Understanding and Managing Organizational Structure (A)

1. Understanding and ManagingOrganizational Structure (A) BA 152

2. Today’s Questions • What do we mean by the term, “structure?” • What influences the structural choices made by managers? • What are two of the most popular organizational structures? • What are the relative advantages and disadvantages of these structures?

3. Characteristics of Organizations Goals Environment Strategies FIT! Structures Technologies Systems People Cultures

4. What is Structure? The allocation of responsibilities Formal reporting channels The systems that coordinate effort The way the company is put together.

5. Becoming an Organization Complexity Vertical Horizontal

6. Vertical/Horizontal Division of Labor Vertical Complexity Horizontal Complexity

7. Becoming an Organization Complexity Vertical Horizontal Centralization Formalization

8. Influences on Structure Environment FIT! Industry Strategic Choice/Goals Organizational Size Technology

9. D =M S D =M S D =M S Structuring Work A Craft Approach DMS Corp. D = Design, M = Make, and S = Sell

10. Advantages Close supervision Experts doing all of the tasks Quality should be higher Disadvantages Difficult to find experts Unable to meet increased demands Equipment sits idle, and we lose possible economies of scale D =M S Structuring Work A Craft Approach

11. =D =M =S Structuring Work A Functional Approach DMS Corp. Functions

12. President Vice-President Vice-President Vice-President Vice-President Finance & Accounting Engineering Manufacturing Marketing Director By engineering specialties By F&A specialties By marketing specialties Quality Control Director Inventory Control Director Product Scheduling A Functional Organization

13. Characteristics of Functional Structures • Those doing the “same thing” are in the same function. • More standardized methods and procedures within each function

14. Characteristics of Functional Structures • Higher degree of control/centralization within each function and at the top of the organization. • The functions are organized as costcenters. • This structure is competitive in stable environments demanding efficiency.

15. Accounting Marketing Management Finance Operations Dept. Dept. Dept. Dept. Dept. Chairman Chairman Chairman Chairman Chairman Full Full Full Full Full Profs. Profs. Profs. Profs. Profs. Assoc. Assoc. Assoc. Assoc. Assoc. Profs. Profs. Profs. Profs. Profs. Assist. Assist. Assist. Assist. Assist. Profs. Profs. Profs. Profs. Profs. Kenan-Flagler Business School Functional Structure DEAN

16. Advantages Economies of scale Supervision/training by specialists Promotion within specialty President Vice-President Vice-President Vice-President Vice-President Finance & Accounting Engineering Manufacturing Marketing Functional Structure

17. Disadvantages Short-term time perspective within functions Conflicts across functions Coordination problems between functions Goal displacement Less innovation Less flexibility President Vice-President Vice-President Vice-President Vice-President Finance & Accounting Engineering Manufacturing Marketing Functional Structure

18. Ways to Coordinate Activities across Functions Task forces (temporary) Task Teams (permanent)

19. Task Force Functional Structurewith task forces/teams President Engineering Marketing Manufacturing R&D

20. President Task Team Functional Structurewith task forces/teams Engineering Marketing R&D Manufacturing

21. Functional Structurewith task teams President Task Team Task Team Task Team Task Team Task Team

22. =D =D =D =M =M =M =S =S =S East Region Central Region West Region Structuring Work A Divisional Approach DMS Corp. Division

23. Bases for Divisionalization • Products – Buick, Cadillac, Chevrolet • Technologies – mass production, custom • Projects – buildings, software • Geography – such as . . . • Customers – retail, government, industrial

24. President Vice-President Vice-President Vice-President Vice-President Eastern Region Southern Region Northern Region Western Region Director New England By smaller regions By smaller regions By smaller regions Director New York Metro • Engineering • Manufacturing • F&A • Marketing Director Mid-Atlantic A Divisional Organization

25. Characteristics of Divisional Structures • Those doing “different things” are in the same division. • Less standardized methods and procedures across divisions

26. Characteristics of Divisional Structures • Lower degree of control and centralization within divisions and at the top of the organization • The divisions are organized as profit centers • This structure is competitive in dynamic environments requiring flexibility and responsiveness

27. DEAN Undergrad. MBA Phd Executive Program Program Program Program Director Director Director Director Acct. Acct. Acct. Acct. Faculty Faculty Faculty Faculty Mkt. Mkt. Mkt. Mkt. Faculty Faculty Faculty Faculty Mgt. Mgt. Mgt. Mgt. Faculty Faculty Faculty Faculty Finance Finance Finance Finance Faculty Faculty Faculty Faculty Ops. Ops. Ops. Ops. Faculty Faculty Faculty Faculty Kenan-Flagler Business School Divisional Structure

28. Advantages Increased flexibility Decreased response times Better coordination within divisions Good training for general managers President Vice-President Vice-President Vice-President Vice-President Eastern Region Southern Region Northern Region Western Region Divisional Structures

29. Disadvantages Lose economies of scale Poor coordination between divisions Lose depth of competence in some specialties Advancement outside of specialty Professional isolation President Vice-President Vice-President Vice-President Vice-President Eastern Region Southern Region Northern Region Western Region Divisional Structures

30. Corporate Offices Southwest Northwest Midwest Northeast Southeast International K-Mart Reorganization Original Structure

31. Corporate Offices West Northeast Southeast International Super Centers K-Mart Reorganization New Structure

32. Volkswagen:Restructuring from Individual Brands to Operational Divisions

33. Volkswagen:Restructuring from Individual Brands to Operational Divisions

34. Volkswagen:Restructuring from Individual Brands to Operational Divisions • Why reorganize? • To give luxury brands more independence • To make luxury brands distinct from mass brands in customers’ eyes • To reduce CEO’s span of control • To allow CEO to become more involved in operations • To add new lines/companies with less difficulty • To reduce operating costs

35. Today’s Take-aways • To be successful a structure must “fit” with the other major organizational characteristics • Functional structures work well when the organization’s environment is relatively certain and requires efficiency from the organization.

36. Today’s Take-aways • Divisional structures work well when the organization’s environment is relatively uncertain and requires responsiveness and adaptability from the organization. • But what happens when the environment demands both efficiency and adaptability? Stay tuned!

37. Next Time C & C Grocery Stores