Basic Ingredients of Organizational Structure

Key Dimensions of Organizational Structure

Specialization: Matching activities with people who are best able to perform them Found at all levels within an organization Standardization: Practices, procedures, and guidelines that provide the basis for consistent performance Focused on achieving internal order within a given structure Centralization: Delegation of authority throughout the organizations ranks

Specialization: The assignment of particular tasks and activities to those people who are best able to perform them. Standardization: The process of defining the organizations work practices and procedures so that people can repeatedly perform them at a given level or measure of performance. Centralization: The degree to which senior managers have the authority to make decision for the entire organization.

Diagram of a Typical Functional Structure

Corporate

R&D

Production/ Operations

Marketing

Sales

Service

Broad Forms of Organizational Structure Functional Structure: An organizational structure that groups managers and employees according to their areas of expertise and skills to perform their tasks.
Each function is responsible for its own set of tasks and activities. Each function has its own set of goals and objectives that require coordination with other functions.
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Key Characteristics of a Functional Structure

Advantages: Economies of scale in administrative costs/activities Good for small-sized firms Easy to identify talent Fosters high centralization of decision making Promotes high specialization Supports strategy a task and activity Disadvantages: Coordination difficulties when firm diversifies arise

Difficult for each function to accommodate needs of other functions Divergent goals and objectives based on each function Inflexible with broad-based global or multidomestic strategies Needs extensive modification to support differentiation strategies

low-cost

leadership

Supports vertical integration in a business Best for undiversified firms

Poor fit for highly diversified firms

Diagram of a Typical Product Division Structure

Corporate

Product 1

Product 2

Product 3

R&D

Production/ Operations

Marketing

Sales

Service

Product Divisions: The most basic form of product structure, in which each division houses all of the functions necessary for it to carry out its own strategy and mission. Each division is self-contained and responsible for its own products and markets it serves. Each division contains its own set of functions.
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Key Characteristics of Product Division Structure

Advantages: High autonomy of divisions for each product/business Allows for specialization based on products/markets Enhances and supports change in products needed Disadvantages: Duplicates functions within each product division Duplicates administrative and staff functions Leads to short-term thinking if not careful Promotes competition managers high between internal divisional

Allows for easy measurement of financial performance Standardizes measurement performance

Cross-functional perspective Supports highly diversified strategies (related and unrelated)

Many under invest in firms core competence and skills; discourages company-wide mega projects

Diagram of a Strategic Business Unit Structure

Corporate

SBU 1

SBU 2

SBU 3

Product 1

Product 2

Product 3

Strategic Business Unit: Form of organization that often represents larger product divisions or collections of smaller product divisions under one reporting relationship.

The SBU structure is a collection of product divisions that produce related or similar products.
Support related diversification because similar products that are grouped together share a common underlying technology, market, skill, or resource.
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Diagram of a Typical Gepgraphic Structure

Corporate

Region 1

Region 2

Region 3

Product or function

Product or function

Product or function

Geographic structures are excellent in responding to the needs of local, regional markets.
Geographic structures have their own self-contained product and/or functional structures to meet the operation and marketing needs of that regions customers. These structures promote a high level of decentralization. Geographic division: An organizational form that divides and organizes the firms activities according to where 8 operations and people are located.

Key Characteristics of Geographic Structures

Advantages: High specialization market needs High autonomy geographic units Promotes a high decentralization according from degree to Disadvantages: Duplicates functions within each region Places coordination demands on senior management Needs other support measures to ensure high quality and uniform image May not work well in fast-chaning, technologically intensive business or industries

other of

Fast response to market needs Highly flexible structure; easy to create smaller geographic units Allows for full use and development of local talent/managers Excellent support for multidomestic strategies

Diagram of a Typical Matrix Structure

Corporate

Product 1 Function 1 Function 2 Function 3 Manager Manager Manager

Product 2 Manager Manager Manager

Product 3 Manager Manager Manager

Matrix structure: An organizational form that divides and organizes activities along two or more lines of authority and reporting relationship.
Each lower-level manager reports to two bossesone product division superior and one functional superior. Although they promote technology sharing, matrix structures are extremely costly and difficult to manager. Matrix structures lost favor over the 1980s; most companies that adopted them ultimately switched to another 10 structure.

Key Characteristics of Matrix Structures

Advantages: Promotes sharing of key resources and skills Enhances fast change and flexibility Helps when resources are scarce Allows for transfer and movement of people High specialization activities and products along key Disadvantages: Very high cost structure Slows down decision making in practice Lower-level managers often unable to feel comfortable in this structure High tension and stress Could generate conflict between superiors who are the arms of the matrix

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Diagram of an International Division Structure

Corporate

Product 1

Product 2

Product 3

International Division

Region 1

Region 2

Region 3

International division structures are excellent to support a firms early global expansion efforts. These structures promotes a high level of specialization for overseas knowledge and activities.

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Characteristics of the Network Organization

Semipermeable Boundaries:
Looser organizational walls Faster information flow among subunits

Alliances and Partnering:

Divide up the industry value chain Specialize among partners Focus on Core Processes/Technologies: Specialization along a core activity Redefining ways to create value in core activity

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