Organizational Design Slides Courtesy of Professor Joe Labianca
Page 2 Organization Charts
Page 3 Example Org Chart: Cox Communications (Metro Newspaper Structure) Publisher GM FinanceHRAdvertisingControllerITProduction
Page 4 What do organization charts tell us? Basic Information Who reports to whom Who has the ultimate official authority to make decisions Which people are being asked to specialize in what areas
Page 5 Types of Groupings Groupings for specialization happen around two basic types of groups: 1.Functional groupings (e.g., Accounting, Human Resources, Marketing, Nursing) 2.Divisional groupings –Products or Services (e.g., Computer Hardware, Software, IT Consulting Services, Sports Medicine, Plastic Surgery) –Geographic Areas (e.g., Northern KY, Southern KY, Eastern KY) –Clientele (e.g., Educational institutions, Government, Corporate; Women’s Clinics, Sports Clinics; High Net Worth Banking)
Page 6 Functional vs. Divisional Grouping Structures Human Resources SalesAccounting CEO Functional Structure HRSalesAcct HardwareSoftwareConsulting CEO Divisional Structure HRSalesAcct HRSalesAcct
Page 7 The Apple-Orange Company Structure (Part One) How will you structure your company? – Functional? – Divisional? Why do you prefer this structure? – What are the advantages? – What are the disadvantages? List the criteria you are considering when making this decision – Are there other pieces of information you wished you had as you were making the decision? What were they?
Page 8 What is the best organizational structure? It depends No way of grouping people is perfect Every structure has its advantages and disadvantages
Page 9 Functional Structure Strengths Enables in-depth knowledge and skill development within the functional area – (e.g., all researchers can learn from each other, regardless of what product they are currently researching) Allows economies of scale within functional departments – (e.g., might not need as many workers or managers because of less duplication) Very efficient; helps to minimize costs
Page 10 Divisional Structure Strengths Allows divisions to adapt to differences in products, geographic regions, and clients Decentralizes decision-making Suited to fast change in unstable environments Best in large organizations with several products Highly adaptable
Page 11 The Apple-Orange Company Structure (Part Two) Imagine that you chose the functional grouping in Part One As the company continues to grow, the decision is made to diversify into the following products: Pears Eggplant Grapes Broccoli
Page 12 Possible Functional Structure for Apple-Orange John Carl Sales Salespeople (Apples, Oranges, Pears, Broccoli, Grapes, Eggplant) Production Grow & Harvest Field Workers (Apples, Oranges, Pears, Broccoli, Grapes, Eggplant) Research Researchers (Apples, Oranges, Pears, Broccoli, Grapes, Eggplant)
Page 13 The Apple-Orange Company Structure (Part Two, continued) Now place yourself in the role of the Vice- President of Research. What problems do you foresee happening as the number of products proliferates? What will happen to the VP of Sales? The VP of Production?
Page 14 Functional Structure Weaknesses Leads to poor horizontal coordination among departments Involves restricted view of organizational goals (functional silo mentality) May cause decisions to pile on top, creating overload at top of hierarchy Slow response time to environmental changes Results in less innovation Works best when there are few products Low in adaptability
Page 15 The Apple-Orange Company Structure (Part Three) Now imagine that you chose the divisional grouping in Part One. As the company continues to grow, the decision is made to diversify into the following products: Pears Eggplant Grapes Broccoli
Page 16 Possible Divisional Structure for Apple-Orange John Carl Apple Division Salespeople (Apples) Orange Division Field Workers (Apples) Researchers (Apples) Salespeople (Oranges) Field Workers (Oranges) Researchers (Oranges) Pear Division Broccoli Division Grapes Division Eggplant Division Salespeople (Pears) Field Workers (Pears) Researchers (Pears) Salespeople (Broccoli) Field Workers (Broccoli) Researchers (Broccoli) Salespeople (Grapes) Field Workers (Grapes) Researchers (Grapes) Salespeople (Eggplant) Field Workers (Eggplant) Researchers (Eggplant)
Page 17 The Apple-Orange Company Structure (Part Three, continued) What problems do you foresee happening as the number of products proliferates?
Page 18 Divisional Structure Weaknesses Leads to poor coordination across product lines Eliminates economies of scale in functional departments Restricts in-depth competence and technical specialization in a functional area Very inefficient; great deal of duplication
Page 19 Example Divisional Structure: IBM (pre-June 2002) CEO Hardware SoftwareServicesGlobal Finance HRFinanceSalesIT HRFinanceSalesIT HRFinanceSalesIT HRFinanceSalesIT
Page 20 The Organizational Environment’s Role in Determining Structure
Page 21 What determines the choice of structure? Environmental Uncertainty Uncertainty is driven by two main factors: 1.Environmental complexity the number and similarity of elements (e.g., suppliers, customers, regulators) in the organization’s environment 2.Environmental dynamism the rate of change in the elements in the organization’s environment
Page 22 An Organization’s Environment (j) International Sector (d) Financial Resources Sector (e) Market Sector (f) Technology Sector (g) Economic Conditions Sector (a) Industry Sector (h) Government Sector (c) Human Resources Sector (b) Raw Materials Sector (i) Socio-cultural Sector ORGANIZATION DOMAIN
Page 23 Environmental Sectors IndustryCompetitors, industry size & competitiveness, related industries MarketCustomers, clients, potential users of products and services Raw materialsSuppliers, manufacturers, real estate, services Human resourcesLabor market, employment agencies, universities, training schools, employees in other companies, unionization, illegal immigration FinancialStock markets, banks, savings and loans, private investors TechnologyProduction techniques, science, information technology General economic condition Recession, unemployment rate, inflation rate, rate of investment, economics, growth GovernmentCity, state, federal laws and regulations, taxes, services, court system, political processes SocioculturalDemographics, values, beliefs, education, religion, work ethic, consumer and green movements InternationalCompetition from and acquisition by foreign firms, entry into overseas markets, foreign customs, regulations, exchange rates
Page 24 Relationship Between Structure and Environment Flexibility Change Innovation Efficiency Reliability Reducing Costs Divisional Structure Functional Structure Simple, Stable EnvironmentsComplex, Unstable Environments Dominant Structural Approach Environmental Uncertainty
Page 25 What happens between the extremes? Simple, stable environments = functional structures Complex, unstable environments = divisional structures Q. What happens when you have a: simple, but unstable environment (e.g., fashion industry)? complex, but stable environment (e.g., universities, hospitals)? A.Organizations use: hybrid structures matrix structures
Page 26 Possible Hybrid Structure for Apple-Orange John Carl Apple Division Orange Division Field Workers (Apples) Researchers (Apples) Field Workers (Oranges) Researchers (Oranges) Pear Division Broccoli Division Grapes Division Eggplant Division Field Workers (Pears) Researchers (Pears) Field Workers (Broccoli) Researchers (Broccoli) Field Workers (Grapes) Researchers (Grapes) Field Workers (Eggplant) Researchers (Eggplant) Salespeople (Apples, Oranges, Pears, Broccoli, Grapes, Eggplant )
Page 27 Hybrid Structure Strengths Allows organization to balance achieving some adaptability and coordination in product divisions and some efficiency in centralized functional departments Achieves some degree of coordination both within and between product lines
Page 28 Hybrid Structure Weaknesses Leads to conflict between divisions and corporate departments Has potential to favor the creation of excessive administrative overhead in the corporate departments
Page 29 Example of a Hybrid Structure: Sun Petrochemical Functional Structure President Technology Vice President Financial Services Vice Pres. Human Resources Director Chief Counsel Chemicals Vice President Lubricants Vice President Fuels Vice President Product Structure
Page 30 Possible Matrix Structure for Apple-Orange John Carl Apple Division Salespeople (Apples) Orange Division Field Workers (Apples) Researchers (Apples) Salespeople (Oranges) FieldWorkers (Oranges) Researchers (Oranges) Pear Division Broccoli Division Grapes Division Eggplant Division Salespeople (Pears) Field Workers (Pears) Researchers (Pears) Salespeople (Broccoli) Field Workers (Broccoli) Researchers (Broccoli) Salespeople (Grapes) Field Workers (Grapes) Researchers (Grapes) Salespeople (Eggplant) Field Workers (Eggplant) Researchers (Eggplant) VP of Sales VP of Production VP of Research
Page 31 Matrix Structure Strengths Provides opportunity for both functional and product skill development Flexible sharing of human resources across products, while still promoting efficiency goals Team-based approach can be useful for satisfying customers’ dual concerns for innovation and cost- savings
Page 32 Matrix Structure Weaknesses Causes employees to experience dual authority (e.g., product manager and functional manager), which can be frustrating and confusing Meetings, meetings, and more meetings – Is time consuming; involves frequent meetings and conflict resolution sessions Conflict between division heads and functional dept heads is pushed down onto employees Will not work unless participants, particularly managers, understand it and adopt collegial rather than vertical-type relationships; often requires adoption of 360 degree reviews Means employees need good interpersonal skills and extensive training, particularly in conflict resolution Best in medium-sized organizations with multiple products
Page 33 Matrix Example: Harland Checks’ Functional Matrix VP Customer Care IT Milton Process & Quality Reporting & Forecasting HR & Training Sales & Mktg Salt Lake CityAtlanta