2 The Business of Managing

Business
Essentials 6e
Ronald J. Ebert
Ricky W. Griffin

5
FORMS OF ORGANIZATIONAL
STRUCTURE
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 BASIC FORMS OF
ORGANIZATIONAL
STRUCTURES

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 Basic Forms of Organizational Structure
Organizations can structure themselves in
many ways

DIVISIONAL FUNCTIONAL
STRUCTURE STRUCTURE

MATRIX INTERNATIONAL
STRUCTURE STRUCTURE

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 FUNCTIONAL
STRUCTURE

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Basic Forms of Organizational Structure
FUNCTIONAL STRUCTURE

Form of business organization in

which authority is determined by
the relationships between group
functions and activities

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Basic Forms of Organizational Structure
FUNCTIONAL STRUCTURE

Used by most small to medium-

sized firms structured around
basic business functions
(marketing, operations, finance)
Refer to Figure 6.6

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 FIGURE 6.5 Functional Structure

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Basic Forms of Organizational Structure
FUNCTIONAL STRUCTURE

Advantages:
1. Specialization within functional
areas
2. Smoother coordination among
functional areas

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Basic Forms of Organizational Structure
FUNCTIONAL STRUCTURE

Disadvantages:
1. It fosters centralization – making
accountability more difficult
2. poor cross-functional
coordination

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 DIVISIONAL
STRUCTURE

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Basic Forms of Organizational Structure
DIVISIONAL
DivisionalSTRUCTURE
Structure
Based on departmentalization by
product
each division is managed as a
separate enterprise
Organizations using this approach
are typically structured around
several product-based divisions
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Basic Forms of Organizational Structure
DIVISIONAL
DivisionalSTRUCTURE
Structure
They resemble separate businesses
-- they produce and market their
own products
Each department is headed by a
corporate vice president

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 FIGURE 6.6 Divisional Structure

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Basic Forms of Organizational Structure
DIVISIONAL
DivisionalSTRUCTURE
Structure
Advantages:
➢Increased product-focus and internal
coordination
Disadvantages:
➢Duplication of efforts and
competition between divisions

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Basic Forms of Organizational Structure
DIVISIONAL
DivisionalSTRUCTURE
Structure
For example:
➢Johnson & Johnson organized its
company into three divisions
1. Consumer healthcare products
2. Medical devices and diagnostics
3. pharmaceuticals

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 MATRIX
STRUCTURE

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Basic Forms of Organizational Structure
MATRIX STRUCTURE
A combination of two separate
structures
For example, combining functional
and divisional structures
Pioneered by NASA
Highly flexible and readily adaptable
structure
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Basic Forms of Organizational Structure
MATRIX STRUCTURE
For example:
Company XYZ (functional structure) wants to develop a
new product as a one-time special project
A team is created to work on it
Project team may draw members from existing functional
departments (e.g. finance and marketing)
Allows all viewpoints to be considered as the product is
being developed
➢ The marketing member may provide ongoing
information about product packaging and pricing issues
➢ Finance members on availability of funds

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Basic Forms of Organizational Structure
MATRIX STRUCTURE
In some companies, the matrix
organization is a temporary measure
installed to complete a specific project
(affecting only one part of the firm)
End of project -- end of the matrix

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Basic Forms of Organizational Structure
MATRIX STRUCTURE
For example:
Ford uses a matrix organization to design
new models (e.g. the newest Mustang)
A new team was created to design the new
car (people with engineering, marketing,
operations, and finance expertise)
After work is done -- team members moved
back to their permanent functional jobs

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Basic Forms of Organizational Structure
MATRIX STRUCTURE
In other settings, the matrix organization is
a semi-permanent fixture
Refer to Figure 6.7 – Martha Stewart’s
Omnimedia
➢The company is organized broadly into
media and merchandising groups
➢Layered at top of the structure are
teams of lifestyle experts led by the area
specialists
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 Forms of Organizational Structure (cont’d)
MATRIX STRUCTURE

➢Each group targets specific customer

needs but work across all product
groups if necessary
➢For e.g. an area specialist in weddings
might contribute to an article on
wedding planning for Omnimedia
magazine and a story for its cable tv

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 FIGURE 6.7 Matrix Organization at Martha Stewart’s Omnimedia Inc.

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Basic Forms of Organizational Structure
MATRIX STRUCTURE

Advantages:
1. Highly flexible and easily
adaptable structure
2. Focused on single problem
3. Better access to resources
and expertise
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Basic Forms of Organizational Structure
MATRIX STRUCTURE

Disadvantages:
1. Loss of command and control
2. lack of accountability
3. impermanent existence

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 INTERNATIONAL AND
GLOBAL
STRUCTURE

6–26
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Basic Forms of Organizational Structure
INTERNATIONAL STRUCTURE
Developed in response to the need to
manufacture, purchase, and sell in global
markets (Figure 6.8)
For e.g. Wal-Mart
➢ Opened its first store outside the U.S. in
1992
➢ A special team was set up
➢ Created an international department to
handle overseas expansion
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Basic Forms of Organizational Structure
GLOBAL STRUCTURE
Some companies adopt a truly global
structure
➢ Acquiring resources (including capital)
➢ producing goods and services
➢ engaging in research and development
➢ selling products in whatever local
market is appropriate, without any
consideration of national boundaries
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 FIGURE 6.8 International Division Structure

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 Organizational
Design for the
21st Century

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 Organizational Design
for the 21st Century
The world grows increasingly
complex and fast-paced
➢Organizations also continue to seek
new forms of organization
➢To compete effectively
➢Most popular new forms are:
1. Team Organization
2. Learning Organization

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 TEAM
ORGANIATION

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 Team Organizational
Relies almost exclusively on
project-type teams
with little or no underlying
functional hierarchy
People float from project to
project as dictated by their skills
and demands of the projects

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 Virtual Organizational
Has little or no formal structure
few permanent employees
a very small staff
a modest administrative facility
As organization’s needs change:
➢ Temporary workers are brought in
➢ Facilities are leased
➢ Basic support services are outsourced

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 Virtual Organizational
As situation changes -- temporary
workforce changes in parallel
➢Some people leave the organization
➢Others enter
➢Facilities and the subcontracted
services also change
Thus, this organization exists only in
response to its own needs

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 Organizational Design
for the 21st Century
Learning Organization
➢Integrates continuous improvement
and employee learning and
development
➢Facilitates lifelong learning and
development
➢A way of transforming itself to respond
to changing demands and needs

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 FIGURE 6.9 The Virtual Organization

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 INFORMAL
ORGANIATION

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 Informal Organization
Everyday social interactions
among employees that transcend
formal jobs and job
interrelationships
Sometimes as powerful – if not
more powerful – than the formal
structure

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 Informal Organization (cont’d)
Informal Groups
➢Groups of people who decide to
interact among themselves, sometimes
about business

Organizational Grapevine
➢The informal communication network
that runs throughout the organization

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 Informal Organization
Advantages:
1. May reinforce the formal organization

Disadvantages:
1. Can reinforce office politics that put the
interests of individuals ahead of those of
the firm
2. May communicate distorted or inaccurate
information

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 Informal Organization (cont’d)
Intrapreneuring
➢Creating and maintaining the
innovation and flexibility of a small-
business environment within the
confines of a large, bureaucratic
structure

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 Informal Organization (cont’d)
Intrapreneuring
➢Historically, most innovations have
come from individuals in small
businesses
➢In some large companies, new
ideas are even discouraged
❖Champions of innovation have been
stalled in midcareer

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 Informal Organization (cont’d)
Intrapreneuring
➢As businesses increase in size,
innovation and creativity are now
encouraged -- for more sales and
profits

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 END OF CHAPTER 5

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