Session 20 Implementing Strategy Through Restructuring and Reengineering the Company’s Structure

Learning Objectives 1. Identify four traditional organizational structures and the pros and cons of each Characterize differences between views on traditional 20th Century organizational structures and 21st century organizational structure needs Explain how outsourcing can create agile, virtual organizations, along with its pros and cons Explain what is meant by boundaryless organizations and why they are important Explain the dimensions of restructuring

Traditional Organizational Structures Organizational structure refers to the formalized arrangement of interaction between and responsibility for the tasks, people, and resources in an organization It is most often seen as a chart, often a pyramidal chart, with positions or titles and roles in cascading fashion

New Winthrop Organization Chart February 20, 2007 February 20, 2007

Simple Organizational Structure A simple organizational structure is one where there is an owner and a few employees and where the arrangement of tasks, responsibilities, and communication is highly informal and accomplished through direct supervision This type of structure can be very demanding on the owner-manager Most businesses in this country and around the world are of this type

Functional Organizational Structure A functional organizational structure is one on which the tasks, people, and technologies necessary to do the work of the business are divided into separate “functional” groups (such as marketing, operations, and finance) with increasingly formal procedures for coordinating and integrating their activities to provide the business’s products and services

Functional Organization Structures

Divisional Structure A divisional organizational structure is one in which a set of relatively autonomous units, or divisions, are governed by a central corporate office but where each operating division has its own functional specialists who provide products or services different from those of other divisions This expedites decision making in response to varied competitive environments The division usually is given profit responsibility

Divisional Organization Structure

Strategic Business Unit The strategic business unit (SBU) is an adaptation of the divisional structure whereby various divisions or parts of divisions are grouped together based on some common strategic elements, usually linked to distinct product/market differences The advantages and disadvantages of the SBU form are very similar to those identified for divisional structures

Holding Company Structure A final form of the divisional organization is the holding company structure, where the corporate entity is a broad collection of often unrelated businesses and divisions such that it (the corporate entity) acts as financial overseer “holding” the ownership interest in the various parts of the company but has little direct managerial involvement

Matrix Organizational Structure The matrix organizational structure is one in which functional and staff personnel are assigned to both a basic functional area and to a project or product manager The matrix form is intended to make the best use of talented people within a firm by combining the advantages of functional specialization and product-project specialization

Matrix Organizational Structure

Product-Team Structure The product-team structure seeks to simplify and amplify the focus of resources on a narrow but strategically important product, project, market, customer, or innovation The product-team structure assigns functional managers and specialists to a new product, project, or process team that is empowered to make major decisions about their product

The Product-Team Structure

What a Difference a Century Makes

Trends Affecting Organizations in the 21st Century Globalization The Internet Speed

Efforts to Improve Traditional Structures Redefine the role of corporate headquarters from control to support and coordination Balance the demands for control/differentiation with the need for coordination/integration Restructure to emphasize and support strategically critical activities Reengineer strategic business processes Downsize and self-manage

Creating Agile, Virtual Organizations Virtual organization: a temporary network of independent companies—suppliers, customers, subcontractors, even competitors—linked primarily by information technology to share skills, access to markets, and costs An agile organization is one that identifies a set of business capabilities central to high-profitability operations and then builds a virtual organization around those capabilities

Outsourcing—Creating a Modular Organization Outsourcing is simply obtaining work previously done by employees inside the companies from sources outside the company A modular organization provides products or services using different, self-contained specialists or companies brought together—outsourced—to contribute their primary or support activity to result in a successful outcome Business process outsourcing (BPO) is the most rapidly growing segment of the outsourcing services industry worldwide

Types of Boundaries Horizontal boundaries—between different departments or functions in a firm. Vertical boundaries—between operations and management, and levels of management, between “corporate” and “division” Geographic boundaries—between different physical locations; between different countries or regions of the world and between cultures External interface boundaries—between a company and its customers, suppliers, partners, regulators, and competitors

Becoming Boundaryless Jack Welch coined the term “boundaryless” to illustrate his vision for GE Outsourcing, strategic alliances, product-team structures, reengineering, restructuring—all are ways to move toward boundaryless organization Technology, particularly driven by the Internet, has and will be a major driver of the boundaryless organization

Ambidextrous Learning Organization The evolution of the virtual organizational structure as an integral mechanism managers use has brought with it recognition of the central role knowledge plays in implementation The shift from exploitation to exploration (Ragan) indicates the growing importance of organizational structures that enable a learning organization to allow global companies the chance to build competitive advantage An ambidextrous organization emphasizes coordination over control as well as flexibility