1. Chapter 9 Designing Adaptive Organizations
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2. Structure and Process Organizational structure Organizational process
Who reports to whom?
Who does what?
Where is the work done?
Organizational process
How do things get done?
Organizational structure is the vertical and horizontal configuration of departments, authority, and jobs within a company. Organizational structure is concerned with questions such as “Who reports to whom?” and “Who does what?” and “Where is the work done?” An organizational process is the collection of activities that transform inputs into outputs that customers value. Organizational process asks “How do things get done?”
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3. Thomson Reuters
This exhibit shows the organizational structure of Thomson Reuters, which has a number of divisions to handle different sectors of the company’s business, each headed by its own president or CEO.
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4. Process View of Microsoft’s Organization
Microsoft uses basic internal and external processes, shown in Exhibit 9-2, to write computer software. The process starts when Microsoft gets feedback from customers through Internet newsgroups, , phone calls, or letters. This information helps Microsoft understand customers’ needs and problems and identify important software issues and needed changes and functions. Microsoft then rewrites the software, testing it internally at the company and then externally through its beta testing process, in which customers who volunteer or are selected by Microsoft give the company extensive feedback. The feedback is then used to make improvements to the software.
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5. Departmentalization 9-1 Functional Product Customer Geographic Matrix
Traditionally, organizational structures have been based on some form of departmentalization. Departmentalization is a method of subdividing work and workers into separate organizational units that take responsibility for completing particular tasks.
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6. Functional Departmentalization
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7. Functional Departmentalization
Advantages
allows work done by highly qualified specialists
lowers costs by reducing duplication
makes communication and coordination easier
Disadvantages
cross-department coordination can be difficult
may lead to slower decision making
Functional departmentalization organizes work and workers into separate units responsible for particular business functions or areas of expertise. A common functional structure might have individuals organized into accounting, sales, marketing, production, and human resources departments.
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8. Product Departmentalization: United Technologies Corporation
Exhibit 9-4 shows the product departmentalization structure used by United Technologies Corporation (UTC), which is organized along six different product lines: Carrier (heating, ventilating, and air-conditioning), Hamilton Sundstrand (aircraft electrical power generation and distribution systems), Otis (design, manufacture, installation, maintenance, and servicing of elevators and escalators), Pratt & Whitney (commercial and military jet aircraft engines), Sikorsky (military and commercial helicopters), and UTC Fire & Security (fire safety and security products and services).
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9. Product Departmentalization
Advantages
allows people to specialize in one area of expertise
makes it easier to assess performance
makes decision making faster
Disadvantages
duplication
coordination across different product departments
Product departmentalization organizes work and workers into separate units responsible for producing particular products or services.
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10. Customer Departmentalization: Swisscom AG
As Exhibit 9-5 shows, Swisscom AG, Switzerland’s leading telecommunications provider, is organized into departments by type of customer: residential customers (fixed line and voice, mobile and voice, broadband Internet, and digital TV); small- and medium-sized businesses (fixed line and voice, mobile line and voice, Internet and data services, and maintenance and operation of IT infrastructure); larger corporations (fixed line, voice and data, mobile line, voice and data, Internet and data services, and maintenance and operation of IT infrastructure); and network and IT customers (corporate communications, business development, finance and controlling, risk and quality management, human resources, IT outsourcing).
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11. Customer Departmentalization
Advantages
focuses organization on customer needs
allows companies to specialize products and services to customer needs
Disadvantages
duplication of resources
workers might please customers but hurt business
Customer departmentalization organizes work and workers into separate units responsible for particular kinds of customers.
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12. Geographic Departmentalization: AB InBev Company
As shown in Exhibit 9-6, AB InBev has six regional groups: North America, Latin America North, Latin America South, Western Europe, Central and Eastern Europe, and Asia Pacific. Each of these regions would be a sizable company by itself. The smallest region, Asia Pacific, for instance, sold 50.3 million hectoliters of beer for annual revenue of $292 million.
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13. Geographic Departmentalization
Advantages
helps companies respond to different markets
reduces costs by locating unique resources closer to customers
Disadvantages
duplication of resources
difficult to coordinate departments
Geographic departmentalization organizes work and workers into separate units responsible for doing business in particular geographic areas.
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14. Matrix Departmentalization: Procter & Gamble
Exhibit 9-7 shows the matrix structure used by Procter & Gamble, which has 127,000 employees working in eighty different countries. Across the top of Exhibit 9-7, you can see that the company uses a product structure where it groups its billion-dollar brands into three global business units, each of which has two segments: beauty care (beauty and grooming), household care (baby care and family care plus fabric care and home care), and health and well-being (health care and snacks, coffee, and pet care). Global business units are responsible for product initiatives or upgrades, which are typically launched simultaneously with a worldwide marketing campaign. The left side of the figure, however, shows that the company is also using a functional structure based on three functions: market development, which makes sure that a product is adapted to and sells well within a particular region of the world (market development regions include North America, Asia/India/Australia, Northeast Asia, Greater China, Central-Eastern Europe/Middle East Africa, Western Europe, and Latin America); global business services, which enable the company to operate efficiently, work effectively with business partners, and increase employee productivity; and corporate functions, which provide global business units with the functional business assistance (i.e., finance, accounting, human resources, information technology, etc.) they need
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15. Matrix Departmentalization
Advantages
allows companies to efficiently manage large, complex tasks
gives much more diverse set of expertise and experience
Disadvantages
requires a high level of duplication
confusion and conflict between project bosses
requires much more management skill
A hybrid structure in which two or more forms of departmentalization are used together.
Because of these problems, many matrix structures evolve from a simple matrix, in which managers in different parts of the matrix negotiate conflicts and resources directly, to a complex matrix, in which specialized matrix managers and departments are added to the organizational structure. In a complex matrix, managers from different parts of the matrix might report to the same matrix manager, who helps them sort out conflicts and problems.
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16. Chain of Command Chain of command Unity of command – Assumed! 9-2
. The chain of command is the vertical line of authority that clarifies who reports to whom throughout the organization. People higher in the chain of command have the right, if they so choose, to give commands, take action, and make decisions concerning activities occurring anywhere below them in the chain. In the following discussion about delegation and decentralization, you will learn that managers don’t always choose to exercise their authority directly.
One of the key assumptions underlying the chain of command is unity of command, which means that workers should report to just one boss. In practical terms, this means that only one person can be in charge at a time. Matrix organizations, in which employees have two bosses (or two headquarters, as in the Unilever example discussed in the box on the facing page), automatically violate this principle. This is one of the primary reasons that matrix organizations are difficult to manage. Unity of command serves an important purpose: to prevent the confusion that might arise when an employee receives conflicting commands from two different bosses.
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17. Authority Line authority - Command Staff authority - Advise
Line function – Development, Manufacturing, Marketing
Staff function – Accounting, Human Resources, Legal
A second dimension of authority is the distinction between line and staff authority.
Line authority is the right to command immediate subordinates in the chain of command. Staff authority is the right to advise but not command others who are not subordinates in the chain of command.
A line function is an activity that contributes directly to creating or selling the company’s products. So, for example, activities that take place within the manufacturing and marketing departments would be considered line functions. A staff function, such as accounting, human resources, or legal services, does not contribute directly to creating or selling the company’s products, but instead supports line activities.
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18. Delegation
Delegation of authority is the assignment of direct authority and responsibility to a subordinate to complete tasks for which the manager is normally responsible.
When a manager delegates work, three transfers occur, as illustrated in Exhibit 9-8. First, the manager transfers full responsibility for the assignment to the subordinate. The second transfer that occurs with delegation is that the manager gives the subordinate full authority over the budget, resources, and personnel needed to do the job. To do the job effectively, subordinates must have the same tools and information at their disposal that managers had when they were responsible for the same task. In other words, for delegation to work, delegated authority must be commensurate with delegated responsibility. The third transfer that occurs with delegation is the transfer of accountability. The subordinate now has the authority and responsibility to do the job and in return is accountable for getting the job done. In other words, managers delegate their managerial authority and responsibility to subordinates in exchange for results. Exhibit 8.9 gives some tips on how to be an effective delegator.
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19. Designing Jobs

20. Job Specialization Job comprises a smaller part of a larger task
Easy to learn
Low variety
High repetition
Job specialization occurs when a job is composed of a small part of a larger task or process. Specialized jobs are characterized by simple, easy-to-learn steps, low variety, and high repetition, like the McDonald’s drive-through window job just described. One of the clear disadvantages of specialized jobs is that, being so easy to learn, they quickly become boring. This, in turn, can lead to low job satisfaction and high absenteeism and employee turnover, all of which are very costly to organizations.
Companies use job specializations because the work is designed to be simple, wages can remain low since it isn’t necessary to pay high salaries to attract highly experienced, educated, or trained workers.
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21. Job Rotation, Enlargement, Enrichment
Rotation – Move around
Advantages:
Disadvantages:
Enlargement – Several tasks
Enrichment – Giving authority
Because of the efficiency of specialized jobs, companies are often reluctant to eliminate them. Consequently, job redesign efforts have focused on modifying jobs to keep the benefits of specialized jobs while reducing their obvious costs and disadvantages. Three methods—job rotation, job enlargement, and job enrichment—have been used to try to improve specialized jobs.
Job rotation attempts to overcome the disadvantages of job specialization by periodically moving workers from one specialized job to another to give them more variety and the opportunity to use different skills. Job enlargement increases the number of different tasks that a worker performs within one particular job. Instead of being assigned just one task, workers with enlarged jobs are given several tasks to perform. Job enrichment attempts to overcome the deficiencies in specialized work by increasing the number of tasks and by giving workers the authority and control to make meaningful decisions about their work.
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22. Modular Organization - Outsourcing
Except for the core business activities that they can perform better, faster, and cheaper than others, modular organizations outsource all remaining business activities to outside companies, suppliers, specialists, or consultants. The term modular is used because the business activities purchased from outside companies can be added and dropped as needed, much like adding pieces to a three-dimensional puzzle.
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23. Modular Organizations
Advantages
reduced costs
Disadvantages
loss of control
noncore activities that are outsourced may become source of advantage
suppliers to whom work is outsourced can become competitors
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24. Virtual Organizations
In contrast to modular organizations in which the interorganizational process revolves around a central company, a virtual organization is part of a network in which many companies share skills, costs, capabilities, markets, and customers with each other.
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25. Virtual Organizations
Advantages
shared costs
fast and flexible
Disadvantages
difficult to control quality of work done by partners
requires tremendous managerial skills
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26. Modern Shed
1. Describe how Modern Shed functions as a modular organization. 2. What are the advantages and disadvantages of Modern Shed’s organizational structure?
Modern Shed, based in Seattle, builds paneled dwellings for use as studio spaces, home offices, pool houses, project sheds, guesthouses, and more. Like the sheds, the company is built to be adaptive, scalable, and suited to the needs of the environment. Modern Shed counts only 12 to 14 full time employees. But at times, its output rivals that of a large builder, thanks to collaboration with outside sales reps and a dealer network comprised of 35 independent contractors. According to Smith, the logical process of building sheds from smaller scale structures to larger ones is a metaphor for how modern organizations should be built. “You can use the analogy for organizations and people as well as structures,” Smith states. “If you go too big you don’t understand it; you have to start small.”
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