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Creating

Effective
Organizational
Design

Chapter Ten
Scenario
Suppose that you with a great idea (无人机) start
your business with 3 employees. How will you design
a structure for them to work efficiently for a goal?
Suppose your business is successful, the number of
employees increases to 50. How will you adjust the
structure?
Suppose your business is expanding to multiple
countries, how will you adjust the structure?
Suppose you expand the business to new business,
how will you adjust the structure?
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Learning Objectives
After reading this chapter, you should have a good
understanding of:
LO10.1 The growth patterns of major corporations and
the relationship between a firm’s strategy and its
structure.
LO10.2 Each of the traditional types of organizational
structure: simple, functional, divisional, and matrix
LO10.3 The implications of a firm’s international
operations for organizational structure.
LO10.4 Boundaryless organization—modular
organization and its relative advantages and
disadvantages. 10-3
J & J Audio
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https://knowledge.wharton.upenn.edu/article/johnson-johnson-ceo-william-
weldon-leadership-in-a-decentralized-company/ (Wharton K. website)

video
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Dominant Growth Patterns
of Large Corporations
Exhibit 10.1

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Traditional Forms of
Organizational Structure
Organizational structure
 formalized patterns of interactions that link a
firm’s tasks, technologies, and people

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Traditional Forms of
Organizational Structure
Structure provides a means of balancing
two conflicting forces
 Need for the division of tasks into meaningful
groupings
 Need to integrate the groupings for efficiency
and effectiveness

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Simple Structure
Simple Structure
 An organizational form in which the owner-
manager makes most of the decisions and
controls activities, and the staff serve as an
extension of the top executive.

Ex: CrazyEnglish vs. NewOriental

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Simple Structure
Advantages Disadvantages
 Highly informal  Employees may
 Centralized not understand
decision making their
 Little specialization responsibilities
 May take
advantage of lack
of regulation

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Functional Structure
Functional Structure
 An organizational form in which the major
functions of the firm, such as production,
marketing, R&D, and accounting, are
grouped internally.

 Ex. UM

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Functional Structure
Exhibit 10.2

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Example Parkdale Mills p.352
Read Strategic Spotlight 10.1 and discuss:
(1) What are the advantages of function
structure?
(2) What are the disadvantages of function
structure?

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Functional Structure: Advantages
 Advantages  Disadvantages
 Enhanced coordination
 Impeded communication and
and control
coordination due to
 Centralized decision differences in values and
making orientations
 Enhanced  May lead to short-term
organizational-level thinking (functions vs.
perspective organization as a whole)
 More efficient use of  Difficult to establish uniform
managerial and technical performance standards
talent
 Facilitated career paths
and development in
specialized areas
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Divisional Structure
Divisional organizational structure
 An organizational form in which products,
projects, or product markets are grouped
internally.
 Also called multidivisional structure or M-
Form

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Divisional Structure
Exhibit 10.3

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General Electric’s Organizational Structure, January 2009
Corporate Executive Office
Chairman & CEO

Corporate Staff
Business Development Legal
Commercial & Communications Global Research
Corporate Initiatives Group Human Resources
Finance International

Technology Industrial & Energy GE NBC Universal


Infrastructure Commercial Infrastructure Capital • Cable
• Aviation • Appliances • Energy • Aviation Financial • Film
• Enterprise • Consumer • Oil & Gas Services
• International
Solutions Electronics • Water & • Commercial Network
• Healthcare • Electrical Process Finance
• Sports &
Distribution Technologies • Energy Financial
• Transportation Olympics
Services
• Lighting
• GE Money
• Treasury
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Divisional Structure
 Advantages  Disadvantages
 Separation of strategic  Can be very expensive
and operating control  Can be dysfunctional
 Quick response to competition among
important changes in divisions
external environment  Differences in image
 Minimal problems of and quality may occur
sharing resources across divisions
across functional  Can focus on short-term
departments performance
 Development of general
management talent is
enhanced
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SBU Structure
Strategic business unit (SBU) structure
 An organizational form in which products,
projects, or product market divisions are
grouped into homogeneous units.

Ex: p.355

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Holding Company Structure
Holding company structure
 An organizational form in which the divisions
have a high degree of autonomy both from
other divisions and from corporate
headquarters.
Ex: Cheung Kong (Holdings) Limited
http://en.wikipedia.org/wiki/Cheung_Kong_H
oldings

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Matrix Structure
Matrix organizational structure
 an organizational form in which there are
multiple lines of authority and some
individuals report to at least two managers.

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Royal Dutch/Shell Group, 1994: A Matrix Structure

ge_organization_chart.pdf

© 2010 Robert M. Grant 10-21 14


www.contemporarystrategyanalysis.com
Matrix Structure
Advantages Disadvantages
 Facilitates the use  Can cause
of specialized uncertainty and
personnel, lead to intense
equipment and power struggles
facilities  Working
 Provides relationships
professionals with become more
a broader range of complicated
responsibility and  Decisions may take
experience longer
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International Operations: Implications for
Organizational Structure
Three major contingencies influence
structure adopted by firms with
international operations
 Type of strategy driving the firm’s foreign
operations
 Product diversity
 Extent to which the firm is dependent on
foreign sales

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International Operations: Implications for
Organizational Structure
Structures used to manage international
operations
 International division
 Geographic-area division
 Worldwide functional
 Worldwide product division
 Worldwide matrix

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What Is An International
Divisional Structure?
One Company’s International Divisional Structure

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What Is A Geographic-area division?

A Worldwide Area Structure

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What Is A Worldwide Product
Division Structure?
A Worldwide Product Divisional Structure

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What Is The
Global Matrix Structure?
A Global Matrix Structure

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Business-Level Strategy: Reward and
Evaluation Systems

Exhibit 10.6
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Types of Boundaries
Vertical boundaries between levels in the
organization’s hierarchy
Horizontal boundaries between functional
areas
External boundaries between the firm and
its customers, suppliers, and regulators
Geographic boundaries between
locations, cultures and markets

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Boundaryless Organizational Designs

Boundaryless organizational designs


 Organizations in which the boundaries,
including vertical, horizontal, external, and
geographic boundaries, are permeable.

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The Modular Organization
Modular organization
 An organization in which non-vital functions
are outsourced, which uses the knowledge
and expertise of outside suppliers while
retaining strategic control.
 Ex:

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Pros and Cons of Virtual Structures
Exhibit 10.9

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The Virtual Organization
Virtual organization
 a continually
evolving network of
independent
companies that are
linked together to
share skills, costs,
and access to one
another’s markets.

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Example: Virtual Organization
 This textbook and supplemental material was
completed by a virtual team
 The authors are in the Southwest and Northeast
U.S.
 The editors work in the Midwest U.S.
 The compositors are in India
 The PowerPoint author works in the Southeast U.S.
 Deadlines are coordinated by the MH editor in Burr
Ridge, IL to pull the book
together
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Pros and Cons of Virtual Structures
Exhibit 10.9

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Boundaryless Organizations:
Making Them Work
Factors facilitating effective coordination
and integration of key activities
 Common culture and shared values
 Horizontal organization structures
 Horizontal systems and processes
 Communications and information
technologies
 Human resource practices

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