a mock-up of what was described as ―an
impossibly thin phone—at ten millimeters … half the girth of a typical flip-
flop‖ cell phone.
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Engineer Roger Jellicoe was told to pull a team together and
produce the thinnest phone ever released—and to do it within a year in order to
make a splash by handing it out as a high-end niche product to celebrities at the
February Academy Awards.
The Skunkworks. Eventually the team grew to as many as 20 engineers, who
met daily in a conference room in Motorola’s Libertyville, Illinois office, to
deliberate over how to cram a checklist of components—antenna, speaker,
keypad, camera, display, light source, and so on—into minimal space.
Operating as a ―skunkworks‖—a project team whose members are separated
from normal company operations—that kept the project secret even from their
colleagues, the team members used materials and techniques that Motorola had
never tried before. They also threw out accepted models of what a cell phone
was supposed to look and feel like. ―In short,‖ says a Fortune account, ―the
team that created the RAZR broke the mold, and in the process rejuvenated the
company.‖
As engineers worked on the components, industrial designer Chris Arnholt
worked on the look, rendering designs onto a page and then letting another
designer translate them into three-dimensional computer graphics, which model
makers could use to craft plastic mock-ups. Nearly every activity came down to
a trade-off of functionality versus thinness, which eventually led to two
compromises: the phone exceeded the original targeted size by about an eighth
of an inch and the team missed the original February deadline.
The RAZR Unveiled. When the RAZR was finally unveiled in a splashy
presentation in July, it became an instant hit. And the company realized that the
product it had designed to be a high-priced, high-end jewel had mass market
appeal.
Your Call
The team approach, known as concurrent engineering or integrated product
development, has been found to speed up the design of new products because all
the specialists meet at once, instead of separately doing their own thing, then
handing off the result to the next group of specialists. Can you think of
circumstances in which the old-fashioned nonteam approach would probably
work better?
6. The Network Structure: Connecting a Central
Core to Outside Firms by Computer Connections
In the sixth organizational form, network structure, the organization has a
central core that is linked to outside independent firms by computer
connections, which are used to operate as if all were a single
organization. (See Figure 8.11.) Corporations using this structure are
sometimes called virtual corporations or virtual organizations, as we mentioned
in Chapter 2.
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Another term used is the hollow corporation orhollow
organization, in which the company retains important core processes critical to
its performance (such as design or marketing) and outsources most other
processes (such as human resources, warehousing, or distribution), thereby
seeming to ―hollow out‖ the organization.
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Figure 8.11 Network Structure This is an example of a personal…
With a network structure, an organization can become a boundaryless
organization, as we described in Chapter 2, operating with extensive, even
worldwide operations, yet its basic core can remain small, thus keeping payrolls
and overhead down. The glue that holds everything together is information
technology, along with strategic alliances and contractual arrangements with
supplier companies.
Example
Network Structure: EndoStim, a Medical Device Start-up, Operates
Virtually
Nowadays a firm can be completely international. An example is the medical
device start-up EndoStim, nominally based in St. Louis but operating
everywhere.
The Internationalists. Cuban immigrant Raul Perez, MD, came to St. Louis,
where he met Dan Burkhardt, a local investor, with whom he began making
medical investments. Perez also suffered from acid reflux, reports New York
Times columnist Thomas Friedman, and went to Arizona for treatment to an
Indian-American physician, V. K. Sharma, who proposed an idea for a
pacemaker-like device to control the muscle that would choke off acid reflux.
Perez, Burkhardt, and Sharma joined South Africa–born Bevil Hogg, a founder
of Trek Bicycle Corporation, who became the CEO of the company named
EndoStim and helped to raise initial development funds. Two Israelis, a medical
engineer and a gastroenterologist, joined a Seattle engineering team to help with
the design, and a company in Uruguay specializing in pacemakers was lined up
to build the prototype. The clinical trials for the device are being conducted in
India and Chile.
Continues Friedman, ―This kind of very lean start-up, where the principals are
rarely in the same office at the same time, and which takes advantage of all the
[technological communication tools]—teleconferencing, e-mail, the Internet,
and faxes—to access the best expertise and low-cost, high-quality
manufacturing anywhere, is the latest in venture investing.‖
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Operating Differently. A virtual, boundaryless company like EndoStim
operates differently from a traditional company. For instance, at MySQL, a
virtual software maker employing 320 workers in 25 countries, managers have
had to learn to evaluate people and give feedback differently. ―Productivity is
measured strictly by output; mushy factors like charisma don’t pertain in
cyberspace,‖ says one observer. As might be expected, MySQL hires strictly for
skill, not ―the ability to play nicely with others.‖
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Your Call
Many people like the social interaction that comes with working in a physical
office with other people. Others, however, are turned off by the ―office politics‖
and time-wasting activities that seem to be a necessary concomitant and
welcome the opportunity to do task-oriented work in a makeshift home office,
occasionally having to cope with loneliness and restlessness. Which would you
favor?
7. The Modular Structure: Outsourcing Pieces of
a Product to Outside Firms
The seventh organizational form differs from the sixth in that it is oriented
around outsourcing certain pieces of a product rather than outsourcing
certain processes (such as human resources or warehousing) of an organization.
In a modular structure, a firm assembles product chunks, or modules,
provided by outside contractors. One article compares this form of
organization to ―a collection of Lego bricks that can snap together.‖
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