Chapter Three

Fundamentals of
Organization Structure

A Sample Organization Chart

CEO

Vice President Vice President Director

Fianance Manufacturing Human Resources

Chief Budget Plant Maintenance Training Benefits

Accountant Analyst Superintendent Superintendent Specialist Administrator
 The Relationship of Organization Design
to Efficiency vs. Learning Outcomes

Horizontal Organization
Designed for Learning
Horizontal structure is dominant
• Shared tasks, empowerment
• Relaxed hierarchy, few rules
• Horizontal, face -to-face communication
Dominant • Many teams and task forces
• Decentralized decision making
Structural Vertical structure is dominant
• Specialized tasks
Approach • Strict hierarchy, many rules
• Vertical communication and reporting systems
• Few teams, task forces or integrators
• Centralized decision making

Vertical Organization
Designed for Efficiency

Ladder of Mechanisms for Horizontal

Linkage and Coordination

H IGH Teams
Coordination Required

Full-time Integrators
Amount of Horizontal

Task Forces

Direct Contact

LOW Information Systems

LOW HIGH

Cost of Coordination in
Time and Human Resources
 Project Manager Location
in the Structure
President

Finance Engineering Marketing Purchasing

Department Department Department Department
Financial Project Manager
Accountant Product
Market New
Designer
Researcher Product A
Buyer
Budget
Analyst Draftsperson Advertising Project Manager
Specialist New
Buyer Product B
Management
Accountant Electrical Project Manager
Designer Market New
Planner Buyer Product C

Teams Used for Horizontal

Coordination at Rodney Hunt Company
President

Marketing Vice Pres. Engineering Vice Pres Manufacturing Vice Pres

Water Control Equip. Water Control Equip. Foundry General Supervisor

Sales Manager Chief Engineer

Water Control Product Team Machine Shop

General Supervisor

Textile Machinery Textile Machinery Stainless Steel

Domestic Sales Manager Chief Engineer General Supervisor

Textile Machinery Textile Product Team

Export Manager
Customer Service,
Purchasing, Shipping and Yard
Advertising Manager Production Manager Supervisor
 Structural Design Options for
Grouping Employees into Departments

Functional
Grouping CEO

Engineering Marketing Manufacturing

Divisional
Grouping CEO

Product Product Product

Division 1 Division 2 Division 3
Source: Adapted from David Nadler and Michael Tushman ,
Strategic Organization Design (Glenview, Ill.: Scott Foresman , 1988), 68.

Strengths and Weaknesses of

Functional Organization Structure
b STRENGTHS: b WEAKNESSES:
• Allows economies of • Slow response time to
scale within functional environmental changes
departments • May cause decisions to pile
• Enables in-depth on top, hierarchy overload
knowledge and skill • Leads to poor horizontal
development coordination among
• Enables organization to departments
accomplish functional • Results in less innovation
goals • Involves restricted view of
• Is best with only one or organizational goals
few products
Source: Adapted from Robert Duncan, “What Is the Right
Organization Structure? Decision Tree Analysis Provides the Answer,”
Organizational Dynamics (Winter 1979): 429.
 Strengths and Weaknesses of
Divisional Organization Structure
b STRENGTHS: b WEAKNESSES:
• Suited to fast change in unstable • Eliminates economies of
environment scale in functional
• Leads to client satisfaction departments
because product responsibility
and contact points are clear • Leads to poor coordination
across product lines
• Involves high coordination across
functions • Eliminates in-depth
• Allows units to adapt to competence and technical
differences in products, regions, specialization
clients • Makes integration and
• Best in large organizations with standardization across
several products product lines difficult
• Decentralizes decision-making
Source: Adapted from Robert Duncan, “What Is the
Right Organization Structure? Decision Tree Analysis
Provides the Answer,” Organizational Dynamics
(Winter 1979): 431.

Reorganization from Functional Structure

to Divisional Structure at Info-Tech

Functional Info-Tech
President
Structure

R&D Manufacturing Accounting Marketing

Divisional Info-Tech
Structure President

Electronic Office Virtual

Publishing Automation Reality

R&D Mfg Acctg Mktg R&D Mfg Acctg Mktg R&D Mfg Acctg Mktg
 Structural Design Options for
Grouping Employees (Continued)

Multi-focused
Grouping
CEO

Marketing Manufacturing

Product
Division 1

Product
Division 2

Source: Adapted from David Nadler and Michael

Tushman , Strategic Organization Design (Glenview, Ill.:
Scott Foresman , 1988), 68.

Structural Design Options for

Grouping Employees (Continued)

Horizontal
Grouping
CEO

Human Resources Finance

Core
Process 1

Core
Process 2

Source: Adapted from David Nadler and Michael Tushman ,

Strategic Organization Design (Glenview, Ill.: Scott Foresman ,
1988), 68.
 Geographical Structure
for Apple Computer
CEO
Steve Jobs

Apple Apple Apple Apple

Products Americas Europe Pacific

Canada France Australia

Latin
America/ Japan
Caribbean

Sales Far East

Service and
Marketing
to Regions

Source: www.apple.com

Dual-Authority Structure in a
Matrix Organization
President

Director Design Mfg Marketing Procure-

of Product Vice Vice Vice Controller ment
Operations President President President Manager

Product
Manager A

Product
Manager B

Product
Manager C

Product
Manager D
 Strengths and Weaknesses of
Matrix Organization Structure
b STRENGTHS:
• Achieves coordination
necessary to meet dual
demands from customers
• Flexible sharing of human
resources across products
• Suited to complex decisions
and frequent changes in
unstable environment
• Provides opportunity for both
functional and product skill
development
• Best in medium-sized
organizations with multiple
products
Source: Adapted from Robert Duncan, “What Is the Right
Organization Structure? Decision Tree Analysis Provides the
Answer,”Organizational Dynamics (Winter 1979): 429.
b WEAKNESSES:
• Causes participants to experience dual
authority, which can be frustrating and
confusing
• Means participants need good
interpersonal skills and extensive
training
• Is time consuming; involves frequent
meetings and conflict resolution
sessions
• Will not work unless participants
understand it and adopt collegial rather
than vertical-type relationships
• Requires great effort to maintain power
balance

Matrix Structure for

Worldwide Steel Company
President
Vertical Functions
Mfg. Industrial
Mfg. Marketing Finance Metallurgy Field Sales
Services Relations
Vice Vice Vice Vice Vice
Vice Vice
President President President President President
President President
Horizontal Functions

Open Die
Business Mgr.

Ring Products
Business Mgr.

Wheels & Axles

Business Mgr.

Steelmaking
Business Mgr.
 A Horizontal Structure
Top
Management
Team

Process Team Team Team

Owner 1 2 3

Market Product
Analysis
Research
Planning
Testing Customer

New Product Development Process

Process Team Team Team

Owner 1 2 3

Material
Analysis Purchasing
Flow
Distrib. Customer
Sources: Based on Frank Ostroff,

Procurement and Logistics Process

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, 92-9 8 .

Strengths and Weaknesses of

Horizontal Structure
b STRENGTHS: b WEAKNESSES:
• Flexibility and rapid response to • Determining core processed to
changes in customer needs organize around is difficult and
• Directs the attention of everyone time-consuming
toward the production and delivery of • Requires changes in culture, job
value to the customer design, management
• Each employee has a broader view of philosophy, and information and
organizational goals reward systems
• Promotes a focus on teamwork and • Traditional managers may balk
collaboration—common commitment when they have to give up power
to meeting objectives and authority
• Improves quality of life for employees • Requires significant training of
by offering them the opportunity to employees to work effectively in
share responsibility, make decisions, a horizontal team environment
and be accountable for outcomes • Can limit in-depth skill
Sources: Based on Frank Ostroff, The Horizontal Organization: What the
Organization of the Future Looks Like and How It Delivers Value to development
Customers, (New York: Oxford University Press, 1999);
and Richard L. Daft, Organization Theory and Design, 6 t h ed.,
(Cincinnati, Ohio: South -Western College Publishing, 1998) 253.
 Hybrid Structure
Part 1. Sun Petrochemical Products

President

Functional Chief
Human Technology Financial
Structure Resources Vice Services
Counsel
Director President Vice Pres.

Product Fuels Lubricants Chemicals

Vice Vice Vice
Structure President President President

Sources: Based on Linda S. Ackerman, “Transition Management:

An In-Depth Look at Managing Complex Change,”
Organizational Dynamics (Summer 1982): 46-6 6 ;
and Frank Ostroff, The Horizontal Organization,
(New York: Oxford University Press, 1999), Fig. 2.1, 34.

Hybrid Structure
Part 2. Ford Customer Service Division
Vice President and
General Manager

Functional Strategy and Human

Structure Finance Communication Resources

Director and
Process Owner Teams
Horizontal Structure

Parts Supply / Logistics Group

Director and
Process Owner Teams

Vehicle Service and Programs Group

Director and
Process Owner Teams

Technical Support Group

Sources: Based on Linda S. Ackerman, “Transition Management:
An In-Depth Look at Managing Complex Change,” Organizational Dynamics
(Summer 1982): 46 -66; and FrankOstroff , The Horizontal Organization,
(New York: Oxford University Press, 1999), Fig. 2.1, 34.
 Organization Contextual Variables
that Influence Structure

Culture Size
Chapter 9 Chapter 8

Structure
(learning vs.
Strategy, efficiency) Technology
Goals Chapters 6,7
Chapter 2

Environment
Chapters 4, 5

Sources: Adapted from Jay R. Galbraith,

Competing with Flexible Lateral Organizations, 2 n d ed.
(Reading, Mass.: Addison-Wesley, 1994), Ch.1;
Jay R. Galbraith, Organization Design (Reading, Mass.:
Addison-Wesley, 1977), Ch. 1.

The Relationship of Structure to

Organization’s Need for Efficiency vs. Learning
Functional with
Functional cross-functional Divisional Matrix Horizontal
Structure teams, integrators Structure Structure Structure

Horizontal:
• Coordination
• Change
Dominant • Learning
Structural Vertical: • Innovation
• Control
Approach • Flexibility
• Efficiency
• Stability
• Reliability
 Symptoms of
Structural Deficiency
b Decision making is delayed or lacking in
quality
b The organization does not respond
innovatively to a changing environment
b Too much conflict from departments being
at cross purposes is evident