Organizational Organizational StructuresStructures

BOH4MBOH4M

OrganizingOrganizing

Deciding how best to group Deciding how best to group organizational activities and resourcesorganizational activities and resources

Formal vs. InformalFormal vs. Informal

Formal StructureFormal Structure The way that the organization if configuredThe way that the organization if configured Defines hierarchy, chain of command, work Defines hierarchy, chain of command, work

groups, etc.groups, etc.

Informal StructureInformal Structure The unofficial working relationships within The unofficial working relationships within

the organizationthe organization i.e. who hangs out with whoi.e. who hangs out with who

Functional DivisionsFunctional Divisions

The most common structureThe most common structure Jobs are grouped together that involve the Jobs are grouped together that involve the

same type of activitysame type of activity Marketing, finance, manufacturing, HR, etc.Marketing, finance, manufacturing, HR, etc.

Pros: Managers need only be familiar with one Pros: Managers need only be familiar with one set of skills, coordinating departmental set of skills, coordinating departmental activities easyactivities easy

Cons: Decision making can become Cons: Decision making can become slow/bureaucratic in larger organizations, slow/bureaucratic in larger organizations, employees may focus too narrowly on their employees may focus too narrowly on their departmentdepartment

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A functional structure is the bedrock of horizontal differentiation. It is the first “structure” that organizations adapt as they grow.

Research andDevelopment

Sales andMarketing

Manufacturing Materials Management

Finance

CEOFunctional Structure

Product DivisionsProduct Divisions

Grouping activities around product groupsGrouping activities around product groups ExamplesExamples

GM, Chevrolet, CadillacGM, Chevrolet, Cadillac Coke, Sprite, DasaniCoke, Sprite, Dasani

Pros: easy to coordinate all activities Pros: easy to coordinate all activities associated with a product, quicker decision associated with a product, quicker decision making easy to assess performacemaking easy to assess performace

Cons: too much focus on own product, higher Cons: too much focus on own product, higher admin costsadmin costs

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Product Division Structure

Vice PresidentSales and Marketing

Vice President Research and Development

Vice President Materials

Management

CEO

Vice President Finance

CannedSoups

Division

PDM

FrozenVegetableDivision

PDM

FrozenEntreesDivision

PDM

BakedGoods

Division

PDM

Centralized support functions

Divisions4-19

Geographic DivisionsGeographic Divisions

Grouped based on the area servedGrouped based on the area served Examples:Examples:

North America, Europe, Asia, etc.North America, Europe, Asia, etc. Ontario, Quebec, Maritimes, etc.Ontario, Quebec, Maritimes, etc.

Pros: Can tailor operations to unique Pros: Can tailor operations to unique demands of each marketdemands of each market

Cons: ExpensiveCons: Expensive

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Geographic Structure

Regional Operations

Regional Operations

Regional Operations

Regional Operations

CEO

Central Support Functions

Individualstores

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Customer DivisionsCustomer Divisions

Grouped based on customer served or Grouped based on customer served or distribution channeldistribution channel

Examples:Examples: Industrial Sales, Consumer SalesIndustrial Sales, Consumer Sales Vending machines, retail, restaurantsVending machines, retail, restaurants

Pros: can create groups oriented to serving Pros: can create groups oriented to serving unique needs of specific customersunique needs of specific customers

Cons: ExpensiveCons: Expensive

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Market Structure

CommercialDivision

ConsumerDivision

GovernmentDivision

CorporateDivision

CEO

Central Support Functions

Which structure would Which structure would make the most sense?make the most sense?

AppleApple NikeNike McDonaldsMcDonalds NokiaNokia PepsiPepsi

The Silo EffectThe Silo Effect

The main problem with a divisional The main problem with a divisional structure is that grouping people together structure is that grouping people together means you are isolating them from the means you are isolating them from the other groupsother groups

This means that interdivisional This means that interdivisional communication is hard, and people tend communication is hard, and people tend to only focus on their own groupto only focus on their own group

Matrix StructureMatrix Structure

Attempt to avoid the Silo effect by inserting Attempt to avoid the Silo effect by inserting horizontal lines of communication into the horizontal lines of communication into the structurestructure

Ex: grouping people by function and customer Ex: grouping people by function and customer divisiondivision

Pros: better interdepartmental communication Pros: better interdepartmental communication and coordinationand coordination

Cons: more bosses to report to, requires well Cons: more bosses to report to, requires well organized information systemsorganized information systems

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Matrix StructureCEO

Vice PresidentEngineering

Vice PresidentFinance

Vice PresidentPurchasing

Vice PresidentSales and Marketing

Vice President Research and Development

Product AManager

Product BManager

Product CManager

Product DManager

Product Team

Two-boss employee

Flat vs. Tall StructuresFlat vs. Tall Structures

An organization with lots of levels of An organization with lots of levels of authority, and one where managers have authority, and one where managers have relatively few people reporting directly to relatively few people reporting directly to them is “tall”them is “tall”

An organization with few levels of An organization with few levels of authority, and where managers have authority, and where managers have large spans of control is “flat”large spans of control is “flat”

Pros/Cons?Pros/Cons?

3 Types of Ownership3 Types of Ownership

Sole ProprietorshipSole Proprietorship PartnershipPartnership CorporationCorporation

Organization Structures Organization Structures of a Corporationof a Corporation

Ownership of a corporation is controlled by the Ownership of a corporation is controlled by the company’s shares or stockscompany’s shares or stocks

Usually for each share, the owner get one Usually for each share, the owner get one vote…10 shares = 10 votesvote…10 shares = 10 votes

A proxy (substitute or stand-in) contract can be A proxy (substitute or stand-in) contract can be usedused

Proxy contracts allows the votes of one Proxy contracts allows the votes of one shareholder to be cast by another shareholder shareholder to be cast by another shareholder (given them more power)(given them more power)

Public versus Private Public versus Private CorporationsCorporations

Shares of a public corporation can be Shares of a public corporation can be purchased by anyone on one of the purchased by anyone on one of the major stock exchanges (TSX, NYSE, major stock exchanges (TSX, NYSE, NASDAQ)NASDAQ)

Shares of a private corporation limited Shares of a private corporation limited and can not be purchased by the and can not be purchased by the public…they are only available to owner’s public…they are only available to owner’s family members or employees of the family members or employees of the corporationcorporation

Shareholders and the Shareholders and the Executive StructureExecutive Structure

Because shareholders’ votes control the Because shareholders’ votes control the corporation they are above the corporation they are above the Chairperson of the Board in the executive Chairperson of the Board in the executive structurestructure

It is important to note that the It is important to note that the chairperson usually has the most shares chairperson usually has the most shares and therefore controls the company and therefore controls the company through her votesthrough her votes