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Pearce & Robinson, 10th ed.

 Chapter 11
Organizational Structure

McGraw-Hill/Irwin
Strategic Management, 10/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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Learning Objectives
1. Identify four traditional organizational structures and the
pros and cons of each
2. Explain when one traditional structure is more likely to be
used than another
3. Describe the product-team structure and explain why it is
a prototype for the more open, agile organizational
structures frequently called for in today’s global economy
4. Characterize differences between views on traditional 20th
Century organizational structures and 21st century
organizational structure needs
5. Explain five ways improvements have been sought in
traditional organizational structures
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Learning Objectives
6. Describe what is meant by agile, virtual
organizations
7. Explain how outsourcing can create agile, virtual
organizations, along with its pros and cons
8. Explain strategic alliances, along with their basic
pros and cons
9. Explain what is meant by boundaryless
organizations and why they are important
10. Explain why organizations of the future need to be
ambidextrous learning organizations and how this
fits into the global economy
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Traditional Organizational
Structures
• Organizational structure refers to the formalized
arrangement of interaction between and
responsibility for the tasks, people, and resources
in an organization
• It is most often seen as a chart,
often a pyramidal chart, with
positions or titles and roles
in cascading
fashion
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Simple Organizational Structure

• A simple organizational structure is one where
there is an owner and a few employees and where
the arrangement of tasks, responsibilities, and
communication is highly informal and
accomplished through direct supervision
• This type of structure can be very demanding on
the owner-manager
• Most businesses in this country and around the
world are of this type
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Functional Organizational Structure

• A functional organizational structure is one on
which the tasks, people, and technologies
necessary to do the work of the business are
divided into separate “functional” groups (such as
marketing, operations, and finance) with
increasingly formal procedures for coordinating
and integrating their activities to provide the
business’s products and services
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Functional Organization Structures

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Divisional Structure
• A divisional organizational structure is one in which a
set of relatively autonomous units, or divisions, are
governed by a central corporate office but where each
operating division has its own functional specialists who
provide products or services different from those of other
divisions
• This expedites decision making in response to varied
competitive environments
• The division usually is given profit responsibility
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Divisional Organization Structure

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Strategic Business Unit

• The strategic business unit (SBU) is an
adaptation of the divisional structure whereby
various divisions or parts of divisions are grouped
together based on some common strategic
elements, usually linked to distinct product/market
differences
• The advantages and disadvantages of the SBU
form are very similar to those identified for
divisional structures
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Holding Company Structure

• A final form of the divisional organization is the
holding company structure, where the corporate
entity is a broad collection of often unrelated
businesses and divisions such that it (the corporate
entity) acts as financial overseer “holding” the
ownership interest in the various parts of the
company but has little direct managerial
involvement
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Matrix Organizational Structure

• The matrix organizational structure
is one in which functional and staff
personnel are assigned to both a basic
functional area and to a project or
product manager
• The matrix form is intended to make
the best use of talented people within
a firm by combining the advantages of
functional specialization and product-
project specialization
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Matrix Organizational Structure

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Product-Team Structure
• The product-team structure seeks to simplify and
amplify the focus of resources on a narrow but
strategically important product, project, market,
customer, or innovation
• The product-team structure assigns functional
managers and specialists to a new product,
project, or process team that is empowered to
make major decisions about their product
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The Product-Team Structure

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What a Difference a Century Makes

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Trends Affecting Organizations
st
in the 21 Century

• Globalization

• The Internet

• Speed
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Efforts to Improve
Traditional Structures
• Redefine the role of corporate headquarters from
control to support and coordination
• Balance the demands for control/differentiation
with the need for coordination/integration
• Restructure to emphasize and support strategically
critical activities
• Reengineer strategic business processes
• Downsize and self-manage
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Creating Agile, Virtual
Organizations
• Virtual organization: a temporary network of
independent companies—suppliers, customers,
subcontractors, even competitors—linked
primarily by information technology to share
skills, access to markets, and costs
• An agile organization is one that identifies
a set of business capabilities central to high-
profitability operations and then builds a virtual
organization around those capabilities
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Outsourcing—Creating
a Modular Organization
• Outsourcing is simply obtaining work previously
done by employees inside the companies from
sources outside the company
• A modular organization provides products or
services using different, self-contained specialists
or companies brought together—outsourced—to
contribute their primary or support activity to
result in a successful outcome
• Business process outsourcing (BPO) is the most
rapidly growing segment of the outsourcing
services industry worldwide
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Types of Boundaries
• Horizontal boundaries—between different
departments or functions in a firm.
• Vertical boundaries—between operations and
management, and levels of management, between
“corporate” and “division”
• Geographic boundaries—between different
physical locations; between different countries or
regions of the world and between cultures
• External interface boundaries—between a
company and its customers, suppliers, partners,
regulators, and competitors
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Becoming Boundaryless
• Jack Welch coined the term “boundaryless” to
illustrate his vision for GE
• Outsourcing, strategic alliances, product-team
structures, reengineering, restructuring—all are
ways to move toward boundaryless organization
• Technology, particularly driven by the Internet, has
and will be a major driver of the boundaryless
organization
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From Traditional Structure to B-Web
Structure
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Ambidextrous Learning
Organization
• The evolution of the virtual organizational
structure as an integral mechanism managers use
has brought with it recognition of the central role
knowledge plays in implementation
• The shift from exploitation to exploration (Ragan)
indicates the growing importance of organizational
structures that enable a learning organization to
allow global companies the chance to build
competitive advantage
• An ambidextrous organization emphasizes
coordination over control as well as flexibility