Organizational Structure

B AD 4013
University of Oklahoma
Dr. Bartkoski
Organizational Structure
Strategy is only as good as its implementation

Implementation is focused on structure and control:

Structure: The division of management
responsibilities and the establishment of reporting
relationships.
Control: Policies intended to influence behavior.
These align the interest of the individual with those
of the organization.
Organizational Structure
Issues in Implementation:
How information flows.
Where and by whom decisions are made.
How to influence the behavior of people.
Organizational Structure
Division of Labor
Process of splitting up a task into a series of smaller
tasks performed by a specialist.

Organization Structure
A diagram that depicts a firm structure.

Informal Linkages
Unofficial relationships that do not appear in
organization charts.
Organizational Structure
Vertic
al
Linka Horizontal
ges Linkages

• Each person in the organization should report to

only one supervisor
Information Processing Requirements
Structure is designed to reduce information
processing requirements on individuals.

Organizational complexity increases requirements.

Information processing affected by bounded

rationality and a need for satisficing.

Organization structure divides information into

manageable blocks.
Creating an Organizational Structure
Simple Structure
Doesn’t rely on formal systems of division of labor.
One person performs all tasks the organization
needs to accomplish.
Common for small businesses
Creating an Organizational Structure
Functional Structure
Employees are divided into departments related to a
functional area.
Creates efficiencies through division of labor.
CEO has enterprise-wide perspective.
CEO is responsible for strategy and coordination of
functions.
Functional Structure

CEO

Human
Marketing Finance Production IT
Resources
Creating an Organizational Structure
Multidivisional Structure
Employees are divided into departments based on
product areas and/or geographic regions.
Functions are replicated in each division as
appropriate.
 Allows for the sharing of activities

Information is filtered through levels.

CEO balances coordination and competition
between the divisions.
Multidivisional Structure
CEO

Corporate
Corporate Corporate Corporate
Human
Marketing Finance IT
Resources

Division 1 Division 2 Division 3

Creating an Organizational Structure
Matrix Structure
Rely on horizontal relationships.
Used by firms engaging in projects of limited
duration.
Employees put on different teams to maximize
creativity and idea flow.
Matrix Structure
CEO

Quality
Finance Development
Assurance

Project
Analyst Developer Tester
Manager 1

Project
Analyst Developer Tester
Manager 2
Changing the Structure
Changes may need to be made if there are
performance issues.
Decisions may be made too slowly.
Information is not flowing to the proper level.
Returns are not as expected.
Agency Problem
When managers act opportunistically, or in their own
self interest, it creates an agency problem.
Separation between principals and agents.
Can lead to distortion in managerial perks and
managerial risk taking.
The composition of the board is critical because the
dynamics of the board play an important part in
resolving the agency problem.
Boards of Directors
Group of elected individuals.

Has a fiduciary duty to insure the firm is run in the

long term interests of the owners.

Responsible for monitoring and controlling the

behavior of top managers.
Institutional Investors
Financial institutions like mutual funds and pension
funds.

Control large blocks of stock.

Are very active investors.

Compensation Policies
Provides incentives to encourage certain behaviors.

CEO compensation is an important part of the work of

the Board of Directors.

CEO compensation is generally made up of:

Salary
Bonus
Stock Options
Stock Grants
Organizational Control Systems
Output control: Control that focuses on measurable
results within an organization.
Some issues can result in trying to evaluate
divisional performance.

Behavioral control: Control that focuses on controlling

the actions that ultimately lead to results.
Culture
Culture and influence behavior based on on shared
traditions, expectations, values, and norms to lead
people to work toward the good of their organization.

Stories about the past in the company, especially

around the founder, can reinforce culture.

Recruiting helps maintain culture.

This is an informal type of control, but can be as

powerful in influencing behavior than more formal
types.