Understanding and Managing Organizational Structure (A) BA 152

Understanding and ManagingOrganizational Structure (A)

BA 152

Today’s Questions

1. What do we mean by the term, “structure?”

2. What influences the structural choices made by managers?

3. What are two of the most popular organizational structures?

4. What are the relative advantages and disadvantages of these structures?

Characteristics of Organizations

Environment

SystemsPeople

TechnologiesStructures

StrategiesGoals

FIT!Cultures

What is Structure?

The allocation of responsibilities

Formal reporting channels

The systems that coordinate effort

The way the company is put together.

Becoming an Organization

ComplexityVertical

Horizontal

M ak ing T hings S elling T hings G etting M oney D es igning T hings Dealing with People

F irst-Line Em ployees

S uperv isors

M iddle M anagers

V ice-P res idents

P res ident

Vertical/Horizontal Division of Labor

VerticalComplexity

Horizontal Complexity

Becoming an Organization

ComplexityVertical

Horizontal

CentralizationFormalization

Influences on Structure

Environment

Technology

Industry

Strategic Choice/Goals

Organizational Size

FIT!

Structuring WorkA Craft Approach

DMS Corp. D=MS

D=MS

D=MS

D = Design, M = Make, and S = Sell

Structuring WorkA Craft Approach

Advantages Close supervision Experts doing all of

the tasks Quality should be

higher

Disadvantages Difficult to find

experts Unable to meet

increased demands Equipment sits idle,

and we lose possible economies of scale D

=M S

Structuring WorkA Functional Approach

DMS Corp. Functions

=D

=M

=S

A Functional Organization

Vice-PresidentManufacturing

DirectorQuality Control

DirectorInventory Control

DirectorProduct Scheduling

Vice-PresidentEngineering

By engineering specialties

Finance & Accounting

Vice-President

By F&A specialties

Vice-PresidentMarketing

By marketing specialties

President

Characteristics of Functional Structures

1. Those doing the “same thing” are in the same function.

2. More standardized methods and procedures within each function

Characteristics of Functional Structures

3. Higher degree of control/centralization within each function and at the top of the organization.

4. The functions are organized as cost centers.

5. This structure is competitive in stable environments demanding efficiency.

DEAN

Kenan-Flagler Business SchoolFunctional Structure

OperationsDept.

Chairman

FullProfs.

Assoc.Profs.

Assist.Profs.

AccountingDept.

Chairman

FullProfs.

Assoc.Profs.

Assist.Profs.

MarketingDept.

Chairman

FullProfs.

Assoc.Profs.

Assist.Profs.

ManagementDept.

Chairman

FullProfs.

Assoc.Profs.

Assist.Profs.

FinanceDept.

Chairman

FullProfs.

Assoc.Profs.

Assist.Profs.

Functional Structure

Advantages– Economies of scale– Supervision/training by specialists– Promotion within specialty

Vice-PresidentManufacturing

Vice-PresidentEngineering

Finance & Accounting

Vice-PresidentVice-President

Marketing

President

Functional Structure

Vice-PresidentManufacturing

Vice-PresidentEngineering

Finance & Accounting

Vice-PresidentVice-President

Marketing

President

Disadvantages– Short-term time perspective within functions– Conflicts across functions– Coordination problems between functions– Goal displacement– Less innovation– Less flexibility

Task forces (temporary)

Task Teams (permanent)

Ways to Coordinate Activities across Functions

President

Engineering Marketing Manufacturing R&D

TaskForce

Functional Structurewith task forces/teams

President

Engineering Marketing Manufacturing R&D

TaskTeam

Functional Structurewith task forces/teams

TaskTeam

Functional Structurewith task teams

TaskTeam

TaskTeam

TaskTeam

TaskTeam

President

Structuring WorkA Divisional Approach

DMS Corp.Division

=D =M =SEast Region

=D =M =SCentral Region

=D =M =SWest Region

Bases for DivisionalizationProducts – Buick, Cadillac, ChevroletTechnologies – mass production, customProjects – buildings, softwareGeography – such as . . .Customers – retail, government, industrial

A Divisional OrganizationPresident

Vice-PresidentSouthern Region

By smaller regions

Vice-PresidentNorthern Region

By smaller regions

Vice-PresidentWestern Region

By smaller regions

Vice-PresidentEastern Region

DirectorNew England

DirectorNew York MetroDirectorMid-Atlantic

•Engineering•Manufacturing•F&A•Marketing

Characteristics of Divisional Structures

1. Those doing “different things” are in the same division.

2. Less standardized methods and procedures across divisions

Characteristics of Divisional Structures

3. Lower degree of control and centralization within divisions and at the top of the organization

4. The divisions are organized as profit centers

5. This structure is competitive in dynamic environments requiring flexibility and responsiveness

Kenan-Flagler Business SchoolDivisional Structure

DEAN

ExecutiveProgramDirector

Acct.Faculty

Mkt.Faculty

Mgt.Faculty

FinanceFaculty

Ops.Faculty

Undergrad.ProgramDirector

Acct.Faculty

Mkt.Faculty

Mgt.Faculty

FinanceFaculty

Ops.Faculty

MBAProgramDirector

Acct.Faculty

Mkt.Faculty

Mgt.Faculty

FinanceFaculty

Ops.Faculty

PhdProgramDirector

Acct.Faculty

Mkt.Faculty

Mgt.Faculty

FinanceFaculty

Ops.Faculty

Divisional StructuresPresident

Vice-PresidentSouthern Region

Vice-PresidentNorthern Region

Vice-PresidentWestern Region

Vice-PresidentEastern Region

Advantages– Increased flexibility– Decreased response times– Better coordination within divisions– Good training for general managers

Divisional StructuresPresident

Vice-PresidentSouthern Region

Vice-PresidentNorthern Region

Vice-PresidentWestern Region

Vice-PresidentEastern Region

Disadvantages– Lose economies of scale– Poor coordination between divisions– Lose depth of competence in some

specialties– Advancement outside of specialty– Professional isolation

K-Mart Reorganization

Original Structure

   Southwest Northwest

Midwest Northeast

Southeast International

Corporate Offices

K-Mart Reorganization

New Structure

West Northeast

Southeast International

Super Centers

Corporate Offices

Volkswagen: Restructuring from Individual Brands to Operational Divisions

Original Structure

President/CEO

Audi Bugatti

Bentley Lamborghini

VW Skoda

Seat VW Trucks

Scania AB

Propsed S tructural C hange

Audi

Bugatti

Bentley

Lam borghin i

Luxury D ivision

VW

Skoda

Seat

M ass-Car D ivision

VW Trucks

Scania AB

Comm erical Vehicles

President/CE O

Volkswagen: Restructuring from Individual Brands to Operational Divisions

Volkswagen: Restructuring from Individual Brands to Operational Divisions

Why reorganize?– To give luxury brands more independence– To make luxury brands distinct from mass brands in

customers’ eyes– To reduce CEO’s span of control– To allow CEO to become more involved in operations– To add new lines/companies with less difficulty– To reduce operating costs

Propsed S tructural C hange

Audi

Bugatti

Bentley

Lamborghin i

Luxury D ivision

VW

Skoda

Seat

Mass-Car D ivision

VW Trucks

Scania AB

Commerical Vehicles

President/CE O

Today’s Take-aways

1. To be successful a structure must “fit” with the other major organizational characteristics

2. Functional structures work well when the organization’s environment is relatively certain and requires efficiency from the organization.

Today’s Take-aways

3. Divisional structures work well when the organization’s environment is relatively uncertain and requires responsiveness and adaptability from the organization.

4. But what happens when the environment demands both efficiency and adaptability? Stay tuned!

Next Time

C & C Grocery Stores