Principles of Organizational Structure

1. Organizational structure The sum of ways an organization divides its labor into distinct, coordinated tasks Control, coordination, and motivation issues Principles of Organizational Structure Organizational design • Assessing the organization’s strategy and environmental demands and determining the appropriate organizational structure

2. Principles of Organizational Structure Organizational charts • Illustration of relationships • Units • Lines of authority among supervisors and subordinates • Illustrated by use of labeled boxes and connecting lines • Structure is more complex than organizational charts

3. Differentiation Differentiation • Division of tasks into subtasks that are performed by individuals with specialized skills • Two types of differentiation: • Task differentiation • Cognitive differentiation

4. Integration Integration • The extent to which various parts of the organization interact, coordinate and cooperate with each other • Driving forces of integration include: • Interdependence: degree to which each unit or each person depends on other units or people to accomplish a required task • Pooled, sequential, reciprocal • Uncertainty: the extent to which future input, process, and output factors cannot be forecast accurately • Integration and coordination can be accomplished through rules, goals, and values

5. Formalization Formalization • The official and defined structures and systems in decision making, communication, and control in an organization • Line of authority – who reports to whom • Unity of command – should only have one boss • Span of control – number of employees reporting to a given supervisor • The greater the reliance on rules and SOPs the more formal the structure

6. Levels = 4 Span of Control = 3 Total Employees = 40 Tall Organizational Structures Adapted from Exhibit 7.4

7. Flat Organizational Structures Levels = 3 Span of Control = 7 Total Employees = 57 Adapted from Exhibit 7.4

8. Informalization Informal organization • Consists of the unofficial but influential means of communication, decision making, and control • Not noted on organizational charts • Can vary from company to company and country to country

9. Centralized organizations Restrict decision making to fewer individuals, usually at the top of the organization Decentralized organizations Tend to push decision-making authority down to the lowest level possible Centralization and Decentralization

10. Functional Structure Adapted from Exhibit 7.6

11. Strengths Small- to medium-sized firms with limited product diversification Specialization of functional knowledge Less duplication of functional resources Facilitates coordination within functional areas Functional Structure

12. Product Structure Adapted from Exhibit 7.7

13. Strengths More focus on products and customers Easier to evaluate performance of the product Product responsiveness to market changes Less burden on the top executive in making operating decisions Product Structure

14. Division Structure Adapted from Exhibit 7.8

15. Strengths Reduced functional duplication Customer focus can increase Cross-product coordination is eased Cross-regional coordination is often eased Division Structure

16. Customer Structure Adapted from Exhibit 7.9

17. Strengths In-depth understanding of specific customers Responsiveness to changes in customer preferences and needs Responsiveness to moves by competitors to better serve customers Customer Structure

18. Geographical/Regional Structure Adapted from Exhibit 7.10

19. Strengths: Facilitates local responsiveness Develops in-depth knowledge of specific regions/countries Creates accountability by region Facilitates cross-functional coordination within regions Geographical/Regional Structure

20. CEO Health Beauty Cleaning Food NA AP EMEA LA Matrix Structure Adapted from Exhibit 7.11

21. Strengths Information flow Decision quality Suited to a changing and complicated business environment Flexible use of human resources Matrix Structure

22. Mixed (or Hybrid) Structure Adapted from Exhibit 7.12

23. Mixed (or Hybrid) Structure (cont.) Adapted from Exhibit 7.12

24. Networked Structures Formal or informal relationships among units or organizations (along the firm’s value chain) • Low-networked: • Quantity and magnitude of externally networked activities is limited • High-networked: • Larger quantity and magnitude of externally networked activities

25. Outsourced Structure Outsourced to EDS Support Activities Primary Activities Adapted from Exhibit 7.13

26. Network Structure

27. Designing Organizations: Environmental Complexity and Dynamism Simple Complex Low uncertainty Low demands placed on structure to facilitate extent or speed of coordination Moderate uncertainty Low demands placed on structure for broad coordination, high for speed of coordination Moderate Uncertainty High demands placed on structure to facilitate extent or speed of coordination, low demand on speed High uncertainty High demands placed on structure to facilitate both extent and speed of coordination Static Dynamic Adapted from Exhibit 7.15

28. Designing Organizations:Organizational Strategy • Structure needs to fit strategy as well as environment • No hard and fast rules for fitting structure to strategy • Structure must enable strategy and and strategy implementation Adapted from Exhibit 7.16

29. International Strategy and Structure High Foreign Sales Geographic Structure Matrix Structure Worldwide Product Division Low Foreign Sales International Division Low International Product Diversity High International Product Diversity Adapted from Exhibit 7.16

30. International Strategy and Structure • Evolution of international Strategy and Structure • Export Departments • International Divisions • Advanced Global Structures • Geographic, product, customer, division, global matrix • Organizing to Think Globally and Act Locally • Global efficiencies vs. Local responsiveness • Integrating and Coordinating Mechanisms • Direct Contact • Liaisons • Teams (cross-functional) Adapted from Exhibit 7.16