Management Asia-Pacific 6th Edition

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Chapter 10
Designing organisation structure
Learning objectives
After studying this chapter, students should be able to:
1 discuss the fundamental characteristics of organising the vertical structure of
organisations and explain concepts such as work specialisation, chain of
command, span of management and centralisation versus decentralisation
2 describe the ways that organisations are often departmentalised, with focus
given to the different functional and divisional approaches to structure
3 explain the matrix approach to structure and its application to both domestic
and international organisations
4 describe the contemporary team and virtual network structures and why they
are being adopted by organisations
5 explain why organisations need coordination across departments and
hierarchical levels, and describe mechanisms for achieving coordination
6 identify how structure can be used to achieve an organisation’s strategic goals
and define production technology, and explain how it influences organisation
structure.

Chapter outline
Organising is the deployment of organisational resources to achieve strategic goals. This
can be seen in the organisation’s division of labour into specific departments and jobs,
formal lines of authority and mechanisms for coordinating diverse organisational tasks.
Reorganisation is often necessary to reflect a new strategy or to deal with changing
market conditions or innovative technology. For example, many companies have found
a need to make structural changes compatible with use of the Internet for e-business,
which requires stronger horizontal coordination.

Organising the vertical structure

The organising process leads to the creation of the organisation structure, which
defines the way tasks are divided and resources deployed. Organisation structure is
defined as:
1 the set of formal tasks assigned to individuals and departments
2 formal reporting relationships, including lines of authority, decision
responsibility, number of hierarchical levels and span of managers’ control

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3 the design of systems to ensure effective coordination of employees across
departments.
The organisation chart is a visual representation of an organisation’s structure. A
sample organisation chart is illustrated in Exhibit 10.1.
Work specialisation
Work specialisation, sometimes called division of labour, is the degree to which
organisational tasks are subdivided into separate jobs. Specialisation is a fundamental
principle of organising. Production is efficient because employees perform small, well-
defined tasks. Employees can be selected by ability and attitude, and can acquire
expertise in their tasks. The organisation achieves standardisation across tasks. When
specialisation is carried to an extreme, however, workers tend to become bored and
alienated, and this is often accompanied by reduced productivity and work quality.
Many organisations are moving away from this principle by enlarging jobs to provide
greater challenges or assigning teams to tasks so employees can rotate among the
several jobs performed by the team.
Chain of command
The chain of command is an unbroken line of authority that links all persons in an
organisation and indicates who reports to whom. Two underlying principles of the chain
of command are:
• unity of command. Each employee is held accountable to only one supervisor.
• scalar principle. There is a clearly defined line of authority in the organisation that
includes all employees.
Authority, responsibility and delegation
The chain of command illustrates the authority structure of the organisation. Authority
is the formal and legitimate right of a manager to:
• make decisions
• issue orders
• allocate resources to achieve organisational outcomes.
Authority is distinguished by three characteristics:
1 Authority is vested in organisational positions, not people. Managers have
authority because of the positions they hold.
2 Authority is accepted by employees. Employees comply because they believe
managers have a legitimate right to issue instructions.
3 Authority flows down the vertical hierarchy. Positions at the top are vested with
more formal authority than those at the bottom.
Responsibility is the duty to perform the task or activity an employee has been
assigned. Typically, managers are assigned authority commensurate with responsibility.
Accountability aligns authority and responsibility – those with authority and
responsibility are subject to reporting and justifying task outcomes to those above them
in the chain of command.
Delegation is the process managers use to transfer authority and responsibility to
positions below them in the hierarchy. Many of today’s organisations encourage
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managers to delegate authority to the lowest possible level to gain flexibility to meet
customer needs and adapt to the environment.
Line and staff authority
The use of the terms line authority and staff authority reflect whether managers work in
line or staff departments in the organisation’s structure. Line departments perform
tasks that reflect the organisation’s primary goal and mission. Line authority means that
managers have formal authority to direct and control immediate subordinates. Staff
departments include all those who provide specialised skills in support of line
departments. Staff authority is generally narrower than line authority and includes the
right to advise, recommend and counsel in the staff specialists’ area of expertise.
Span of management
The span of management, or span of control, is the number of employees reporting to a
supervisor. This determines how closely a supervisor can monitor subordinates.
Traditional views recommend a span of management of seven subordinates. Today,
many lean organisations have spans of management of 30, 40 and even higher. The
following factors are associated with less supervisor involvement and thus a larger span
of control:
1 Work performed by employees is stable and routine.
2 Employees perform similar work tasks.
3 Employees are concentrated in a single location.
4 Employees are highly trained and need little direction in performing tasks.
5 Rules and procedures defining task activities are available.
6 Support systems and personnel are available for the manager.
7 Little time is required in non-supervisory activities.
8 Managers’ personal preferences and styles favour a large span.
Tall versus flat structure
The average span of control used in an organisation determines whether the structure is
tall or flat. A tall structure has an overall narrow span of management and a relatively
large number of levels in the hierarchy. A flat structure has a wide span, is horizontally
dispersed and has relatively few hierarchical levels. The trend is towards wider spans of
control in order to facilitate delegation. Having too many hierarchical levels and narrow
spans of control is a common structural problem for organisations (see Exhibit 10.2)
which illustrates a reorganisation to increase span of management).
Centralisation and decentralisation
These concepts pertain to the hierarchical level at which decisions are made.
Centralisation means decision authority is located near the top of the organisation.
With decentralisation, decision authority is pushed down the chain of command to
lower organisation levels. Over the past 30 years, the trend has been towards greater
decentralisation, which tends to:
• make greater use of workers’ skills and abilities
• relieve the burden on top managers
• cause decisions to be made close to the action by well-informed people

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• permit more rapid response to external changes.
Factors that influence whether an organisation employs centralisation or
decentralisation are:
• the amount of change and uncertainty in the environment. Greater change and
uncertainty in the environment are usually associated with decentralisation.
• corporate strategy and culture. The amount of centralisation or decentralisation
should fit the organisation’s strategy.
• organisation size
• the cost and risk of failure in times of crisis. In times of crisis or risk of organisation
failure, authority may be centralised at the top.
Formalisation is the written documentation used to direct and control employees.
Written documentation includes rulebooks, policies, procedures, job descriptions and
regulations. Although written documentation is intended to be rational and helpful to
the organisation, it often creates more problems than it solves. Many organisations
today are becoming less formal in order to be flexible and responsive to a changing
global environment.

Departmentalisation
Departmentalisation is the basis for grouping positions into departments and
departments into the total organisation. Managers make choices about how to use the
chain of command to group people together to perform their work. The basic difference
among structures is the way employees are departmentalised and to whom they report.
The following five approaches to structural design (see Exhibit 10.3) reflect different
uses of the chain of command in departmentalisation:
1 vertical functional approach. People are grouped together into departments by
common skills and work activities, such as in an engineering department or an
accounting department.
2 divisional approach. Departments are grouped together into separate, self-
contained divisions based on common product, program or geographical area.
3 horizontal matrix approach. Functional and divisional chains of command are
implemented simultaneously and overlay one another in the same departments.
4 team-based approach. The organisation creates a series of teams to accomplish
specific tasks and to coordinate major departments.
5 network approach. The organisation becomes a small, central hub electronically
connected to other organisations that perform vital functions.
Vertical functional approach
Functional structure is the grouping of positions into departments based on similar
skills, expertise and resource use (see Exhibit 10.4). People and facilities representing a
common organisational resource are grouped together into a single department.
• Advantages include:
– efficient use of resources and economies of scale
– in-depth skill specialisation and development

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 – career progress within functional departments
– top manager direction and control
– excellent coordination within functions
– high-quality technical problem solving.
• Disadvantages reflect the barriers that exist across departments and include:
– poor communication across functional departments
– slow response to external changes and lags in innovation
– decisions concentrated at top of hierarchy, creating delays
– difficulty pinpointing responsibility for problems
– limited view of organisational goals by employees
– limited general management training for employees. See Exhibit 10.5 for
advantages and disadvantages of functional structures.
Divisional approach
The divisional approach is sometimes called a product structure, program structure or
self-contained unit structure. The divisional structure (see Exhibit 10.6) occurs when
departments are grouped together based on organisational outputs. In the divisional
structure, divisions are created as self-contained units for producing a single product.
Diverse departments are brought together to produce a single organisational output.
Geographic or customer-based divisions
In the geographic or customer-based division structure (see Exhibit 10.7), all functions in
a specific country or region report to the same division manager. This structure focuses
organisation activities on local market conditions.
• Advantages include:
– fast response and flexibility in an unstable environment
– concern for customer’s needs
– excellent coordination across functional departments
– easy pinpointing of responsibility for product problems
– emphasis on overall product and division goals
– development of general management skills.
• Disadvantages include:
– duplication of resources across divisions
– less technical depth and specialisation in divisions
– poor coordination across divisions
– less top management control
– competition for corporate resources (see Exhibit 10.8).

Matrix approach
The matrix approach combines aspects of both functional and divisional structures
simultaneously in the same part of the organisation. The matrix has dual lines of
authority (see Exhibit 10.9). The functional hierarchy of authority runs vertically. The
vertical structure provides traditional control within functional departments. The

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divisional hierarchy runs horizontally. The horizontal structure provides coordination
across departments.
The matrix structure, therefore, provides a formal chain of command for both the
functional and divisional relationships. The two-boss employees, those who report to
two supervisors simultaneously, must resolve conflicting demands from the matrix
bosses. The matrix boss is the product or functional boss who is responsible for one side
of the matrix. The top leader oversees both the product and functional chains of
command and is responsible for the entire matrix.
The problem for global organisations is to achieve simultaneous coordination of
various products within each country or region and for each product line. An example of
a global matrix structure is illustrated in Exhibit 10.10.
• Advantages include:
– more efficient use of resources than in single hierarchy organisations
– flexibility and adaptability to changing environment
– development of both general and specialist management skills
– interdisciplinary cooperation, so expertise is available to all divisions
– enlarged tasks for employees.
• Disadvantages include:
– frustration and confusion from dual chain of command
– high conflict between two sides of matrix
– many meetings and more discussion than action
– human relations training needed
– power domination by one side of the matrix (see Exhibit 10.11).
Many organisations have found that their strategy and operations evolve to the point
where no single ‘pure’ structural type best fits their needs. Organisations come in an
amazing number of different shapes and sizes, with different goals, strategies,
technologies, cultures, products and services, and markets that they serve. Therefore, it
is no surprise that organisations’ structures also are of many varieties, and these can
usually be considered as hybrids of the ‘pure’ forms of functional structure, divisional
structure and others.

Team-based approach
The team-based approach is probably the most widespread trend in
departmentalisation. The vertical chain of command is a powerful means of control, but
passing all decisions up the hierarchy takes too long and keeps responsibility at the top.
Organisations are trying to find ways to:
• delegate authority
• push responsibility to lower levels in the organisation
• create participative teams that gain the commitment of workers.
Cross-functional teams consist of employees from various functional departments
that meet as a team to resolve mutual problems. Team members typically still report to
their functional departments and also report to the team.

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 Some organisations have created permanent teams, groups of employees who are
brought together in a way similar to a formal department. Each team brings together
employees from all functional departments, and the emphasis is on horizontal
communication and information sharing because representatives from all functions are
coordinating their work and skills to complete a specific organisational task. Authority is
pushed down to lower levels, and front-line employees are often given the freedom to
make decisions and take action on their own. Team members may share or rotate team
leadership. With a team-based structure, the entire organisation is made up of
horizontal teams that coordinate their work and work directly with customers to
accomplish the organisation’s goals.
• Advantages include:
– some advantages of functional structure
– reduced barriers among departments and increased compromise
– less response time and quicker decisions
– better morale and enthusiasm from employee involvement
– reduced administrative overhead.
• Disadvantages include:
– dual loyalties and conflict
– time and resources spent on meetings
– unplanned decentralisation (see Exhibit 10.12).
Virtual network approach
The network structure (see Exhibit 10.13) means that the firm subcontracts many of its
major functions to separate organisations and coordinates their activities from a small
headquarters organisation. The nature of the network structure means that
subcontractors flow into and out of the system when needed. A further development of
the network is the virtual network organisation. The network approach is revolutionary
because it is difficult to answer the question, ‘Where is the organisation?’ in traditional
terms. This organisational approach is especially appropriate for international
operations. The network approach allows organisations to concentrate on what they do
best and outsource the rest.
• Advantages include:
– global competitiveness
– workforce flexibility and challenge
– reduced administrative overhead.
• Disadvantages include:
– no hands-on control
– can lose organisational part
– weakened employee loyalty (see Exhibit 10.14).
A similar approach to networking is the modular approach, in which a manufacturing
company uses outside suppliers to provide entire chunks of a product, which are then
assembled into a final product by a handful of workers.

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Organising for horizontal coordination
One reason for the growing use of teams and networks is that many managers recognise
the limits of traditional vertical organisation structures in a fast-shifting environment. In
general, the trend is towards breaking down barriers between departments, and many
companies are moving towards horizontal structures based on work processes rather
than department functions. Regardless of the type of structure, every organisation
needs mechanisms for horizontal integration and coordination.
The need for coordination
Coordination refers to the quality of collaboration across organisational departments.
Coordination is required regardless of whether the organisation has a functional,
divisional or team structure. Employees identify with their immediate department and
may not want to collaborate with other units for the good of the organisation as a
whole. Some of the key mechanisms for achieving coordination include re-engineering,
task forces, project managers and horizontal teams.
Many organisations reorganise into permanent teams after going through a process
of re-engineering, which is the radical redesign of business processes to achieve
dramatic improvements in cost, quality, service and speed. Because the focus is on
process rather than function, re-engineering often leads to a shift away from a vertical
structure to one emphasising teamwork and empowerment (see Exhibit 10.15).
Task forces, teams and project management
Innovations that work within the vertical structure but provide a means to increase
cross-functional communication and cooperation are:
• task forces
• teams
• project managers.
A task force is a temporary team or committee designed to solve a short-term
problem involving several departments. Task force members represent their
departments and share information that enables coordination.
In addition to creating task forces, organisations also set up teams. A team is a group
of participants from several departments who meet regularly to solve ongoing problems
of common interest.
Organisations also use project managers to increase coordination between
functional departments. A project manager is a person who is responsible for
coordinating the activities of several departments for the completion of a specific
project, and in some organisations, project managers are included on the organisation
chart (see Exhibit 10.16).
Relational coordination
Relational coordination refers to the frequent horizontal coordination and
communication carried out through ongoing relationships of shared goals, shared
knowledge and mutual respect. To build relational coordination into the fabric of the
organisation, managers invest in training people in the skills needed to interact with one

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another and resolve cross-departmental conflicts based on shared goals rather than
emphasising their separate departments’ goals.

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Factors shaping structure
The following contingency factors influence whether an organisation structure is rigid or
flexible:
• strategy
• environment
• production technology (see Exhibit 10.17).
The optimum structure is designed to fit the contingency factors.
Structure follows strategy
Porter proposed two competitive or business-level strategies that organisations can
adopt:
1 differentiation. The organisation attempts to develop innovative products
unique to the market. Strategic goals include differentiation, innovation and
flexibility.
2 cost leadership. The organisation strives for internal efficiency. Strategic goals
include cost leadership, efficiency and stability.
The strategies of differentiation or cost leadership require different structural
approaches so managers try to pick strategies and structures that are compatible. How
structural approaches are associated with strategic goals is shown in Exhibit 10.18 and
include:
• functional structure. The most appropriate structure for achieving internal efficiency
goals, the functional structure uses task specialisation and chain of command to gain
efficient use of scarce resources.
• matrix structure. This structure uses two chains of command: a functional hierarchy
to promote efficiency and a product hierarchy to promote innovation and
coordination.
• divisional structure. This structure promotes differentiation so each division can
focus on specific products and customers.
• team structure. This structure is appropriate when the primary goal is innovation
and flexibility because it enables organisations to differentiate themselves and
respond quickly to the demands of a shifting environment.

Organising for sustainable development

Structure generally follows strategy, and from a sustainability point of view, such a
strategy would involve strong stakeholder engagement, values that include social and
environmental outcomes as well as financial performance, broad involvement of
employees and a bundling of these issues into a long-term vision for the organisation.
Depending on its growth cycle, a work plan needs to take these strategies forward
broadening performance measures and developing a long-term focused culture.
Organising for this work and change requires leadership from the centre and top of the
organisation, as well as widespread implementation and decision making. Structurally,
there could be strong need for a centrally appointed person or group who is in charge of

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and accountable for the formulation and implementation of the progress towards broad
and mature sustainable development across the organisation.

Teaching tip
• The New Manager Self-Assessment entitled: ‘What are your leadership beliefs?’
could be modified to give students an indication of their preference for a
mechanistic or organic structure. That is, change the instructions to ‘answer the
following questions by rating the statement according to the extent to which it
accurately describes your views’.

Discussion questions
1 Sandra Holt, manager of Electronics Assembly, asked Hector Cruz, her senior
technician, to handle things in the department while she worked on the budget.
Sandra needed peace and quiet for at least a week to complete her
figures. After 10 days, Sandra discovered that Hector had hired a senior secretary,
not realising that Sandra had promised interviews to two other people. Evaluate
Sandra’s approach to delegation.
Students should use the information in the Management in Practice box to evaluate
Sandra’s approach to delegation. The guidelines to effective delegation provided
there include:
a Delegate the whole task. By not telling Hector about the interviews she had
promised, Sandra appears to have delegated only some of the activities
involved in looking after the department.
b Select the right person. We can only assume that Hector is the right person as
he is Sandra’s senior technician. Hector is certainly not afraid of taking on more
responsibility and making decisions.
c Ensure that authority equals responsibility. Hector appears to have been
given both authority and responsibility as he had no problem in completing the
hiring process.
d Give thorough instructions. Unfortunately, Sandra appears to have told Hector
only part of the story. If Sandra wanted the other two people interviewed
before the decision was made, she should have told Hector.
e Maintain feedback. Open lines of communication do not appear to have been
maintained because Sandra did not find out about the hiring until 10 days
later. There is no information of how well Sandra evaluated and rewarded
Hector’s performance.
2 If you wanted to add a group of big data scientists to a large organisation, such as
Coles Group Ltd, would you centralise the scientists in a central pool at headquarters
or decentralise them to separate divisions? Discuss your reasons.
Decentralisation can help to ensure that decisions are made at the right level, lower-
level employees are motivated, and employees can develop decision-making skills.

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 On the other hand, centralisation can help some operations to eliminate duplication.
Data analytics is one area where having the scientists centralised in one location,
able to talk together and assess the central databases of information may have some
advantage. For Coles, the decision will be a trade-off around whether there is lots of
change and uncertainty in the environment (in which case decentralisation of the
scientists may help); whether centralisation may give top executives more control
over essential operational aspects; and whether there is a compelling crisis or risk
being confronted (in which case centralisation can be of benefit to enable swift and
decisive responses).
3 Contrast centralisation with span of control. Would you expect these characteristics
to affect one another in organisations? Why?
Span of control is the number of employees reporting to a supervisor. An
organisation tends to be characterised as having either a large or small span of
control. Centralisation means that decision authority is located near the top of the
organisation. Span of control and level of centralisation can be related in
organisations. For example, one way to decentralise decision authority is to increase
the span of control. This will decrease the levels, and each manager will have
additional subordinates, making it difficult to pass every decision up the hierarchy
and giving subordinates more autonomy. If an organisation wishes to centralise
decision authority, a smaller span of control throughout the organisation would
create additional levels and could reinforce the desire to pass decisions to the top.
4 Would you expect the structure of a company such as Facebook, which operates
almost entirely online, to differ from the structure of a bricks-and-mortar company,
such as Bunnings, which uses the Internet only for some things, such as customer
service and online retail? Why or why not?
Exhibit 10.13 shows the virtual structure which is most closely aligned with how
Facebook is established. A networked company can concentrate on what it does
best and contract out other activities to companies with distinctive competence in
those specific areas. The nature of the virtual network structure means that
subcontractors flow into and out of the system when needed. Bunnings deals with
physical goods that are stored and sold in many different physical locations, so a
different structure than Facebook’s enables its strategy to be fulfilled.
5 The divisional structure is often considered almost the opposite of a functional
structure. Do you agree? Briefly explain the major differences in these two
approaches to departmentalisation.
The underlying purpose of the functional structure is the efficient use of resources.
Human resources are grouped together in large functional departments to achieve
economies of scale and in-depth skill specialisation and development. The functional
structure is excellent for a stable environment and for achieving high-quality
technical problem solving. The divisional structure has the opposite purpose: it
provides a fast response in an unstable environment. Efficiency and economy of
scale are less important than excellent coordination across departments and

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 effectiveness in serving customers’ needs. The emphasis is on the overall product
and division goals rather than on functional expertise. Thus, the two structures
achieve different goals, with the functional structure providing great internal
efficiency but poor responsiveness and the divisional structure providing excellent
responsiveness but poor internal efficiency.
6 The Hay Group published a report that some managers have personalities suited to
horizontal relationships such as project management that achieve results with little
formal authority. Other managers are more suited to operating roles with much
formal authority in a vertical structure. In what type of structure – functional,
matrix, team or virtual network – do you believe your personality would best fit?
Which structure would be the most challenging for you? Give your reasons.
Project managers usually have responsibility for coordination and communication
with their team members, but do not have line authority over functional employees.
Managers who depend on their position for authority would find the role of project
manager more difficult.
Students should be encouraged to complete the New Manager Self-Assessment.
Invite them to reveal their beliefs about authority and discuss these in relation to
their experiences in their part-time jobs. Authoritarian beliefs, for example, typically
fit in a traditional vertical hierarchy, whereas flexible authority beliefs typically fit
with horizontal organising such as managing teams, projects and re-engineering.
7 What is the network approach to structure? Is the use of authority and responsibility
different compared with other forms of departmentalisation? Explain.
In the network approach, the organisation becomes a small central hub or broker
that is electronically connected to other organisations that perform vital functions.
Each department is an independent contracting service to the broker for a profit and
can be located anywhere. The central broker, or headquarters, has only contractual
arrangements with the departments and, therefore, very little authority. Total
responsibility for the component of the product or service is given to each
department, and each has complete authority over its own operation. The major
difference is that the headquarters has very little control over the departments and
cannot exercise authority over them very well.
8 Why are divisional structures frequently used in large organisations? Does it make
sense for a huge company such as Singapore Airlines to stay in a functional
structure?
The divisional structure involves some duplication of resources because the
organisation has multiple manufacturing, marketing and engineering departments –
one in each division. Large organisations have sufficient resources to populate
several divisions. Indeed, each division itself is large enough to achieve economies of
scale. General Motors, for example, easily has enough resources for separate
manufacturing, marketing and design departments in each automobile division.
Huge organisations like GM would be very difficult to manage within a functional
structure. There would be literally thousands of engineers in the engineering
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 department and perhaps tens of thousands of people in the manufacturing
department. The divisional structure, characterised by self-contained divisions,
allows the organisation to be more easily controlled.
Singapore Airlines is in the type of industry in which a functional structure still
makes sense. Its facilities are spread out in far-flung locations, which make the
formulation of divisions impractical. A division at each location would be so small as
to lose all economies of scale. Another factor is the nature of the offering by
Singapore Airlines. The offering is basically a service that must be standardised in all
its locations. The competitiveness of the airlines industry, due to deregulation,
makes it essential that every airline become as efficient as possible. The duplication
of resources of the divisional structure would lessen this efficiency.
9 An international matrix structure tends to be organised by product divisions and
geographic regions. Why would these two chains of command be used rather than
product and function, as in domestic organisations? Explain.
The international matrix structure is generally organised by product division and
geographic region because coordination needs are greatest for geography and
product lines in international business. The combination of product and geographic
structure allows close coordination of activities and flexibility in reacting to changing
markets, political or economic conditions. This can be especially crucial when
organisations are located in foreign countries. Localised decision making frees top
executives, who may be some distance from the situation, to concentrate on overall
strategy, and it allows quick response to external changes, which would be difficult
under a centralised functional structure.
10 Experts say that organisations are becoming increasingly decentralised, with
authority, decision-making responsibility and accountability being pushed farther
down into the organisation. How will this trend affect what will be asked of you as
a new manager? The chapter suggested that structure should be designed to fit
strategy. Some theorists argue that strategy should be designed to fit the
organisation’s structure. With which theory do you agree? Explain.
Such a trend arguably means that new managers will be asked to take on more
important responsibilities at an earlier stage of their careers than would have
happened previously. That is, there might be no ‘apprenticeship’ period for new
managers. Consequently, this will put pressure on the organisation to ensure that
new managers have the support and training to take on added responsibilities and
pressure, thus helping them to overcome their inexperience.
The second part of this question is designed to stimulate student discussion and
encourage them to reflect on the dynamics of the relationship between an
organisation’s strategy and its structure. Alfred Chandler examined the structural
evolution of 70 large companies over a number of decades and generally concluded
that structure follows strategy as a company grows (in Strategy and Structure, MIT
Press, Cambridge, Mass., 1962). Chandler argued that structural changes must be
made to allow company resources to be managed effectively according to the
changing market conditions that growth necessarily engenders. WM Cannon noted
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 that ‘(n)either strategy nor structure can be determined independently of the other.
If structure cannot stand alone without strategy, it is equally true that strategy can
rarely succeed with an appropriate structure’ (in ‘Organization Design: Shaping
Structure to Strategy’, McKinsey Quarterly, Summer 1972, p. 30).
Strategy implementation necessarily involves the allocation of roles and
responsibilities related to various facets of the strategy to different managers and
departments within the organisation. These roles and responsibilities, as well as
reporting relationships, are defined in the organisation’s structure. In this sense, it
can be argued that strategy is put into practice through structure. Given an
organisation’s strategy, if the existing structure is unsuitable, then a new
organisational structure may have to be designed. For example, a company pursuing
a low-cost strategy needs to design a structure with a low level of bureaucratic costs,
which have a positive relationship with the level of complexity of an organisational
structure. Consequently, organisations pursuing a low-cost strategy normally design
a functional structure, which is relatively inexpensive to operate. On the other hand,
a company pursuing a differentiation strategy usually designs a more complex
structure. The differentiating company is less concerned with bureaucratic costs
because these can be recovered through the higher prices it is able to charge for its
differentiated products.
Strategy and structure are inextricably linked. If the organisation is new, the
argument for adapting structure to strategy is arguably stronger. For an already
existing organisation, the argument for adapting strategy to structure is arguably
stronger. However, it may not be feasible to make exponential changes to strategy if
massive changes to structure are needed. (Although if the organisation is at severe
risk of failure, a re-engineering process may be undertaken that would likely involve
significant structural changes.) The major point for students to understand is that
structure and strategy must be compatible, regardless of which comes first.

11 Describe the primary differences between manufacturing and service technology.

How do these differences influence the type of structure that will be most effective?
Service technology is characterised by having intangible outputs which are either
consumed immediately or lost forever. By comparison manufacturing technology
delivers products that are produced at one point in time and can be stored until sold
at another time. Woodward’s research into manufacturing technology showed how
the focus of the technology would affect the structure of the manufacturing
organisation. Exhibit 10.19 has the details of the research indicating the types of
structural features that suit the different manufacturing technology types. One
distinct feature of service technology that directly influences structure is the need
for employees to be close to the customer. Structural characteristics for maximising
effectiveness of service technology are similar to those for continuous
manufacturing technology shown in Exhibit 10.19.

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Ethical challenge
A matter of delegation
Tom Harrington is in a tough position. He feels loyalty to his boss, but he is also
concerned about product safety and the reputation of Rockingham Toys. Option 2
would clearly be unethical – Harrington is aware of the safety guidelines, which have
been devised to ensure the safety of children, so it is not a question of simply minding
his own business, despite his fears for his job. Option 1, which summarises the
guidelines for Golopolus and recommends implementation, may have no effect on the
situation. Golopolus is already aware of the guidelines and has not done anything about
them as yet. The operations manager is ultimately responsible for whether
Rockingham’s Toys meet product safety guidelines, and he needs to be aware of what
those guidelines are and to comply with them. Even though Harrington may feel that it
is unlikely to have an effect, preparing a memo is still the right thing to do initially. If
Harrington is correct in his belief that Golopolus is ‘in over his head’, his boss may
appreciate being able to discuss the situation with Harrington and devising a solution
together.
If option 1 does not resolve the situation, Harrington will need to consider option 3.
By sending the reports to the operations manager anonymously, Harrington does not
have to criticise his boss or accuse him of wrongdoing. However, he is making sure that
higher level managers are aware of the new safety standards. Tom is right that he does
not have the authority to monitor the government safety regulations, but the
operations manager does have that authority and will have to act. Students may also
want to consider whether sending the reports anonymously is the right thing to do, or
whether Harrington should instead request a meeting with both Golopolus and the
operations manager.

Group challenge
Family business
Functional structure is the grouping of positions into departments based on similar
skills, expertise and resource use. People and facilities representing a common
organisational resource are grouped together into a single department.
The order in which students rank the departmental functions (Step 3) based on
assigning additional resources to improve future business (Step 2) will depend on their
limited knowledge of each function. When discussing the rank and reasoning in Step 4,
students will begin to have a better understanding of the importance that their peers
place on the functions listed and how these differ from their own list (Step 5).

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Case for critical analysis
Coles
1 Based on the information available in the case, sketch a picture of the organisational
structure after the rapid growth following WWII. What type of structure is this?
Explain.
While there is very little information in the case itself, the early version of Coles
could be described by some students as a functional structure. The modern version
of Coles could be framed as an example of a divisional approach. Figure 10.8
includes chart examples that can be used to develop organisational charts of both
types. The divisional structure occurs when departments are grouped together
based on organisational outputs. In the divisional structure, divisions are created as
self-contained units for producing a single product (meat, produce, grocery). Diverse
departments are brought together to produce a single organisational output.
Traditionally, with a geographic or customer-based division structure, all
functions in a specific country or region report to the same division manager. As
outlined below, all store managers report to their relevant district managers who in
turn report to the regional manager.

2 Based on the information available in the case, sketch a picture of the organisational
structure following the adoption of modern technologies (such as the Internet) and
diversified products (such as service stations). Has the original type of organisation
structure changed? Explain.
While the case detail is limited, it is known that Coles is one division of Wesfarmers
and Coles itself is divisional in its structure. Exhibit 10.8 includes an example of how
to draw a divisional structure.

3 Should Coles consider an alternative structure? What types of factors would need
to exist or emerge to make changing the organisation’s current structure a priority?
• Advantages of the divisional approach include:
− fast response and flexibility in an unstable environment
− concern for customer’s needs
− excellent coordination across functional departments
− easy pinpointing of responsibility for product problems
− emphasis on overall product and division goals
− development of general management skills.
• Disadvantages of the divisional approach include:
− duplication of resources across divisions
− less technical depth and specialisation in divisions
− poor coordination across divisions
− less top management control
− competition for corporate resources.
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 • Advantages of the matrix approach include:
− more efficient use of resources than in single hierarchy organisations
− flexibility and adaptability to changing environment
− development of both general and specialist management skills
− interdisciplinary cooperation and expertise available to all divisions
− enlarged tasks for employees.
• Disadvantages of the matrix approach include:
− frustration and confusion from dual chain of command
− high conflict between two sides of the matrix
− many meetings and more discussion than action
− human relations training needed
− power domination by one side of matrix.
It is too early to tell whether the matrix approach will be a better fit for the firm,
but from what the case outlines (tension, frustration and no autonomy with the
divisional approach), it is believed that a matrix approach will yield better long-term
results for Abraham’s Grocery.
Student recommendations may vary. Any decision about structure has to be
mindful that it defines the way tasks are divided and resources deployed. The
strategy of the organisation is facilitated by the structure and the structure likewise
affects how the strategy may or may not be achieved.

On the job video case

On the Job: Honest Tea: Designing organization structure
1 What are some of Seth Goldman’s responsibilities as “TeaEO” of Honest Tea?
Provide at least three detailed examples.
Seth is in charge of sourcing the tea, managing the production of the tea, overseeing
the bottling of the tea, and managing the distribution of the tea.
2 How does Goldman’s experience as the founder of the company influence his ability
to delegate?
As the entrepreneur who started the company and developed it according to his
vision, Seth would have difficulty delegating tasks. He tried to solve the bottling of
Honest Tea by owning and managing the bottling company. This took him away from
his mission of developing low-sugar, healthy drinks. Ultimately, he sold the company
and delegated the bottling of his products to someone else. As the company has
grown, Seth has realized that delegating decision making to lower-level managers
and employees can be highly motivating and improve speed, flexibility, and
creativity.
3 Referring to Woodward’s research on manufacturing technology and structure, how
would you categorise Honest Tea’s production? Inn what ways has this probably
influenced the company’s structure?

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 According to Woodward’s research on manufacturing technology and structure,
Honest Teas would be categorized as small-batch production. Small-batch
production firms produce goods in batches of one or a few products designed to
specification. This technology also is used to make large, one-of-a-kind products.
Honest Teas started by producing three different low-calorie products and has now
grown to produce thirty different products in batches. In small-batch manufacturing,
human beings are a large part of the process. Tea leaves are sourced in developing
nations and harvested by local agricultural workers. Then the tea drinks are
processed and bottled in the Maryland.
Small batch production companies to include Honest Teas have a structure than
is organic, low centralization, high verbal (horizontal) communication and low
written (vertical) communication as outlined in Exhibit 10. 15.

Weblinks from the chapter

Bloomberg Businessweek
http://www.businessweek.com/articles/2012-04-27/why-there-are-no-bosses-at-valve
New Statesman
http://www.newstatesman.com/blogs/economics/2012/08/valve-software-free-marketeers-
dream-or-nightmare
Caterpillar
http://s7d2.scene7.com/is/content/Caterpillar/C10005383
Recruiting Blogs
http://www.recruitingblogs.com/profiles/blogs/5-challenges-of-working-from-home
Forbes
http://www.forbes.com/sites/insead/2013/04/17/working-from-home-the-end-of-an-era/
Bloomberg
http://www.bloomberg.com/news/2013-09-26/nissan-channels-tesla-offers-free-leaf-
charging-in-texas.html
http://www.bloomberg.com/news/2013-08-29/nissan-joins-tesla-selling-california-green-
car-credits.html

Useful weblinks
Nissan
http://www.nissan.com.au (the website of Nissan, a Japanese multinational automobile
manufacturer)
Tesla Motors
http://www.teslamotors.com (the website of Tesla Motors, a US company that designs,
manufactures and sells electric cars and electric vehicle powertrain components)
Southwest Airlines
http://www.southwest.com (the website of Southwest Airlines, a major US airline and the
world’s largest low-cost carrier)
Airbus

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 http://www.airbus.com (the website of Airbus, an aircraft manufacturing division of the
Airbus Group)
Boeing
http://www.boeing.com/boeing/ (the website of Boeing, a US multinational corporation
that designs, manufactures and sells fixed-wing aircraft, rotorcraft, rockets and satellites)

New Manager Self-Assessment Teaching Notes

10.1 What are your leadership beliefs?
In this self-test, students will uncover what they believe the hallmarks of a good leader
to be. Based on the feedback they receive and their intuition, some students will find
that they believe that conceptions of leadership are very closely tied to the authority
vested in the leader by the organisational hierarchy. In such instances, leadership is
about the use of legitimate authority. Other students will identify leadership with being
a facilitator, encouraging innovation, forging relationships and empowering employees.
Students could discuss their views of effective leadership. Ask students whether
every person with power in an organisation is a leader. If not, what is the relationship
between authority and power?
10.2 Authority role models
In this activity, students are asked to reflect on their experiences as a child, and how
their parents or primary carers enacted their authority. Students should provide
examples of the permissive, flexible and authoritarian acts of their parents or carers. Ask
students to consider which form of authority was most effective in shaping their
behaviour as a child. Ask students to provide examples to support their assertions. Then,
ask students to consider whether these ways of exercising authority would translate
effectively into modern organisational settings.
10.4 Delegation
In this self-test, students are required to consider the extent to which they are
delegators – that is, whether they are inclined to trust others with work that they have
the ultimate responsibility for. By completing the self-test and receiving their scores,
students will gain some insight into their propensity to either delegate or to maintain
control over all their work.
In discussing this activity, you might ask students to consider the following
questions:
o What are the main advantages of delegating tasks to others for the delegator?
o What are the potential disadvantages of delegating tasks for the delegator?
o What are the main advantages of being a perfectionist?
o What are the main disadvantages of being a perfectionist?
o What kind of behaviour is more advantageous for the organisation? Delegation
or perfectionism?

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Case Project 10.1
Maurice is a veteran manager with Impact International (II). Recently II purchased a
small business in the printing industry. Maurice has been assigned the task of managing
this new acquisition and is currently deciding how best to design its structure. At the
moment, employees are assigned to one of three departments – sales, production and
legal defence.
a. Define span of management and explain if there is an ideal span of management
in this case?
b. In determining Maurice’s span of management, what factors should he consider?
c. What are some of the factors that Maurice should consider in the analysis of
whether the new division should be centralised or decentralised?
d. Current departmentalisation of Maurice's new division can be characterised
primarily as what approach?
e. If Maurice organises with a horizontal matrix structure, what are some of the
potential advantages that he could anticipate?

Case Project 10.2

You have been contracted by a well-established multinational corporation to review
their corporate strategy. Over the past 12 months, you are told that the corporation’s
market share and profitability have fallen by 35 per cent, and that the cause is related to
the firm losing touch with the needs of their customers. On closer inspection, you note
that the majority of this lost market share and profit has been to new and innovative
entrepreneurial companies that are better able to respond to quickly changing market
conditions.
Provide some preliminary thoughts about the questions you might make about
the company’s structure and lines of authority.

Case Projects – Suggested Solutions

Case Project 10.1
a. The span of management, or span of control, is the number of employees who
report directly to one supervisor. There is no ideal span of management. The
number depends upon several characteristics of the situation including the
nature of the work done by the subordinates, the locations where the work is
done, the training and education of the workers, the level of definition of the
task, the time available to the manager, and the manager's personal preferences
and style.
b. (1) Is the work performed by subordinates stable and routine? (2) Do subordinates
perform similar tasks? (3) Are rules and procedures defining task activities available? (4)
Do Maurice's personal preferences and style favour a larger or small span?

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c. The level of change and uncertainty in the environment, the corporate history
and culture, the threat of crisis or the risk of company failure. Does it fit with the
organisation’s strategy?
d. Vertical functional.
e. Advantages include: (1) more efficient use of human resources; (2) increased
adaptability; (3) increased management skills; (4) greater interdisciplinary
cooperation; and (5) enlarged tasks for employees.
Case Project 10.2
Students can use their answer to explore the myriad of questions that a consultant
might ask to better understand the nature of a corporation’s structure, its link to
strategy, and the extent to which authority is used/delegated effectively. Questions
should focus on increasing organisational flexibility and fit with organisational strategy.
In terms of flexibility students should identify that flatter structures increase an
organisation’s long term planning outcomes and may also identify the need for greater
decentralisation. They may also question the current structural design and offer
alternative suggestions. Students may also explore the questions they would need to
ask in order to ascertain how well the corporation’s structure fits with its environment,
the available technology and their intended strategy.

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