1. McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Chapter 7 Creating Effective Organizational Designs

3. Learning Objectives After reading this chapter, you should have a good understanding of:   The importance of organizational structure and the concept of the “boundaryless” organization in implementing strategies.   The growth patterns of major corporations and the relationship between a firm’s strategy and its structure.   Each of the traditional types of organizational structure: simple, functional, divisional, and matrix   The relative advantages and disadvantages of traditional organizational structure   The different types of boundaryless organizations— barrier-free, modular, and virtual—and their relative advantages and disadvantages 7-3

4. Traditional Forms of Organizational Structure   Organizational structure refers to formalized patterns of interactions that link a firm’s   Tasks   Technologies   People   Structures help to ensure that resources are used effectively in accomplishing an organization’s mission   Structure follows strategy!!! 7-4

5. Traditional Forms of Organizational Structure   Structure provides a means of balancing two conflicting forces   Division of tasks into meaningful groupings   Integrate the groupings for efficiency and effectiveness   Structure identifies executive, managerial, and administrative organization of a firm   Indicates responsibilities and hierarchical relationships 7-5

6. Question Most organizations begin very small and ______. a) grow to become a large sized organizations b) continually grow c) remain small d) often decrease in size 7-6

7. Simple Structure   Simple structure is the oldest and most common organizational form   Staff serve as an extension of the top executive’s personality   Highly informal   Coordination of tasks by direct supervision   Decision making is highly centralized   Little specialization of tasks, few rules and regulations, informal evaluation and reward system   Fosters creativity and individualism 7-7

8. Simple Structure   Problems may arise due to “informality” in simple structure   Responsibilities may be unclear   Conflict and confusion   Employees may take advantage of lack of regulations   Erodes motivation and satisfaction 7-8

9. Functional Organizational Structure Adapted from Exhibit 10.2 Functional Organizational Structure 7-9

10.   Demands may be placed on owner/ manager to obtain and process information to run business   Owners generally are not skilled in all specialties   Accounting   Engineering   Production   Marketing   Found where there is a single or closely related product or service, high production volume, and some vertical integration Functional Structure 7-10

11.   Advantages   Enhanced coordination and control   Centralized decision making   Enhanced organizational-level perspective   More efficient use of managerial and technical talent   Facilitated career paths and development in specialized areas Functional Structure 7-11

12.   Disadvantages   Impeded communication and coordination due to differences in values and orientations   May lead to short-term thinking (functions vs. organization as a whole)   Difficult to establish uniform performance standards Functional Structure 7-12

13. Example: Structure   Organizational Structure – firm’s formal role configuration, procedures, governance, and control mechanisms, and authority and decision-making processes   Simple Structure –organizational form which owner-manager makes all major decisions directly and monitors all activities; staff serves as an extension of the manager’s supervisory authority   Functional Structure – consists of a CEO and limited corporate staff, with functional line managers in dominant organizational areas such as production, accounting, marketing, R&D, engineering, and human resources www.albany.edu/faculty/ja0754/bmgt481/lecture7.html 7-13

14. Divisional Structure   Organized around products, projects, or markets   Each division includes functional specialists organized into departments   Relatively autonomous and consist of products and services that are different from those of other divisions   Division executives help determine product- market and financial objectives 7-14

15. Divisional Organizational Structure 7-15

16. Divisional Structure   Advantages   Strategic business unit (SBU) structure   Separation of strategic and operating control   Quick response to important changes in external environment   Minimal problems of sharing resources across functional departments   Development of general management talent is enhanced 7-16

17. Divisional Structure   Disadvantages   Can be very expensive   Can be dysfunctional competition among divisions   Can be a sense of a “zero-sum” game that discourages sharing ideas and resources among divisions   Differences in image and quality may occur across divisions   Can focus on short-term performance 7-17

18. Divisional Structure   Strategic business unit (SBU) structure   Divisions with similar products, markets, and/or technologies are grouped into homogenous groups Task of planning and control at corporate office is more manageable May become difficult to achieve synergies across SBUs 7-18

19. Divisional Structure   Holding Company structure   Appropriate when the businesses in a corporation’s portfolio do not have much in common Lower expenses and overhead, fewer levels in the hierarchy Inherent lack of control and dependence of CEO-level executives on divisional executives 7-19

20. Example: HBO’s change   HBOS PLC tweaking its divisional structure   HBOS' European corporate business will become part of the wider corporate division   Previously a standalone unit   Clients increasingly want one point of contact within HBOS   Alignment of management is designed to aid the further development of both businesses www.forbes.com/afxnewslimited/feeds/afx/2007/03/28/afx3558999.html 7-20

21. Question A matrix structure is a combination of what two other structures? a)Divisional and SBU b)Functional and Divisional c)Virtual and Functional d)Modular and SBU 7-21

22. Matrix Structure   Combination of functional and divisional structures   Responsible to two managers   The project manager   The functional area manager Violates the Unity of Command principle 7-22

23. Matrix Organizational Structure 7-23

24. Matrix Structure   Advantages   Facilitates the use of specialized personnel, equipment and facilities   Provides professionals with a broader range of responsibility and experience   Experience develops skills and competencies 7-24

25. Matrix Structure   Disadvantages   Can cause uncertainty and lead to intense power struggles   Working relationships become more complicated   Decisions may take longer 7-25

26. Example   Nike culture used to encourage local managers to focus on market share rather than profitability   Wall Street commented on lack of managerial control at Nike   Implemented a matrix structure to resolve issue   Matrix structure stated local managers’ responsibilities by region and product   Headquarters establishes which products to focus on and how to do it under new matrix structure Source: “The New Nike,” Business Week. September 20, 2004 7-26

27. Question Does the relationship between strategy and structure imply that structure follows strategy? Explain. 7-27

28. Boundaryless Organizational Designs   Boundaries that place limits on organizations   Vertical boundaries between levels in the organization’s hierarchy   Horizontal boundaries between functional areas   External boundaries between the firm and its customers, suppliers, and regulators   Geographic boundaries between locations, cultures and markets 7-28

29. Making Boundaries More Permeable   First approach   Permeable internal boundaries   Higher level of trust and shared interests   Shift in philosophy from executive development of organizational development   Greater use of teams   Flexible, porous organizational boundaries   Communication flows and mutually beneficial relationships with internal and external constituencies Barrier-free type of organization 7-29

30. Pros and Cons of Barrier-Free Structures 7-30

31. Making Boundaries More Permeable   Second approach   Outsources non-vital functions, tapping into knowledge and expertise of “best in class” suppliers but retains strategic control   Three advantages   Decrease overall costs, leverage capital   Focus scarce resources on areas where it holds competitive advantage   Adds critical skills and accelerates organizational learning Modular type of organization 7-31

32. Pros and Cons of Modular Structures 7-32

33. Making Boundaries More Permeable   Third approach   Continually evolving network of independent companies linked together to share skills, costs, and access to one another’s markets   Suppliers   Customers   Competitors   Each gains from resulting individual and organizational learning   May not be permanent Virtual type of organization 7-33

34. Pros and Cons of Virtual Structures 7-34

35. Question What factors facilitate in allowing boundaryless organizations to work? a)Common culture and shared values b)Horizontal systems and processes c)Communications and information technologies d)All of the above 7-35

36. Boundaryless Organizations: Making Them Work   Factors facilitating effective coordination and integration of key activities   Common culture and shared values   Horizontal organization structures   Horizontal systems and processes   Communications and information technologies   Human resource practices 7-36