Lawrence & Lorsch (1967): Differentiation,

Integration and the Environment

Investigated how companies in different

industries differentiate and integrate
their structures to fit the environment

Findings: Lawrence & Lorsch

When environment is perceived as more
unstable and uncertain:
Effective organizations are less formalized,
more decentralized, and rely more on mutual
adjustment

When environment is perceived as stable

and certain:
Effective organizations have a more
centralized, standardized, and formalized
structure
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Organizational Design

The process by which managers select and

manage aspects of structure and culture so that
an organization can control the activities
necessary to achieve its goals

Appex Corporation

Functional Structure
A functional structure is a design that groups
people on the basis of their common skills,
expertise, or resources they use
Functional structure is the bedrock of horizontal
differentiation
An organization groups tasks into functions to
increase the effectiveness with which it achieves its
goals

Functional Structure: Advantages

Provides people with the opportunity to learn from
one another and become more specialized and
productive
People who are grouped together by common skills
can supervise one another and control each others
behavior
People develop norms and values that allow them
to become more effective at what they do

Functional Structure: Possible Problems

Communication Problems: as more organizational
functions develop, each with their own hierarchy,
they become increasingly distant from one another
Measurement Problems: information needed to
measure the profitability of any functional group is
difficult to obtain

Functional Structure: Possible Problems

Customer Problems: the ability to identify and
satisfy customer needs may fall short and sales are
lost
Strategic Problems: top managers spend too much
time finding ways to improve coordination that
they have not time to address the longer term

Functional Structure: Solving the

Control Problem
Managers can solve control problems by
redesigning the functional structure to increase
integration between functions

From Functional to Divisional Structure

Functional structure is appropriate if the
organization:
Limits itself to producing a small number of
similar products
Produces those products in one or a few
locations
Sells them to only one general type of client or
customer

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From Functional to Divisional Structure

(contd..)
As organizations grow, they produce more
products and serve many different types of
customers
A new structure is needed that will
Increase managers control of individual
subunits
Integrate the operation of the whole company
and ensure subunits are meeting organizational
goals
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Moving to a Divisional Structure

Organizations most commonly adopt the divisional
structure to solve control problems that arise with
too many products, regions, or customers
The type of divisional structure depends on the
problem to be solved
Divisional structure creates smaller, more
manageable subunits and takes one of these forms:
Product structure
Geographic structure
Market structure
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Divisional Structure I: Product Structure

A divisional structure in which products (goods or
services) are grouped into separate divisions
according to their similarities or differences
Organizations need to decide how to coordinate its
product activities with support functions
Support functions can be centralized at the top of
the organization, or,
Multiple sets of support functions, one for each
product division

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Product Structure
A divisional structure in which products (goods or
services) are grouped into separate divisions
according to their similarities or differences
Organizations need to decide how to coordinate its
product activities with support functions
Support functions centralized at the top of the
organization, or,
Multiple sets of support functions, one for each
product division

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Product Division Structure at Heinz

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Product Division Structure

Commonly used by food processors, furniture
makers companies that make products that are
broadly similar and use the same set of support
functions
Each division has its own hierarchy and is headed
by a product division manager (PDM)
Role of PDM increases vertical differentiation

Having separate divisions increases horizontal

differentiation

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Product Division Structure: Role of PDM

Each division has its own hierarchy and is headed
by a product division manager
Each PDM is responsible for his/her own divisions
product
PDM also coordinates with central support
functions

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Multidivisional Structure

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Multidivisional Structure
Multidivisional structure: structure in which each
product divisions has its own set of support
functions
Most Fortune 500 companies use a multidivisional
structure

Corporate headquarters staff: responsible for

overseeing the activities of the managers heading
each division
Allows a company to operate in many different
businesses
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Product Division Structure vs.

Multidivisional Structure
Corporate HQs and self-contained divisions in
Multidivisional; not there in product division
Product division can only be used to control the
activities of a company operating in one business or
industry
Multidivisional structure allows operation in many
different businesses
Each division in a multidivisional structure is
essentially a different business
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Multidivisional Structure With Each

Division Having a Different Structure

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Multidivisional Structure
Three main levels of management: Corporate
managers, divisional managers, functional
managers
Provides increased control corporate managers
monitor the performance of divisional managers
Each division is its own profit center individual
divisions profitability can be clearly evaluated
Facilitates an internal labor market most able
divisional managers are promoted to become
corporate managers
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Multidivisional Structure: Disadvantages

Managing the corporate-divisional relationship
Coordination problems between divisions
Bureaucratic costs expensive to operate

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Product Team Structure

(Ex: Hallmark Cards)

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