Organizational Structures BOH4M

Organizing Deciding how best to group organizational activities and resources

Formal vs. Informal Formal Structure Informal Structure The way that the organization if configured Defines hierarchy, chain of command, work groups, etc. Informal Structure The unofficial working relationships within the organization i.e. who hangs out with who

Functional Divisions The most common structure Jobs are grouped together that involve the same type of activity Marketing, finance, manufacturing, HR, etc. Pros: Managers need only be familiar with one set of skills, coordinating departmental activities easy Cons: Decision making can become slow/bureaucratic in larger organizations, employees may focus too narrowly on their department

A functional structure is the bedrock of horizontal differentiation A functional structure is the bedrock of horizontal differentiation. It is the first “structure” that organizations adapt as they grow. Functional Structure Research and Development Sales and Marketing Manufacturing Materials Management Finance CEO 4 -

Product Divisions Grouping activities around product groups Examples GM, Chevrolet, Cadillac Coke, Sprite, Dasani Pros: easy to coordinate all activities associated with a product, quicker decision making easy to assess performace Cons: too much focus on own product, higher admin costs

Product Division Structure Vice President Sales and Marketing Vice President Research and Development Vice President Materials Management CEO Vice President Finance Canned Soups Division PDM Frozen Vegetable Entrees Baked Goods Centralized support functions Divisions 4 - 4-19

Geographic Divisions Grouped based on the area served Examples: North America, Europe, Asia, etc. Ontario, Quebec, Maritimes, etc. Pros: Can tailor operations to unique demands of each market Cons: Expensive

Geographic Structure CEO Regional Operations Central Support Functions Individual stores 4 - 4-31

Customer Divisions Grouped based on customer served or distribution channel Examples: Industrial Sales, Consumer Sales Vending machines, retail, restaurants Pros: can create groups oriented to serving unique needs of specific customers Cons: Expensive

Central Support Functions Market Structure Commercial Division Consumer Government Corporate CEO Central Support Functions 4 -

Which structure would make the most sense? Apple Nike McDonalds Nokia Pepsi

The Silo Effect The main problem with a divisional structure is that grouping people together means you are isolating them from the other groups This means that interdivisional communication is hard, and people tend to only focus on their own group

Matrix Structure Attempt to avoid the Silo effect by inserting horizontal lines of communication into the structure Ex: grouping people by function and customer division Pros: better interdepartmental communication and coordination Cons: more bosses to report to, requires well organized information systems

Matrix Structure 4 - CEO V ice President Engineering Finance Purchasing Sales and Marketing Research and Development Product A Manager Product B Product C Product D Product Team Two-boss employee 4 -

Flat vs. Tall Structures An organization with lots of levels of authority, and one where managers have relatively few people reporting directly to them is “tall” An organization with few levels of authority, and where managers have large spans of control is “flat” Pros/Cons?

3 Types of Ownership Sole Proprietorship Partnership Corporation

Organization Structures of a Corporation Ownership of a corporation is controlled by the company’s shares or stocks Usually for each share, the owner get one vote…10 shares = 10 votes A proxy (substitute or stand-in) contract can be used Proxy contracts allows the votes of one shareholder to be cast by another shareholder (given them more power)

Public versus Private Corporations Shares of a public corporation can be purchased by anyone on one of the major stock exchanges (TSX, NYSE, NASDAQ) Shares of a private corporation limited and can not be purchased by the public…they are only available to owner’s family members or employees of the corporation

Shareholders and the Executive Structure Because shareholders’ votes control the corporation they are above the Chairperson of the Board in the executive structure It is important to note that the chairperson usually has the most shares and therefore controls the company through her votes