Ch6 of Org Behavior by Jones

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6-Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 1

Organizational Theory,Design, and Change

Sixth Edition

Gareth R. Jones

Chapter 6

Designing

Organizational

Structure:

Specialization and

Coordination




Learning Objectives

1.

Explain why most organizationsinitially have a functional structureand why, over time, problems arise

with this structure that require achange to a more complex structure2. Distinguish between three kinds of

divisional structures (product,

geographic, and market)




Learning Objectives (cont.)

3.

Discuss how the matrix and productteam structures differ, and why andwhen they are chosen to coordinate

organizational activities4.

Identify the unique properties ofnetwork structures and the conditionsunder which they are most likely tobe selected as the design of choice






Figure 6.1: FunctionalStructure




Figure 6-1: FunctionalStructure (cont.)


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Functional Structure: Advantages

!

Provides people with the opportunity tolearn from one another and becomemore specialized and productive

!

People who are grouped together bycommon skills can supervise oneanother and control each other’s

behavior!

People develop norms and values thatallow them to become more effective at

what they do



Control Problems in aFunctional Structure!

Communication Problems: as moreorganizational functions develop, each withtheir own hierarchy, they become increasinglydistant from one another

!

Measurement Problems: information neededto measure the profitability of any functionalgroup is difficult to obtain

! Location Problems: an organization must

balance the need for centralized decisionmaking and the need to decentralize regionaloperations



Control Problems in aFunctional Structure (cont.)

!

Customer Problems: the ability toidentify and satisfy customer needsmay fall short and sales are lost

!

Strategic Problems: top managersspend too much time finding ways toimprove coordination that they have

not time to address the longer term



Solving the Control Problem

!

Managers can solve control problemsby redesigning the functional structureto increase integration between

functions



Figure 6.2: Improving Integration in a FunctionalStructure by Combining Sales and Marketing



From Functional Structure toDivisional Structure

!

Functional structure is appropriate ifthe organization:! Limits itself to producing a small number

of similar products!

Produces those products in one or a fewlocations

! Sells them to only one general type of

client or customer



From Functional Structure toDivisional Structure (cont.)

!

As organizations grow, they producemore products and serve many differenttypes of customers

!

A new structure is needed that will! Increase manager’s control of individual

subunits

! Integrate the operation of the wholecompany and ensure subunits are meetingorganizational goals


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Differentiation and Integration

!

This more complex structure is basedon:

!

Increasing vertical differentiation

! Increasing horizontal differentiation

!

Increasing integration

14



Figure 6.3: Differentiation and Integration:How Organizations Increase Control OverTheir Activities



Figure 6.3: Differentiationand Integration (cont.)



Moving to aDivisional Structure!

Organizations most commonly adopt thedivisional structure to solve control problemsthat arise with too many products, regions, orcustomers

!

The type of divisional structure depends onthe problem to be solved

! Divisional structure creates smaller, more

manageable subunits and takes the form!

Product structure

! Geographic structure

! Market structure





Product Structure (cont.)

!

Product division structure: a structure inwhich a centralized set of support functionsservice the needs of a number of different

product lines! Each product division uses the services of

the central support function

! Support function is divided into product-

oriented teams who focus on the needs ofone particular product division



Figure 6.4: Product DivisionStructure



Figure 6.5: Assignment of Product-OrientedFunctional Teams to Individual Divisions




Product Structure (cont.)

!

Multidivisional structure: structure inwhich support functions are placed independent self-contained divisions with

its own set of support functions!

Corporate headquarters staff: responsible for overseeing the activities

of the managers heading each division! Allows a company to operate in many

different businesses

Fi 6 6 M ltidi i i l




Figure 6.6: MultidivisionalStructure

Ad t f




Advantages of aMultidivisional Structure

!

Increased organizational effectiveness:clear division of labor betweencorporate and divisional managers

generally increases organizationaleffectiveness

!

Increased control: extra control can

encourage the stronger pursuit ofinternal organizational efficiency bydivisional managers

Ad t f M ltidi i i l




Advantages of a MultidivisionalStructure (cont.)

!

Profitable growth: when each division isits own profit center, individualprofitability can be clearly evaluated

!

Internal labor market: the most abledivisional managers are promoted tobecome corporate managers

Fig e 6 7 M ltidi isional St ct e in




Figure 6.7: Multidivisional Structure inWhich Each Division Has a DifferentStructure

Di d t f




Disadvantages of aMultidivisional Structure

!

Managing the corporate-divisionalrelationship: finding the balancebetween centralization anddecentralization

!

Coordination problems betweendivisions: divisions start competing forresources and rivalry preventscooperation

Di d t f




Disadvantages of aMultidivisional Structure (cont.)

!

Transfer pricing: problems between divisionsoften revolve around the transfer price, i.e.,the price at which one division sells a productor information about innovations to another

division! Bureaucratic costs: multidivisional structures

are very expensive to operate

! Communication problems: tall hierarchies tend

to have communication problems, particularlythe distortion of information




Product Structure

!

Product team structure: specialistsfrom the support functions are createdthat specialize in the needs of particularkind of product! Focus on the needs of one product (or client) or a

few related products

!

Each team is a self-contained division

headed by a product team manager

Fig e 6 8 P od ct Team




Figure 6.8: Product TeamStructure

Divisional Structure II:




Divisional Structure II:Geographic Structure

!

When the control problems thatcompanies experience are a function ofgeography, a geographic divisional

structure is appropriate!

Allows the organization to adjust itsstructure to align its core competenceswith the needs of customers indifferent geographic regions

!

Allows some functions to becentralized and others decentralized




Figure 6.9: Geographic Structure

Divisional Structure III:




Divisional Structure III:Market Structure

!

A market structure aligns functionalskills and activities with the needs ofdifferent customer groups

!

Each customer group has a differentmarketing focus, and the job of eachgroup is to develop products to suit

the needs of its specific customers!

Each customer group makes use ofcentralized support function




Figure 6.11: Market Structure




Matrix Structure

!

Matrix structure: an organizational designthat groups people and resources in two wayssimultaneously, by function and product

! A matrix is a rectangular grid that shows a

vertical flow of functional responsibility and ahorizontal flow of product responsibility! The members of the team are called two-

boss employees because they report to twosuperiors: the product team manager and the

functional manager! The team is the building block and principal

coordination and integration mechanism




Figure 6.12: Matrix Structure



Disadvantages of a



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Disadvantages of aMatrix Structure

!

Matrix lacks a control structure that leadsemployees to develop stable expectations ofone another

! The lack of a clearly defined hierarchy of

authority can also lead to conflict betweenfunctions and product teams over the use ofresources

! People are likely to experience a vacuum of

authority and responsibility! People then create their own informal

organization to provide themselves with somesense of structure and stability

The M ltidi isional




The MultidivisionalMatrix Structure

!

Multidivisional matrix structure: astructure that provides for moreintegration between corporate and

divisional managers and betweendivisional managers

!

Makes it easier for top executives from

divisions and corporate headquartersto cooperate and jointly coordinateorganizational activities

Figure 6 13: Multidivisional




Figure 6.13: MultidivisionalMatrix Structure



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Hybrid Structure

!

Hybrid structure: large complexorganizations that have many divisionsmake use of many different structures

!

Each product division’s managerselects the structure (functional,product, geographic) that best meets

the needs of their particularenvironment and strategy

41




Network Structure

!

Network structure: a cluster of differentorganizations whose actions are coordinatedby contracts and agreements rather thanthrough a formal hierarchy of authority

!

Very complex as companies form agreementswith many suppliers, manufacturers, anddistributors

!

Such agreements are necessary as theorganization outsources many of the valuecreation activities involved in production andmarketing goods and services



Disadvantages of Network




Disadvantages of NetworkStructures

!

A considerable level of mutualadjustment is needed to allow thegroups to interact so that they canlearn from one another and constantlyimprove the product

!

Ability to control a complex value-creation process is difficult because

managers lack the means to effectivelycoordinate and motivate the variousnetwork partners

The Boundaryless




The BoundarylessOrganization

!

Boundaryless organization: composed of people who are linked bycomputers, faxes, CAD systems, and

video conferencing!

The use of outsourcing and thedevelopment of network organization

are increasing rapidly as organizationsrecognize the many opportunities theyoffer to reduce costs and increase

flexibility




E-commerce

!

E-commerce: trade that takes placebetween companies, and between companiesand individual customers, using IT and theInternet

!

Business-to-business (B2B): trade thattakes place between companies that links andcoordinates their value chains! B2B marketplace: industry-specific trading

network connecting buyers and sellers! Business-to-customer (B2C): trade that

takes place between a company and itsnetwork of individual customers using IT and

the Internet

Figure 6 15: Types of



Figure 6.15: Types ofE-Commerce

Ch6 of Org Behavior by Jones

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