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Chapter Three Fundamentals of Organization Structure A Sample Organization Chart CEO V ic e P re s id e n t F ia n a n c e V ic e P re s id e n t M a n u fa c tu r in g D ire c to r H u m a n R e s o u rc e s C h ie f B udget P la n t M a in te n a n c e ra in in g B e n e fits T A c c o u n ta n t A n a ly s t S u p e rin te n d eunpte rin te n d eSn pt e c ia lis t A d m in is tr a to r S .

LOW The Relationship of Organization Design to Efficiency vs. many rules • Vertical communication and reporting systems • Few teams. empowerment • Relaxed hierarchy. task forces or integrators • Centralized decision making • Shared tasks. few rules • Horizontal. Learning Outcomes Horizontal Organization Designed for Learning Horizontal structure is dominant Dominant Structural Approach Vertical structure is dominant • Specialized tasks • Strict hierarchy. face -to-face communication • Many teams and task forces • Decentralized decision making Vertical Organization Designed for Efficiency Ladder of Mechanisms for Linkage and Coordination Horizontal H IGH Teams Full-time Integrators Task Forces Direct Contact Information Systems LOW HIGH Coordination Required Amount of Horizontal Cost of Coordination in Time and Human Resources .


Project Manager Location in the Structure President Finance Financial Accountant Budget Analyst Management Accountant Product C Engineering Purchasing Marketing Department Department Department Department Product Designer Draftsperson Market Researcher Advertising Specialist Buyer Electrical Designer Market Planner Project Manager New Product A Project Manager New Product B Project Manager New Buyer Buyer Teams Used for Coordination at Rodney Hunt Company Horizontal President Marketing Vice Pres. Water Control Equip. Sales Manager Water Control Product Team Textile Machinery Domestic Sales Manager Textile Textile MachineryProduct Team Export Manager Advertising Manager Textile Machinery Chief Engineer Engineering Vice Pres Water Control Equip. Chief Engineer Manufacturing Vice Pres Foundry General Supervisor Machine Shop General Supervisor Stainless Steel General Supervisor Customer Service. Purchasing. Production Manager Shipping and Yard Supervisor .

 STRENGTHS: • Allows economies of scale within functional departments • Enables in -depth knowledge and skill developmen t • Enables organization to accomplish goals functional • Is best with only one or few products Strengths and Weaknesses of Functional Organization Structure  Source: Adapted from Robert Duncan. Ill. Strategic Organization Design (Glenview.: Scott Foresman . “What Is the Right Organization Structure? Decision Tree Analysis Provides the Answer.” Organizational Dynamics (Winter 1979): 429. 68.Structural Design Options for Grouping Employees into Departments Functional Grouping Engineering CEO Marketing Manufacturing Divisional Grouping P dc r ut o D is n iv io 1 CO E P dc r ut o D i io 2 i sn v P dc r ut o D is n iv i 3 o Source: Adapted from David Nadler and Michael Tushman . hierarchy overload • Leads to poor horizontal coordination departments among • Results in less innovation • Involves restricted view of organizational goals . WEAKNESSES: • Slow response time to environmental changes • May cause decisions to pile on top. 1988).

“What Is the Right Organization Structure? Decision Tree Analysis Provides the Answer. to clients regions. Strengths and Weaknesses of Divisional Organization Structure STRENGTHS: WEAKNESSES: • Suited to fast change in environment unstable • Leads to client because product satisfaction and contact points are responsibility • clear Involves high coordination functions across • Allows units to adapt differences in products.” Organizational Dynamics (Winter 1979): 431. • Best in large organizations several products with • Decentralizes decision-making  • Eliminates economies of scale in departments functional • Leads to poor across product coordination lines • Eliminates in-depth competence and specialization technical • Makes integration standardization across and product lines difficult Source: Adapted from Robert Duncan. Reorganization from Functional to Divisional Structure at Info-Tech Structure Functional Structure R&D Info-Tech President Manufacturing Accounting Marketing Divisional Structure Electronic P u blis hing R&D M fg A cctg M ktg R&D Info-Tech Presid en t O ffic e A utom ation M fg A c c t g M k tg R&D V ir tu a l R eality M fg Acctg M ktg .

: Scott Foresman . Strategic Organization Design (Glenview. 68. Ill. Strategic Organization Design (Glenview. 68. 1988). Structural Design Options for Grouping Employees (Continued) Horizontal Grouping CEO Human Resources Core Finance Process 1 Core Process 2 Source: Adapted from David Nadler and Michael Tushman .Structural Design Options for Grouping Employees (Continued) Multi-focused Grouping CEO Marketing Product Manufacturing Division 1 Product Division 2 Source: Adapted from David Nadler and Michael Tushman . 1988). Ill. .: Scott Foresman .

• Causes participants to experience dual authority. Product Wheels Manager C Product Manager D Steelmaking Answer. Business Mgr. “What Is the Right Organization Structure? Decision Tree Analysis Provides the Source: Marketing Finance Metallurgy Field Sales Services Relations Design Mfg Vice Marketing Vice Vice Vice ViceProcureVice Vice VicePresident Vice Vice Controller ment President President President President President President President President President Manager & Axles Business Mgr.”Organizational Dynamics (Winter 1979): 429. . which can be frustrating and Apple Apple confusing Europe Pacific • Means participants need good interpersonal skills and extensive trainingFrance Australia • Is time consuming. STRENGTHS: Geographical Structure Strengths and Weaknesses of Matrix Organization for Apple Computer Structure CEO WEAKNESSES:  Steve Jobs to Regions • Achieves coordination necessary to meet dual Apple Apple demands from customers Products Americas • Flexible sharing of human resources across products Canada • Suited to complex decisions and frequent changes in unstable environmentLatin • Provides opportunity for both America/ Caribbean functional and product skill development • Best in medium-sizedSales Service and organizations with multiple Marketing products Source: Adapted from Robert Duncan. involves frequent meetings and conflict resolution sessions Japan • Will not work unless participants understand it and adopt collegial rather Far than vertical-type relationships East • Requires great effort to maintain power balance Matrix Organization Dual-Authority Structure in a Matrix Structure for Worldwide Steel Company President President Director of Product Operations Product Business Manager A Vertical Functions Horizontal Functions Open Die Mgr. Product Products Ring Manager B Business Mgr. Industrial Mfg.


and(Summer L. Chemicals Vice President Customer Analysis Sources: Based on Frank Ostroff. Fig. How It Delivers Value to Sources: of the Future Looks Like and “Transition Management: An In-Depth Look at Oxford University Change. (Cincinnati.Hybrid Structure Part A Horizontal Structure 1. job value to the customer design. (New York: Oxford University Press.” Organizational Dynamics Customers. th ed. Ohio: South -Western College Publishing. 34. and information and Process Owner organizational goals reward systems Horizontal Structure • Promotes a focus on teamwork and • Traditional managers may balk Director and collaboration—common commitment when they have to give up power Teams Process Owner to meeting objectives and authority Vehicle • Improves quality of life for employees Service Requires significant training of • and Programs Group by offering them the opportunity to Director and employees to work effectively in Process Owner share responsibility. 1992. 2. Sun Petrochemical Products Top President Management Team Functional Structure Process Chief Owner Counsel Market Analysis Team HumanTeam 1 Resources2 Director Research Product Planning Technology Team 3 Vice President Testing Financial Services Vice Pres. The Horizontal Organization. make a horizontal team environment and be accountable for outcomes • Support Group Technical Can limit in-depth skill Sources: Based on Frank Ostroff. 1999).. Customer New Product Development Process President Product Structure Process Owner Fuels Vice Team 1 Lubricants Team Vice Team 2 President 3 Material Flow Distrib. Fig. The Horizontal Organization. Byrne. Richard 1982): 46 -66. Daft. management Director and • Each employee has aTeams broader view of philosophy. 2.1. 1993. Vice President and  General Manager WEAKNESSES: . 6 (New York: Oxford University Press. Sources: Based on Corporation. 34. Ackerman.” Business Week.Teams decisions. and Frank Ostroff . (New York: Managing Complex Press. 1999). 1999).” and Frank Ostroff. 92-98. The Horizontal Organization. 1999). Stewart. “The Search for the Organization of Tomorrow. “Transition An In-Depth20. Organizational Dynamics (Summer 1982): 46-66.” December Look at 76-81. Horizontal Structure Ford Customer Service Division  STRENGTHS: Structure Parts Supply / Logistics Group Teams • Flexibility and rapid response to • Determining core processed to changes in customer needs organize around is difficult and Functional Strategy and Human • Directs the attention of everyone Finance Communication time-consuming Resources toward the production and delivery of • Requires changes in culture. Purchasing Procurement and Logistics Process Strengths and Weaknesses of Hybrid Structure Part 2. John A. Organization Theory and Design. 1998) 253.1. Management: “The Horizontal Linda S.Managing Complex Change. Fortune. (New York: Oxford University Press. The Horizontal Organization: What the development OrganizationBased on Linda S. May 19. and Thomas A. Ackerman.


7 quality in Culture Size Chapter 9 Chapter 8  The organization does not Structure innovatively to a changing environment respond Strategy. Mass. Technology efficiency) Goals Chapter 2  Too much conflict from departments at cross is evident being purposesEnvironment Chapters 4. Ch. Jay R.Symptoms of Organization Contextual Variables that Influence Structure Structural Deficiency  Decision making is delayed or lacking Chapters 6. integrators Structure Matrix Structure Structure Horizontal Approach Dominant Structural Vertical: • Control • Efficiency • Stability • Reliability Horizontal: • Coordination • Change • Learning • Innovation • Flexibility . The Relationship of Structure Organization’s Need for Efficiency vs. Organization Design (Reading. 1994). (Reading. Learning to Structure Functional with Functional cross-functional Divisional teams. (learning vs. Galbraith. Galbraith.: Addison-Wesley. 1. 2n d ed. 1977). Competing with Flexible Lateral Organizations. Mass. 5 Sources: Adapted from Jay R. Ch.: Addison-Wesley.1.