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Fundamentals of
Organization Structure
Session 9
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Chapter Overview
• Denition of organization structure
• Information processing perspective
to design vertical and horizontallinkages
• Basic design options
• Smptoms of structuralmisalignment
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Structure and strateg
• Components in the denition of
organization structure!"# Designates formal reporting relationship$including the of levels in the hierarchand the span of control of managers and
supervisor#%# Identies the grouping together ofindividuals into departments anddepartments into total organization
Includes the design of sstems to ensuree'ective communication$ coordination$and integration of e'ort acrossdepartments
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Organization Conte(tual )aria*lesthat In+uence Structure
Structure
(learning vs.
efficiency)
Environment
Culture Size
Strategy,
Goals
Technology
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,he -elationship of OrganizationDesign to ./cienc vs# 0earning
Outcomes Horizontal OrganizationDesigne for !earning
"ertical Organization
Designe for Efficiency
Dominant
Structural
#$$roach
Horizontal structure is ominant
% Share tas&s, em$o'erment
% elae hierarchy, fe' rules% Horizontal, face*to*face communication
% +any teams an tas& forces
% Decentralize ecision ma&ing "ertical structure is ominant
% S$ecialize tas&s
% Strict hierarchy, many rules% "ertical communication an re$orting
systems
% e' teams, tas& forces or integrators
% Centralize ecision ma&ing
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FIT
Information-
processing capacity
of structural design
choices
Vertical andhorizontal linkages,
department grouping
Organizational
Information
processing
requirements of goals,environment,
technology, and size
Organizational
Effectiveness
Information – processing Approach to
structural Design
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)ertical Information0inkages
• 0inkages is dened as the e(tent ofcommunication and coordinationamong organizational linkages
• )ertical linkages are used to!
Coordinate activities *etween thetop and *ottom of an organization
Designed primaril for control of theorganization
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Hierarchical referral
Rules and lans
!dd position to
Hierarchy
Vertical
information
system
low High
Information capacity linkage mechanism
Low
High
Degree
Of
Vertical
oor!ination
re"uire!
"adder of #echanisms for vertical linkage and control
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0adder of 1echanisms for 2orizontal0inkage and Coordination
H-GH!O
!O
-nformation Systems
Direct Contact
Tas& orces
ull*time -ntegrators
Teams
# m
o u n t o f H o r i z o n t a
l
C o o
r i n a t i o n ( e / u i r e
Cost of Coorination in
Time an Human esources
H -GH
low
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2orizontal 0inkages
• -efers to the amount of communication andcoordination horizontall across organizationaldepartments
• 2orizontal linkage mechanisms are often not
drawn on the organizational chart *utnevertheless are part of organization structure"#Information Sstems3se of cross functional information sstem
Computerized information sstem can ena*lemanagers and frontline workers through outthe organization to e(change informationa*out pro*lems$ opportunities$ activities ordecisions
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2orizontal 0inkages
%# Direct Contact 4 higher level of horizontal linkage is direct contact *etween
managers or emploees a'ected * the pro*lem One wa to to create direct control is to create a special liaison
role 4 liaison person is located in one department *ut has the
responsi*ilit for communicating and achieving coordination withanother department
3. Task Forces 5hen linkage involves several departments a more comple(
device such as task force is re6uired 4 task force is a temporar committee composed of
representatives of each organizational unit a'ected * a pro*lem 4re e'ective horizontal linkage device for temporar issues ,he solve pro*lems * direct horizontal coordination and
reduce information load on vertical hierarch ,picall$ the are dis*anded after their tasks are accomplished
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2orizontal 0inkages4. Full Time Integrator Create a full time position or department solel for the purpose
of coordination Full time integrator ma have titles like product manager$
pro7ect manager$ program manager or *rand manager Does not report to one functional department *eing coordinated 2e or she is located outside the departments and has the
responsi*ilit of coordinating several departments ,he integrator can also *e responsi*le for innovation or change
pro7ect such as coordinating the design$ nancing$ andmarketing a new product
Integrators need e(cellent people skills Integrators have lot of responsi*ilit *ut little authorit ,he integrator has to use e(pertise and persuasion to achieve
coordination
2e or she spans the *oundar *etween departments and *ea*le to !
8et people together 1aintain their trust Confront pro*lems -esolve con+icts and disputes in the interest of the
organization
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ro7ect 1anager 0ocationin the Structure
0resient
inance
De$artmentinancial
#ccountant
1uget
#nalyst
+anagement
#ccountant
Engineering
De$artment
0rouct
Designer
Drafts$erson
Electrical
Designer
+ar&eting
De$artment
+ar&et
esearcher
#vertising
S$ecialist
+ar&et
0lanner
0urchasing
De$artment
1uyer
1uyer
1uyer
0ro2ect +anager
3e'
0rouct 1
0ro2ect +anager
3e'
0rouct #
0ro2ect +anager
3e'
0rouct C
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2orizontal 0inkages:# ,eams
ro7ect teams tend to *e strongesthorizontal mechanism
4re permanent taskforces and are oftenused in con7unction with full time
integrator 5hen activities *etween departments
re6uire strong coordination over a longperiod of time cross functional team is
often the solution Special pro7ect teams ma *e used when
organizations have a large scale pro7ect$a ma7or innovation$ or a new product line
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,eams 3sed for 2orizontalCoordination at 5izard Software
Compan
"ieogames
Chief Engineer
0rogramming "ice 0res
Customer Service
+anager
"ieogames 1asic esearch
Su$ervisor
esearch "ice 0res
#$$lications an Testing
Su$ervisor
0rocurement
Su$ervisor
"ieogames
Sales +anager
+ar&eting "ice 0res.
+emory 0roucts
-nternational +anager
#vertising +anager
+emory 0roucts
Chief 0rogrammer
+emory 0roucts
esearch Su$ervisor
+emory 0roucts
Sales +anager
0resient
"ieogames 0rouct Team
+emory 0roucts Team
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Functional structure ,asks$ people$ and technologies necessar to do the work of the *usiness
are divided into separate functional groups
Formal procedures for coordinating and integrating their activities toprovide products and services redominant in rms with a single or narrow product focus -e6uires well dened skills and areas of specialization to *uild competitive
advantages in providing their products or services Dividing task into functional specialties ena*les the rm to concentrate on
onl one aspect necessar work
,his allows use of latest technical skills and develops a high level ofe/cienc ,he strategic challenge presented * the functional structure is the
e'ective coordination of functional units ,he narrow technical e(pertise achieved through specialization lead to
limited perspectives and to di'erences in priorities of functional units Specialists ma see the rm;s strategic issues primaril related to their
functional areas
,he potential con+ict *etween units makes the coordinating role of C.Ocritical#
,he integrating devices such as pro7ect teams or planning committees arefre6uentl used in functionall organized rms to enhance coordinationand to enhance communication and understanding across functional units
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Strengths and 5eaknesses ofFunctional Organization Structure
• S,-.
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ontingencies an! internal systems# Functional structure
$ontingencies Internal %ystems
$n%ironment#
Low uncertainty& 'ta(le
Technology#
)outine& Low inter!epen!ence
'i*e#
'mall to me!ium
+oals#
$fficiency& technical "uality
Operati%e +oals#
Functional goal emphasis
,lanning an! (u!geting#
ost (asis – (u!gets&
statistical reports
Formal Authority#
Functional -angers
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Functional Structure with2orizontal 0inkages
• )er few of toda;s successfulcompanies can maintain strictlfunctional structure
• Organizations compensate for thevertical functional hierarch *installing horizontal linkages
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Divisional Structure• 5hen a rm diversies its products or service lines$
covers *road geographic areas$ utilizes unrelated market
channels $ or *egins to serve heterogeneous customergroup$ a functional structure *ecomes inade6uate• ,his structure is necessar to meet the increased
coordination and decision making re6uirements• Set of relativel autonomous units or divisions$ are
governed * a central corporate o/ce *ut each
operating division has its own functional specialists whoprovide products or services di'erent from those ofother divisions
• 4llows corporate management to delegate authorit forthe strategic management of distinct *usiness entities
• ,his e(pedite decision making in response to varied
competitive environments and ena*les corporatemanagement to concentrate on corporate level strategicdecisions
• ,he division is usuall given prot responsi*ilit
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Strengths and 5eaknesses ofDivisional Organization Structure
• S,-.
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$ontingencies and Internal %ystems of &ivisional
%tructure$ontingencies Internal %ystems
$n%ironment#
-o!erate uncertainty
Technology#
.on/routine& highinter!epen!ence among
!epartments'i*e#
Large+oals#
$0ternal effecti%eness&
a!aptation& client satisfaction
Operati%e +oals#
,ro!uct line emphasis
,lanning an! (u!geting#
,rofit center (asis – cost an!
income
Formal Authority#
Di%isional -anagers
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Copyright 2004 Prentice Hall 23
1ultidivisional Structure
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8eographical structure
$ h i e f ' i n a n c i a l
O f f i c e r
V R e s e a r c h
& i v i s i o n # a n a g e r
! s i a
V H u m a n
R e s o u r c e s
V O p e r a t i o n s V % a l e s a n d
# a r k e t i n g
& i v i s i o n # a n a g e r
( o r t h ! m e r i c a
& i v i s i o n # a n a g e r
E u r o p e
$ h i e f E ) e c u t i v e
O f f i c e r
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8eographical Structurefor 4pple Computer
CEO
Steve Jobs
Apple
Europe
Apple
Pacific
France
Apple
Products
Asia
Japan
Australia
Apple
Americas
Canada
Latin
America/Caribbean
Sales
Service and
Marketing
to egions
Source: www.apple.com
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1atri( Structure• 1atri( structure is one in which functional and sta' personnel
are assigned to *oth a *asic functional area and to a pro7ect
• It provides dual channels of authorit$ performance$responsi*ilit$ evaluation$ and control• ,he matri( structure is intended to make the *est use of
talented people within a rm * com*ining the advantages offunctional specialization and product specialization
• ,he matri( structure also increases the num*er of middlemanagers who e(ercise general manager responsi*ilities? through the pro7ect manager role@ and thus *roaden theire(posure to organization wide strategic concerns
• 1atri( structure overcomes a ke decienc of functionalorganization while retaining the advantage of functionalspecialization
• It is di/cult to implement
• Dual chain of command challenges fundamentalorganizational orientation
•
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1atri( Structure• 5hen one sector of the environment
re6uires technological e(pertise$ and
another sector re6uires rapid changewithin each product line
• Conditions!
"# ressure e(ist to share scarce resources
across product lines%# 5hen pressure e(ists for two or more
critical outputs such as technical 6ualit ?functional structure@ and fre6uent newproducts ? divisional structure@
.nvironmental Domain of theorganization is *oth comple( anduncertain
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Strengths and 5eaknesses of1atri( Organization Structure
• S,-.
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ontingencies an! Internal systems of -atri0 'tructure
$ontingencies Internal systems
$n%ironment#-o!erate to high uncertainty&
changing customer !eman!s
Technology#
.on/routine& with
inter!epen!encies (etween
functions'i*e#
Large
+oals#
$0ternal effecti%eness an!
a!aptation plus efficiency withsome functions
Operati%e +oals#$"ual pro!uct an! functional
emphasis
,lanning an! 1u!geting#
Dual system – (y function an!
pro!uct
Formal Authority#
2oint (etween functional an!
pro!uct (asis
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,pes Of 1atri( Structure
• Functional matri(!
Functional *osses have the primarauthoritA pro7ect or product managers
simpl coordinate the activities roduct 1atri(
,he pro7ect or product managers have theprimar authoritA functional managers
simpl assign technical personnel to thepro7ects and provides advisor e(pertiseas needed
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1atri( Structure for5orldwide Steel Compan
President
Industrial
Relations
Vice
President
Mfg.
Services
Vice
President
Finance
Vice
President
Marketing
Vice
President
Mfg.
Vice
President
Metallurgy
Vice
President
Field Sales
Vice
President
Open Die
Business Mgr.
Ring Products
Business Mgr.
Weels ! "#les
Business Mgr.
Steel$aking
Business Mgr.
"ertical unctions
H o r i z o n t a l 0 r o u c t ! i n e s
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8lo*al 1atri( Structure
!nternational
E"ecutive
Committee
Po#er
$ransformers
%erman& 'or#a& Argentina/
(ra)il
Spain/
Portugal
$ransportation
!ndustr&
(usiness
Areas
Countr& Managers
Local
Companies
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2orizontal Structures• Organizes emploees around core processes
• Organizations tpicall shift toward horizontal structure duringthe procedure called re=engineering$
• -e=engineering or *usiness process re=engineering *asicallmeans the redesign of a vertical organization along itshorizontal work+ows and processes
• 4 process refers to an organized group of related task and
activities that work together to transform inputs into outputsthat create value for the customer• -ather than focusing on narrow 7o*s structured into distinct
functional departments! it emphasizes core processes that cut horizontall across the
organization
Involves teams of emploees working together to servecustomers In horizontal structure$ all the people through out the
organization who work on a particular process have easassess to one another so that the can communicate andcoordinate their e'ortsIt virtuall eliminates *oth the verticalhierarch and departmental *oundaries
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2orizontal Structures• Characteristics
Structure is created around cross functional core processesrather than task$ functions$ or geograph
Self directed teams not individuals$ are the *asis oforganizational design and performance
rocess owners have responsi*ilit for each core process in itsentirel
eople on the team are given the skills$ tools$ motivation$ andauthorit to make decisions central to team;s performance ,eam mem*ers are cross trained to perform one another;s 7o*s$
and the com*ined skills su/cient to complete a ma7ororganizational task
,eams have the freedom to think creativel and respond +e(i*lto new challenges that arise
Customers drive horizontal corporation# .'ectiveness ismeasured * end=of process performance o*7ectives as well ascustomer satisfaction$ emploee satisfaction$ and nancialcontri*ution
,he culture is one of openness$ trust$ and colla*oration focussedon continuous improvement
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The Process-BasedStructure
& e v e l o p i n g ( e * r o d u c t s r o c e s s
, r o c e s s O w n e r r o s s F u n c t i o n a l T e a m - e m ( e r s
! c q u i r i n g a n d ' i l l i n g $ u s t o m e r O r d e r s r o c e s s
, r o c e s s O w n e r
r o s s F u n c t i o n a l T e a m - e m ( e r s
% u p p o r t i n g $ u s t o m e r + s a g e r o c e s s
, r o c e s s O w n e r
r o s s F u n c t i o n a l T e a m - e m ( e r s
% e n i o r # a n a g e m e n t , e a m
h a i r a n ! 3 e y ' u p p o r t , r o c e s s O w n e r s
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4 2orizontal Structure
Team4
Team5
Team6
To$
+anagement
Team
Team
4
Team
5
Team
6
Customer
Customer
0rocessO'ner
0rocess
O'ner
Testing Product
Planning Research
Market
Analysis
3e' 0rouct Develo$ment 0rocess
Distrib. Material
Flow Purchasing Analysis
0rocurement an !ogistics 0rocess
Sources: Based on Frank stro!!"
The Horizontal Organization" #$ew %ork:
&!ord 'ni(ersity Press" )***+, -ohn A. Byrne"
The /ori0ontal 1orporation"2 Business Week,
December 34" )**5" 6789), and Thomas A. tewart"
The earch !or the rgani0ation o! Tomorrow"2 Fortune, May )*" )**3" *38*9.
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Strengths and 5eaknesses of2orizontal Structure
• S,-.
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Process-Based Structure
Contingencies• 3ncertain and changingenvironments
• 1oderate to large size
•
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2*rid Structures• 2*rid structures com*ine characteristics of
various approaches tailored to specic needs
"# 1ost often used is to com*ine characteristics offunctional structure and divisional structure
Functions that are important for each product ormarket are decentralized to self contained units
Some functions that are relativel sta*le andre6uire economies of scale and in=depthspecialization are centralized at head6uarters
%# Second tpe of h*rid approach is to com*inecharacteristics of functional and horizontal
structures
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unctionalStructure
2*rid Structureart "# Sun etrochemical roducts
0resient
Technology "ice
0resient
inancialServices
"ice 0res.
Humanesources
Director
ChiefCounsel
Chemicals
"ice0resient
!u7ricants
"ice0resient
uels
"ice0resient
0rouct
Structure
Sources: Based on ;inda . Ackerman" Transition Management:
An >n8Depth ;ook at Managing 1omple& 1hange"2
Organizational D$na#ics #ummer )*93+: ?7877,and Frank stro!!" The Horizontal Organization,
#$ew %ork: &!ord 'ni(ersity Press" )***+" Fig. 3.)" 5?.
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2*rid Structureart %# Ford Customer Service Division
Director an
0rocess O'ner
Director an
0rocess O'ner
Human
esources
Strategy an
Communicationinance
"ice 0resient an
General +anager
Teams
Teams
Director an
0rocess O'ner Teams
Technical Su$$ort Grou$
"ehicle Service Grou$
0arts Su$$ly 8 !ogistics Grou$
unctional
Structure
H o r i z o n t a
l S t r u c t u r e
Teams
Teams
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Stages of International Development
45 Domestic65
international
75
multinational85 glo(al
'trategic
Orientation
Domestic
Oriente!
$0port
oriente!
multi!omestic
-ultinational +lo(al
'tage of
De%elopment
Initial foreign
in%ol%ement
ompetiti%e
positioning $0plosion +lo(al
'tructure Domestic
structure plus
e0port
!epartment
Domestic
structure
plus
international!i%ision
9orl! wi!e&
geographic&
pro!uct
-atri0&
transnational
-arket
,otential
-o!erate&
mostly
!omestic
Large&
multi!omesticVery large
multinational
9hole worl!
International Strategic 4lliances
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International Strategic 4lliances
• 0icensing
0icensing agreements are fre6uentl entered into *
manufacturing rms to capitalize on the di'usion ofnew technolog 6uickl and ine(pensivel whilegetting advantage of of lucrative world wide markets
• Eoint ventures
4re separate entities created with two or more activerms as sponsors
8rowing wa to share development and productioncosts and penetrating customers or competitors
• Consortia virtual organizations network organizations
8roup of companies will 7oin together to share skills$resources$ costs$ and access to one another;s market
Structural Designs for 8lo*al
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Structural Designs for 8lo*alOperations
• 1odel for 8lo*al )ersus 0ocal Opportunities
"# 8lo*al Strateg
roduct design and advertising strateg arestandardized throughout the world
%# 1ulti=domestic StrategCompetition in each countr is handledindependentl of competition in othercountries
.ncourage product design$ assem*l$ andmarketing tailored to specic needs of eachcountr
1atching Organizational Structure to
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1atching Organizational Structure toInternational 4dvantage
When Forces forWhen Forces forGlobalGlobal
Integration are .Integration are .
. .. .
And Forces forAnd Forces forNationalNational
ResponsivenessResponsiveness
areare .. . .. .StrategyStrategy StructureStructure
LowLow LowLow ExportExport InternationalInternational
DivisionDivisionHighHigh LowLow Gloali!atioGloali!atio
nnGloal Pro"#ctGloal Pro"#ct
$tr#ct#re$tr#ct#re
LowLow HighHigh %#lti&%#lti&
"o'estic"o'esticGloalGloal
GeographicGeographic
$tr#ct#re$tr#ct#re
HighHigh HighHigh Gloali!atioGloali!atio
n an" %#lti&n an" %#lti&
"o'estic"o'estic
Gloal %atrixGloal %atrix
$tr#ct#re$tr#ct#re
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artial 8lo*al roduct Structure 3sed *.aton Corporation
Engineering
President
!nternationalLa# *Corporate
elations
C+airman
Finance *Administration
egional
Coordinators
%lobal
Automotive
Components
%roup
%lobal
!ndustrial
%roup
%lobal
!nstruments
Product
%roup
%lobal
Materials
,andling
%roup
%lobal$ruck
Components
%roup
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8lo*al 8eographic DivisionStructure
CEO
Pacific
-ivision
European
-ivision
LatinAmerican
-ivision
Canadian
-ivision
Corporate
Staff
Long.term
Planning
Product
Coordinators
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8lo*al 1atri( Structure
!nternational
E"ecutive
Committee
Po#er
$ransformers
%erman& 'or#a& Argentina/
(ra)il
Spain/
Portugal
$ransportation
!ndustr&
(usiness
Areas
Countr& Managers
Local
Companies
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The Networkrgani!ation
Designer
Organizations
Supplier
Organizations
Broker
Organization
Producer
Organizations
Distributor
Organizations
Characteristics o" Network
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Characteristics o" NetworkStructures
• #ertical Disaggregation
Breaking up of organization functions into separateorganizations performing specialized work
• Brokersmanaged * *roker organizations that locate and assem*lemem*er organizationsBroker ma pla a central role and su*contract for needed
products or services$ or it ma specialize in linking e6ualpartners into network
• Coordinating $echanisms!Coordination falls into three categories!
"# Interpersonal relationship among individuals who havedeveloped partnerships# Con+icts are resolved through
reciprocit%# Formal contacts$ ownership control$ licensing arrangement
1arket mechanisms such as spot paments$ performanceaccounta*ilit$ information sstems$ ensure all parties areaware of each others; activities
%d&antages o" Network Structures
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%d&antages o" Network Structures
• .na*les highl +e(i*le and
adaptive response to dnamicenvironments
• Creates a H*est of the *estorganization to focus resources oncustomer and market needs
• .ach organization can leverage adistinctive competenc
• ermits rapid glo*al response• Can produce Hsnergistic results
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Disad&antages o"Network Structures
• 1anaging lateral relationships acrossautonomous organizations is di/cult
• 1otivating mem*ers to relin6uish
autonom to 7oin network is di/cult• Sustaining mem*ership and *enets
can *e pro*lematic
• 1a give partners access to proprietarknowledge and technolog
N t k St t
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Network StructureContingencies
• 2ighl comple( and uncertainenvironments
• 4ll size organizations
• 8oals of organizationalspecialization and innovation
• 2ighl uncertain technologies
• 5orldwide operations
,he -elationship of Structure to
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,he -elationship of Structure toOrganization;s
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Smptoms ofStructural Decienc
• Decision making is delaed or lackingin 6ualit
• ,he organization does not respond
innovativel to a changingenvironment
• ,oo much con+ict is evident