Organizational structure Lecture 5 What Is Organizing

Organizational structure Lecture 5

What Is Organizing? n Organizing n Arranging the activities of the enterprise in such a way that they systematically contribute to the enterprise’s goals.

Why Have a Structure? n All organizations require some form of organizational structure to implement and manage their strategies n A clear structure makes it easier to see which part of the business does what n There are many ways to structure a business n Structure describes how members are accepted, how leadership is chosen, and how decisions are made

Purpose of Organizational Structure n n n n to exercise control to establish division of labor to facilitate communications to facilitate coordination & integration to establish accountability to delegate responsibility to establish lines of authority and chain of command to establish rules and regulations

Defining Organizational Structure n Organizations can be regarded as people management n organizational structure formal framework by - the which job tasks are divided, grouped, and coordinated n organizational structure is a mainly hierarchical concept of subordination of entities (branch, department, workgroup and individual) that collaborate and contribute to serve one common aim.

Defining Organizational Structure n organizational design - process of developing or n work specialization component of organization -a n Firms frequently alter their structure as they grow in size and complexity changing an organization’s structure that involves having each discrete step of a job done by a different individual rather than having one individual do the whole job

Stages of Organizational Development n Simple structure n n Functional structure n n An organization that is low in specialization and formalization but high in centralization An organization in which similar and related occupational specialties are grouped together Divisional structure n An organization made up of self-contained units

Stages of Organizational Development n Matrix structure n n Team-based structure n n An organization in which specialists from functional departments are assigned to work on one or more projects led by a project manager An organization that consists entirely of work groups or teams Boundaryless organization/Hybrid Structure n An organization that is not defined or limited by boundaries or categories imposed by traditional structures

Strategy & Structure Growth Patterns Multidivisional Structure Sales Growth Coordination and Control Problems Efficient implementation of formulated strategy Functional Structure Sales Growth Coordination and Control Problems Efficient implementation of formulated strategy Simple Structure

Simple Structure Owner / Manager Owner/Manager makes all major decisions directly and monitors all activities Difficult to maintain this structure as the firm grows in size and complexity

Functional Structure An organizational structure composed of all the departments that an organization requires to produce its goods or services Allows specialization of tasks * Production * Finance * Engineering * Accounting * Sales & Marketing * Human Resources Functional department heads report to Chief Executive Officer who integrates decisions and actions from a company-wide point of view

Reengineering Functional Structures n Reengineering is the process of redesigning how tasks are bundled into roles and functions to improve organizational effectiveness.

Before and After Example of Reengineering n A. Before Improving Integration in a Functional Structure by Creating a Materials Management Function CEO Manufacturing Purchasing Production Control Distribution Marketing

Before and After Example of Reengineering n B. After CEO Manufacturing Materials Management Marketing Purchasing Production Control Distribution

Functional Structure n Advantages n n n n It is simple, obvious, and logical. It fosters efficiency. Encourages learning from others doing similar jobs. It can simplify executive hiring and training. Easy for managers to monitor and evaluate workers. Allows managers to create the set of functions they need in order to scan and monitor the competitive environment It can facilitate the top manager’s control.

Functional Structure n Disadvantages n n Difficult for departments to communicate with others. Preoccupation with own department and losing sight of organizational goals. It increases the workload on the executive to whom the functional department heads report. It produces fewer general managers.

Divisional Structure n n Divisional Structure — a structure in which functions are grouped together according to the specific demands of products, markets, or customers. Each division is operated as a separate business Appropriate for related-diversified businesses Typically used by an organization whose products are very different and that operates in several different industries.

Divisional Structure Key task of corporate managers is exploiting synergies among divisions Managers use a combination of strategic controls and financial controls Managers try to strike a balance between: Competing among divisions for scarce capital resources Creating opportunities for cooperation to develop synergies The goal is to maximize overall firm performance The decision-making of managers in a Divisional structure may be: Centralized or Decentralized Bureaucratic or Non-bureaucratic

Product, Market, and Geographic Structures

Types of Divisional Structures n Product Structure Managers place each distinct product line or business in its own self-contained division n Divisional managers have the responsibility for devising an appropriate business-level strategy to allow the division to compete effectively in its industry n

Product Structure Allows functional managers to specialize in one product area n Division managers become experts in their area n Removes need for direct supervision of division by corporate managers n Divisional management improves the use of resources n

Types of Divisional Structures n Geographic Structure n n Divisions are broken down by geographic location Global geographic structure n Managers locate different divisions in each of the world regions where the organization operates.

Types of Divisional Structures n Global Product Structure n Each product division takes responsibility for deciding where to manufacture its products and how to market them in foreign countries worldwide

Global Geographic and Global Product Structures

Types of Divisional Structures n Market Structure Groups divisions according to the particular kinds of customers they serve n Allows managers to be responsive to the needs of their customers and act flexibly in making decisions in response to customers’ changing needs n

Advantages þ The product or service gets the single-minded attention of its own general manager and unit, and its customers may get better, more responsive service. þ It’s easier to judge performance. þ It develops general managers. þ It reduces the burden for the company’s CEO. Disadvantages þ It may diminish top management’s control. þ It requires more managers with general management abilities. þ It can breed compartmentalization.

Matrix Design Structure n Matrix Structure n An organizational structure that simultaneously groups people and resources by function and product. n Results in a complex network of superior-subordinate reporting relationships. n The structure is very flexible and can respond rapidly to the need for change. n Each employee has two bosses (functional manager and product manager) and possibly cannot satisfy both. n "product a" sales department, "product a" customer service department, "product a" accounting, "product b" sales department, "product b" customer service department, "product b" accounting department

Matrix Structure

Starbucks one of the numerous large organizations that successfully developed the matrix structure supporting their focused strategy. n Its design combines functional and product based divisions, with employees reporting to two heads. n

Advantages n Access to expertise. n Stability of permanent department assignments for employees. n Allows for focus on specific projects, products, or customers. Disadvantages n Confusion of command. n Power struggles and conflicts. n Lost time in coordinating.

Product Team Design Structure n Product Team Structure Does away with dual reporting relationships and two -boss managers n Functional employees are permanently assigned to a cross-functional team that is empowered to bring a new or redesigned product to work n Cross-functional team is composed of a group of managers from different departments working together to perform organizational tasks. n

Product Team Structure

Hybrid Structures n Hybrid Structure n The structure of a large organization that has many divisions and simultaneously uses many different organizational structures

Coordinating Functions: Allocating Authority n The power vested in a manager to make decisions and use resources to achieve organizational goals by virtue of his position in an organization

Coordinating Functions: Allocating Authority n Hierarchy of Authority n An organization’s chain of command, specifying the relative authority of each manager. n Span of Control: the number of subordinates who report directly to a manager

Allocating Authority n n Line Manager n Someone in the direct line or chain of command who has formal authority over people and resources Staff Manager n Managers who are functional-area specialists that give advice to line managers.

The Hierarchy of Authority and Span of Control at Mc. Donald’s Corporation

Tall and Flat Organizations n Tall structures have many levels of authority and narrow spans of control. As hierarchy levels increase, communication gets difficult creating delays in the time being taken to implement decisions. n Communications can also become distorted as it is repeated through the firm. n Can become expensive n

Tall Organizations

Tall and Flat Organizations n Flat structures have fewer levels and wide spans of control. n Structure results in quick communications but can lead to overworked managers.

Minimum Chain of Command n Top managers should always construct a hierarchy with the fewest levels of authority necessary to efficiently and effectively use organizational resources

Centralization and Decentralization of Authority n Decentralizing authority n giving lower-level managers and non-managerial employees the right to make important decisions about how to use organizational resources

Decentralizing Authority n Disadvantages Teams may begin to pursue their own goals at the expense of organizational goals n Can result in a lack of communication among divisions n

Centralized organization n In a centralized organization: people have little autonomy n norms that focus on being cautious, obeying authority, and respecting traditions emerge n predictability and stability are desired goals n

Organizational Structure n In a flat, decentralized structure: people have more freedom to choose and control their own activities n norms that focus on being creative and courageous and taking risks appear n gives rise to a culture in which innovation and flexibility are desired goals. n

The Walt Disney Company

When should you develop a structure for your organization? Think about structure from the beginning of the organization's life n The best structure for any organization will depend upon who its members are, what the setting is, and how far the organization has come in its development n

Three elements of the structure n n Regardless of what type of structure your organization decides upon, three elements will always be there. They are: Some kind of governance - some person or group has to make the decisions within the organization Rules by which the organization operates A distribution of work - can be formal or informal, temporary or enduring, but every organization will have some type of division of labor