10

Creating Effective
Organizational Designs
 10 - 2

Traditional Forms of
Organizational Structure
• Organizational structure refers to formalized patterns
of interactions that link a firm’s
- Tasks
- Technologies
- People
• Structure provides a means of balancing two
conflicting forces
- Need for the division of tasks into meaningful groupings
- Need to integrate the groupings for efficiency and
effectiveness
 10 - 3

Dominant Growth Patterns

of Large Corporations

Adapted from Exhibit 10.1 Dominant Growth Patterns of Large Corporations

Source: Adapted from J. R. Galbraith and R. K. Kazanjian, Strategy Implementation: The Role
of Structure and Process, 2nd ed. (St. Paul, MN: West Publishing Company, 1986), p. 139.
 10 - 4

Patterns of Growth of
Large Corporations
• Simple Structure
• Simple structure is the oldest and most common
organizational form
- Staff serve as an extension of the top executive’s
personality
- Highly informal
- Coordination of tasks by direct supervision
- Decision making is highly centralized
- Little specialization of tasks, few rules and regulations,
informal evaluation and reward system
 10 - 5

Patterns of Growth of
Large Corporations

• Functional Structure

Adapted from Exhibit 10.2 Functional Organizational Structure

 10 - 6

Patterns of Growth
of Large Corporations
• Functional Structure
- Found where there is a single or closely related product or
service, high production volume, and some vertical
integration
• Advantages
- Enhanced coordination and control
- Centralized decision making
- Enhanced organizational-level perspective
- More efficient use of managerial and technical talent
- Facilitated career paths and development in specialized
areas
 10 - 7

Patterns of Growth
of Large Corporations
• Disadvantages
- Impeded communication and coordination due to
differences in values and orientations
- May lead to short-term thinking (functions vs. organization
as a whole)
- Difficult to establish uniform performance standards
 10 - 8

Divisional Structure

Adapted from Exhibit 10.3 Divisional Organizational Structure

 10 - 9

Divisional Structure

• Organized around products, projects, or markets

• Each division includes its own functional specialists
typically organized into departments
• Divisions are relatively autonomous and consist of
products and services that are different from those of
other divisions
• Division executives help determine product-market
and financial objectives
 10 - 10

Divisional Structure

• Advantages
- Strategic business unit (SBU) structure
- Separation of strategic and operating control
- Quick response to important changes in external
environment
- Minimal problems of sharing resources across functional
departments
- Development of general management talent is enhanced
 10 - 11

Divisional Structure

• Disadvantages
- Can be very expensive
- Can be dysfunctional competition among divisions
- Can be a sense of a “zero-sum” game that discourages
sharing ideas and resources among divisions
- Differences in image and quality may occur across
divisions
- Can focus on short-term performance
 10 - 12

Divisional Structure

• Strategic business unit (SBU) structure

- Divisions with similar products, markets, and/or
technologies are grouped into homogenous SBUs
• Task of planning and control at corporate office is more
manageable
• May become difficult to achieve synergies across SBUs
- Appropriate when the businesses in a corporation’s
portfolio do not have much in common
• Lower expenses and overhead, fewer levels in the hierarchy
• Inherent lack of control and dependence of CEO-level
executives on divisional executives
 10 - 13

Matrix Structure

Adapted from Exhibit 10.4 Matrix Organizational Structure

 10 - 14

Matrix Structure

• A combination of the functional and divisional

structures
• Individuals who work in a matrix organization become
responsible to two managers
- The project manager
- The functional area manager
 10 - 15

Matrix Structure

• Advantages
- Facilitates the use of specialized personnel, equipment and
facilities
- Provides professionals with a broader range of
responsibility and experience
• Disadvantages
- Can cause uncertainty and lead to intense power struggles
- Working relationships become more complicated
- Decisions may take longer
 10 - 16

Boundaryless Organizational Designs

• Boundaries that place limits on organizations

- Vertical boundaries between levels in the organization’s
hierarchy
- Horizontal boundaries between functional areas
- External boundaries between the firm and its customers,
suppliers, and regulators
- Geographic boundaries between locations, cultures and
markets
 10 - 17

Making Boundaries More Permeable

• First approach Barrier-free type

of organization
• Permeable internal boundaries
- Higher level of trust and shared interests
- Shift in philosophy from executive development of
organizational development
- Greater use of teams
- Flexible, porous organizational boundaries
- Communication flows and mutually beneficial relationships
with internal and external constituencies
 10 - 18

Pros and Cons of

Barrier-Free Structures

Adapted from Exhibit 10.7 Pros and Cons of Barrier-Free Structures

 10 - 19

Making Boundaries More Permeable

• Second approach Modular type of

organization
• Outsources nonvital functions, tapping
into knowledge and expertise of “best in class”
suppliers but retains strategic control
• Three advantages
- Decrease overall costs, leverage capital
- Enables company to focus scarce resources on areas where
it holds competitive advantage
- Adds critical skills and accelerates organizational learning
 10 - 20

Pros and Cons of Modular Structures

Adapted from Exhibit 10.8 Pros and Cons of Modular Structures

 10 - 21

Making Boundaries More Permeable

• Third approach Virtual type of

organization
• Continually evolving network of
independent companies linked together to share skills,
costs, and access to one another’s markets
- Suppliers
- Customers
- Competitors
• Each gains from resulting individual and
organizational learning
• May not be permanent
 10 - 22

Pros and Cons of Virtual Structures

Source: R. E. Miles and C. C. Snow, “Organizations: New Concepts for New Forms,” California Management Review,” Spring 1986, pp. 62-73; R. E. Miles and C. C.
Snow, “Causes of Failure in Network Organizations,” California Management Review, Summer 1999, pp. 53-72; and H. Bahrami, “The Emerging Flexible Organization:
Perspectives from Silicon Valley,” California Management Review, Summer 1991, pp. 33-52.

Adapted from Exhibit 10.9 Pros and Cons of Virtual Structures