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Organizational Structure
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This technical note was prepared by Tammy Pitts under the supervision of J ames B. Clawson, Professor of Business
Administration. Copyright 2000 by the University of Virginia Darden School Foundation, Charlottesville, VA.
All rights reserved. To order copies, send an e-mail to No part of this publication may
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Organizational structure is a powerful determinant of organizational behavior. In fact,
many people believe decisions about organizational structure to be the central determinant of
organizational behavior. Executives are constantly wrestling with whether or not to centralize or
decentralize, for example, and how to structure the various functions in their firms. Despite what
many executives seem to think, there is much more to organizational design than just rearranging
its structure. As Tom Peters has written in a note describing his approach to organizational
diagnosis, structure is not organization.
In this note we will describe some of the major
principles that influence the effectiveness of an organizational structure and outline some of the
more common structural forms.

A Definition of Organizational Structure

Organizational structure is the framework of reporting relationships in an organization.
These relationships can usually be diagramed in the form of an organization chart. The
organization chart does not necessarily reflect actual reporting or decision-making relationships
in an organization, so we can make a distinction between the formal and the informal structure.
This note will deal primarily with the formal structure.

Organizational structure is only one of many aspects of organizational design. Other
aspects would include the nature of an organizations leadership, the various systems operating
in it, and organizational culture. Organizational structure reflects the way in which work in an
organization is divided. Historically, organizations have developed a number of ways to do this.
The Information Age is creating even more forms as we move ahead.

Organizational systems are the processes that attempt to coordinate those divisions of
work. The structure of an organization is like a skeleton: it defines the spatial relationships and
influences the power relationships among its various parts. The skeleton alone does not do much
work; it merely provides the framework within which the body tries to organize its resources to

Robert H. Waterman, Thomas J . Peters, and J ulien R. Phillips, Structure is not Organization, Business
Horizons (J une, 1980): 14.


accomplish its task. The systems of an organization are like the systems of the body that work
around and through the skeleton to produce movement and activity. In the organization these
might include the recruiting, management development, reward, information processing,
performance appraisal and promotion, purchasing, materials handling, grievance,
communications, production, accounting, and financing systems (and others). Obviously, the
synergy between a skeleton and its various dynamic systems is critical to the organisms success;
this is also true of organizations. If the structure does not fit the strategy of the organization and
the various systems operating within it, organizational effectiveness will be compromised.

Important Considerations Affecting Organization Structure

When one thinks about how to structure an organization, either creating a new one or
attempting to change an existing one, knowledge of a number of design principles helps to shed
light on the problem. These principles include (but not exclusively) fit, differentiation and
integration, technology, size, span of control (centralization or decentralization), staffing, unity
of command, and line vs. staff.


Fit or alignment is an important consideration to keep in mind in designing and
modifying organizational structure. Structures that do not fit their environments or series of
internal systems will be much less effective. Misaligned organizations are like bodies in which
the muscles have been attached to the skeleton in random fashionproducing unnecessary
tension and counter-effort where none is needed. For example, if an organization is structured
around self-directed teams but the reward system only recognizes individual performance,
employees will waste time and energy trying to reconcile the two. The wisdom and judgment
required to assess whether and how organizational environment, structure, and systems might be
aligned or misaligned comes with theoretical understanding and application, experience, and

Differentiation and integration

Two more processes that are fundamental to organizational structure are differentiation
and integration.
Differentiation refers to division of labor in which work is broken down into
its component pieces and assigned to specialists in various parts of the organization.
Differentiation typically occurs when an organization grows and becomes more complex and
people become more specialized in what they do. Integration refers to the need to coordinate and
meld the divided activities into a whole outcome (product or service). In general, the more one
divides work, the more one needs to provide for its integration, and the more difficult it becomes.

See Albert Chandler, Strategy and Structure (Cambridge, MA: MIT Press, 1990).
See Paul Lawrence and J ay Lorsch, Organization and Environment (Illinois: Richard D. Irwin, Inc., 1969).


Differentiation produces high levels of relatively narrow skills and makes it more
difficult for managers to integrate those skills into whole products or services. Paul Lawrence
and J ay Lorsch in their classic book, Organization and Environment,
identified some integration
problems caused by high levels of differentiation. These included the different backgrounds and
interests of people in different departments, minimal communication between groups, and the
tendencies of units and departments to give higher priority to their own roles and goals than to
those of other groups or the total organization.

Some common integrative mechanisms include providing integrator or liaison roles,
requiring interaction across groups, assigning joint responsibilities for common goals, going up
the chain of command, creating task forces, teams, or committees with joint membership,
making even more efficient information systems, and holding direct meetings to foster
familiarity with each others areas.


The kind of technology a firm uses can often shape its organizational structure.
Organizations built around batch technologies are typically structured differently than continuous
process organizations. Technologies that have highly interdependent parts demand organizational
structures that differ from those that involve independent, discrete pieces. The series of tasks and
the equipment and talent available for accomplishing them can have a significant impact on the
organizations structure. Further, in todays information age, the rapidly expanding nature of
computer- and satellite-based information systems is creating new organizational forms.


Differences in size of an organization place differing demands on it. Clearly it is easier to
monitor and manage 25 people than 2,500. Size, in and of itself and in conjunction with other
variables, can shape an organizations structure. While size may not determine the organizational
form most suited to meet the demands of the organization, it must be taken into account.

Span of control

Another important consideration, growing out of size, is span of control. This refers to
the number of people reporting to a supervisor. While a good deal of research has been
conducted about the right number of subordinates, definitive answers have not been found.
Some suggest that four or five are the most that one person can reasonably and effectively
manage; at the same time, managers like Harold Geneen of ITT were known to have worked
with more than 50 direct reports. Large spans of control like this imply a flatter organization in
that they produce fewer levels in the hierarchy. Greater attention to individual subordinates
means a narrower span of control and correspondingly a taller organization, one with more
levels of hierarchy. In general, the more subordinates an individual has, the more time and
energy it will take and the more difficult it will be to manage them effectively. There is,

Lawrence and Lorsch.


therefore, a tension between flat and responsive and tall and specialized in trying to
determine the appropriate spans for an organization. Decisions about span of control are also in
part decisions based on leadership style and the degree of empowerment leaders desire to
develop in their organizations. Leaders with what we might call a lower orientation to
hierarchy might tolerate and encourage a wider span of control and feel comfortable delegating
more responsibility to others. Leaders with a stronger orientation to hierarchy might choose
narrower spans of control, less delegation, and a more centralized structure.


Any organizational structure has to be staffed. Wise leaders consider carefully the fit of
the individual talents of the people and the jobs. The mere fact that a box on a piece of paper has
a job description associated with it does not mean that any individual put in that position will be
able or willing to fulfill that description. When the talents of available individuals do not match
the job demands of particular parts of the organizational structure, many senior managers are
more willing to make changes in the structure than they are in the personnel. Obviously, both
options are available, each with its attendant costs.

Unity of command

Early organizational theorists, probably influenced by the organizational forms created in
the Prussian army in the 17th century, concluded that every employee of an organization should
have one boss. This made it easy for each employee to know who to look to for direction. The
enormity and complexity of todays organizations have demanded, in many cases, more than one
boss for employees. The unity of authority to individuals in organizations is a design principle
that should be considered in light of the goals of the organization and the abilities of its

Line versus staff

People in organizations need to make decisions. Historically, it was thought that
organizations should follow the scalar principle, which says that authority for decisions should
flow in a single unbroken chain from the top of the organization to the bottom. This is neat and
simple for it allows one to identify a person responsible for any particular activityand it was a
fundamental principle of bureaucracies. As organizations have grown more complex, however,
the clarity of the line of authority has faded. Managers in the Industrial Age needed the
assistance of staff specialists to help them make decisions. This decision-making structure
created a division between line and staff. To the extent that knowledge is power, modern
information systems are blurring the distinctions between senior and junior decision-makers and
between line and staff even more. The so-called dotted line relationships on paper often do not
work out the way the designer intended. Effective organizational designers consider carefully
how the organization will make its decisions. Armed with up-to-the-minute databases, todays
staff personnel, answering phones, might be as influential on customer responses as the front-line
sales force. Further, many senior managers are realizing that they are no longer able to make


all the decisions that need to be made in todays rapidly changing environment. This creates the
challenge to, as J ack Welch puts it, grow big, but act small. When local, differentiated
employees supported by fast information systems can make good business decisions, a company
can appear to be small and personalized while in fact, it may be huge and have global reach.

These considerations work together in a multitude of ways to roughly define alternative
ways for an organization to be structured. We note before introducing the various forms
currently observable in business, that the Information Age technology is creating an enormous
change in the way companies are organized. When an organization has both the information
provided by timely databases and the wisdom to use that information well, decision-making is
being pushed further and further down in the organization. While some traditional executives rue
this development, those who embrace it see the strategic value of this de facto decentralization,
and they work harder to train their people to make the same decisions they would if they were on
site. So the Information Age is reshaping and reforming the way the principles introduced above
are influencing the shape of todays organizations.

Varieties in Organizational Structures

Organizational structures reveal much about the way senior management thinks about the
nature and key activities of its business. Do they emphasize geography? Customers?
Manufacturing? Insights into senior managements thinking about strategic direction lie in an
analysis of the structureand the changes thereinthat they built. We observe 10 basic forms of
organizational structure: functional, product, customer, geographic, divisional, matrix,
amorphous, two hybrid forms, and some current ideas that are creating the new, emerging
formswhich the lead author calls infocracies. Infocracies because the power to make key
decisions emanates not from the family name as it did in the Aristocratic Age, and not from the
title as it did in the Bureaucratic Age, but from the installed hard IT and soft human processes
that utilize increasingly comprehensive information systemssuch that the power (-cracy)
really does flow from the information network. Below we will describe each of these forms,
present a typical organizational chart, and outline briefly some of chief advantages and
disadvantages of each.

Functional structure

Description. The functional form divides work by type (e.g., marketing, finance,
production, and administration). Although the functions may vary from industry to industry, the
structures organizing concepts are the skills needed to perform clusters of tasks; plants are
assigned to the manufacturing function, sales perhaps in its own arm, and marketing perhaps as
a separate division. The underlying assumption in a functional structure is that the key, strategic
organizational capabilities lie in the various functional skillsand hence they are emphasized
and central. Functional organizations tend to be centralized in that it is only at the senior level
that the melding of the activities of the various functions occur, hence the term general
management. A simple functional organizational chart appears in Figure 1.


Figure 1. Functional form

Staff Functions
Vice President
Vice President
Vice President
Vice President
Chief Executive Officer

Advantages. The functional forms primary advantage is the expertise of its functional
specialists. People who begin their careers in research and development, or manufacturing, or
sales, and work their way up through career ladders in those functions become practiced and
skilled in their area of competence. Managements job is to integrate the functions and ensure
that they are coordinated in delivering their goods and services to the market. Hiring and
retaining functional specialists is also a critical need. Functional forms make it easier for people
within and without the organization to know whom to call for particular needs. They avoid
duplication of resources and permit economies of scale in the use of the various specialties.
Finally, the functional organization is simplethere are clear assignments for each department
so that accountability is easier to track. Many smaller organizations begin with functional
organizations and then evolve into one or more of the other types.

Disadvantages. On the other hand, the functional form often tends to encourage empire
building and protecting behavior in that functional managers often find it difficult to relate to or
support the objectives of their counterparts. Boundaries between departments in a functional
organization become increasingly difficult to penetrate. Customers and employees may hear
people saying, Im sorry, thats not my departmentwhat well-known speaker and author Ken
Blanchard calls bureaucratic quackery. It can be easy to lose sight of customers in a functional
organizationemployees tend to be focused on their jobs rather than their customers. The
functional form also creates barriers to coordination and communication among the functional
units as units develop their own jargon and reward systems. Each functional group tends to
develop its own subculture as well. Finding integrative systems and mechanisms sufficiently
strong to overcome functional barriers can be a major problem. Finally, functional forms are not
conducive to the early development of general management talent.

Product structure

Description. Marketing or consumer goods firms often use the product form that groups
jobs associated with specific products under the direction of product managers. The product
manager is responsible for many or all of the aspects of a product or product line. In its pure
form, the product structure has the effect of creating several smaller, single product-line
companies, each with its functional specialties in support. Often, however, the product manager
only has responsibility for the marketing and sales of the product and must rely on an operations


manager for cost control and product quality and delivery. More commonly, the finance and
operations functions are left intact, and the marketing and sales functions are put under the
product manager, creating a hybrid of the product and functional forms. The key point here is
that the management of the product structure wants to emphasize the importance of the products
of the firm by holding the product manager accountable for the profitability of the line. The
product manager is driven to integrate the efforts of specialists toward the products goals. See
Figure 2 for a simple example of a product structure.

Figure 2. Product form

Staff Functions
Product Manager
Product One
Product Manager
Product Two
Product Manager
Product Three
Product Manager
Product Four
Vice President
Product Groups
Vice President
Chief Executive Officer

Advantages. The benefits of the product form are that it can enjoy the advantages of the
functional format while minimizing the disadvantages. Attention is given to a single product, and
specialized people and equipment can be targeted for the demanding products and eased off the
less successful ones. This is obviously a more responsive and efficient way to use resources than
the functional form, although it is usually too complex for the smaller firm. The product form is
also an excellent training ground for general managers; product managers learn to see and
manage across functions for the sake of an overall result.

Disadvantages. As with the functional form the product form has its disadvantages. The
product form is more costly because it is expensive to initiate and maintain the duplication of
resources of functional specialists in each product division. The duplication of resources will not
be a problem if there is enough sales volume for each product line, but corporate costs in the
aggregate remain a target for reduction. With these smaller, product-oriented functional
departments, however, there is a risk of inadequate attention to skill development and its efficient
use. Also, tight corporate control on profits may result in tight product-line controls that, in turn,
can limit risk taking, adaptability, and innovation. Barriers to communication and coordination
still commonly grow inside the product form because each product manager is paid and
encouraged to attend to his or her line and not to worry about others.


Customer structure

Description. Departmentalization by customers is used when management wants to
insure a focus on the customers needs rather than on skill in producing (functional) or on brands
to sell (product). In our increasingly service-oriented society, the customer form is becoming
more and more common; we believe that the customer form is underutilized even in the
manufacturing sector, where historically managements have often focused on internal concerns
rather than customer concerns. Customer departmentalization or segmentation is also commonly
used within sales departments that offer different terms to different kinds of customers (volume
discounts to large customers, for instance). The customer structure signals that management is
sensitive to the needs of their customer segments and that they have identified segments that
have substantial sales potential. See Figure 3.

Figure 3. Customer form

Staff Functions
General Manager
General Manager
General Manager
Retail Chains
Vice President
Chief Executive Officer

Advantages. The customer form is very helpful in reminding management where the
revenue comes from. Companies that are differentiated by customer type tend to be more
sophisticated in understanding and meeting customer needs.

Disadvantages. On the other hand, the customer form leads to pressure to meet the
various customers demands, which leads to greater complexities in production or service
scheduling and shorter production runs, which are expensive.

Geographic structure

Description. Some argue that the geographic structure is a hybrid of the customer form,
but we believe that geography does not necessarily line up with many customer market segments
and should therefore be considered separately. The geographic form divides the work in a firm
by location. Often this is a function of the product or service and the difficulty of transporting a


good or service over large distances. For instance, historically, despite many efforts to
nationalize the real estate business, it remained largely a geographic industry until increasing use
of the Internet made it possible to regionalize and even nationalize its scope. Meatpacking and
construction are two more industries that have largely retained their regional structures. Many
companies organize their sales forces by region. Further, in a global economy, many regional
divisions are countries, each with their own cultural, legal, financial, and managerial

Distance may not be the only reason to consider a geographic form. Changes in the legal
environment, cultural norms, and topography may also contribute to the decision to organize
geographically. Multinational companies with subsidiaries in many countries, for instance, often
recognize the tradeoffs between centralized control and the complexity of differing
environments. See Figure 4.

Figure 4. Geographic form

Staff Functions
General Manager
General Manager
General Manager
Vice President
Chief Executive Officer

Advantages. Departmentalization by geography allows an organization to focus on the
customer needs of a smaller area and to minimize the costs associated with transportation of
goods or services. Because minicompanies with all functions fully operating are often arranged
geographically, this form also provides training grounds for managerial personnel. It also helps
management stay closer to their clientele than a national or worldwide functional form would.

Disadvantages. Geographic boundaries in a firm can blur managements view of the
customer segments in their markets. They also can build barriers to communication and
coordination across units. They add to the complexity of calculating returns on investment,
setting goals for financial and other kinds of achievement, and in even accounting for the results
of business activity.


Divisional structure

Description. Perhaps the most common structure in many large American firms today is
the divisional form. Alfred Chandlers classic book, Strategy and Structure, outlines the
development of this form in the early 20th century at DuPont and General Motors. William G.
Ouchi, more recently, has written about the form in detail in his book, The M-Form Society.
divisional structure may be considered an extension of the product form but with much greater
responsibility and scope of control for the general manager. In this form, an individual is placed
in charge of a business that may be defined by product group or location or clusters of
products. These divisions typically will be responsible for their own business from start to finish,
including financing, raw materials, manufacturing, and sales and marketing. They also may have
authority to organize their divisions the way they want to and that could be appropriate, given
that different businesses may face different environments. See Figure 5.

Figure 5. Divisional form

Staff Functions
General Manager
Metals Group
General Manager
Energy Group
General Manager
Consumer Goods
Vice President
Chief Executive Officer

Advantages. Ouchi argued that the M-form strikes a balance between independence and
interdependence among organizational units. He stated that the organization should not have
units completely dependent on each other as in the functional form or totally independent like the
product form (where there are profit and investment centers). By striking a balance between
these extremes, organizational units may maximize profits but still share in the allocation of
common expenses from product divisions.

Ouchi believed all units should be interdependent through shared resources. Hewlett-
Packard (HP), for example, conforms well to the pure M-form. In the late 20th century, HP was

See William G. Ouchi, The M-Form Society (New York: Avon, 1984).


divided into nearly 50 semiautonomous divisions: one manufactured oscilloscopes, another,
hospital instruments, a third, computers and so on. Each division sold to a slightly different set of
customers; each employed different manufacturing methods. But all shared in common a base in
the profession of electrical engineering and used some similar manufacturing methods, and most
depended upon a continual process of invention from central laboratories to supplement their
research. The formal structure of the divisional form reflects the tension between dependence
and independence in organizations and provides a means through which to attain a balance
between autonomy for the division and central control for the corporation.

Disadvantages. The divisional form is complex and requires experience and judgment to
manage well. It can lead to embarrassing redundancies and breakdowns in service to the
consumer. At HP, for instance, at one point in the early 1980s, three different divisions had
produced computer machines that were incompatible with each other. This fragmented HPs
ability to influence that market and presented a confused array of products to the buying public.
The M-form creates tremendous needs for careful and thoughtful integration systems and
mechanisms. In other words, independence is much easier to attain than interdependence.

Matrix structure

Description. The matrix structure flew in the face of many of the organizational
principles outlined by the early management writers. Spans of control grew, unity of command
was forgotten, and lines of authority blurred to dissolution, yet the form persists because it
responded to a particular set of needs, experienced first in the aerospace industry: extremely
expensive projects, limited talent pools, and highly complex projects that required highly
specialized skills.

In the matrix organization, there are two or more lines of authority. One is essentially a
functional array, with managers for engineering, manufacturing, sales, procurement, and so forth.
The other is a line of project managers who are charged with the budget for a program. Thus, the
functional managers have the manpower and talent assigned to them and the project managers
have the money assigned to them; neither can live without the other. The functional employee in
the matrix form typically has at least two bosses, the project manager and the functional
department manager. One pays his salary and the other contributes heavily to his performance
review because he sees his or her work across several projects.

Matrix organizations require special management and employee skills to run effectively.
High levels of trust, communication, negotiation, teamwork, ability to shift focus and priority,
and attention to detail are essential to managing and working in a matrix. TRW, for instance, one
of the pioneering companies of the matrix form, spent tremendous amounts of time and energy
teaching its employees how to work in and manage a matrix organizationsomething
management felt it had to do to compete successfully in the aerospace industry. HR specialists
worked to teach managers and employees that decisions had to be based on expertise, persuasion,
and logic, rather than hierarchical position and formal roles, and that misunderstandings,
disagreements and conflicts had to be dealt with through confrontation and problem-solving


rather than through appeals to higher authority, win/lose domination, avoidance, or papering over
the differences. The general atmosphere of the matrix firm must emphasize task contribution and
accomplishments above personal rank and status. The dual authority structure of the matrix
permits focus on project efficiency while maintaining the specialist development of the
functional structure, ensuring that functional resources are available when needed. See Figure 6.

Figure 6. Matrix form

Advantages. The matrix form is useful for complex tasks such as designing major weapon
systems, moving to a new plant site, or corporate acquisitions. Matrices, or hybrids of them, are
common where there are limited resources, high and temporary resource demands, and high
levels of complexity and uncertainty in a project. This loose structure (compared with the
functional form) is helpful in facilitating problem solving for situations like these.

Disadvantages. The disadvantages of this structure include the reality that the
maintenance of the two management hierarchies is expensive. Further, the matrixed employee
typically has two or more bosses and must determine whom to listen to when. This often creates
confusion and ambiguity in the system, which can be debilitating. Again, the expense of training
and maintaining this highly interpersonal skill-dependent form is significant if not prohibitive.
Many managers steeped in the more traditional forms simply cannot give up assumptions about
Staff Functions
Project Manager
Project A
Project Manager
Project B
Project Manager
Project C
Vice President
Vice President
Vice President
Chief Executive Officer

Engineer A Machinist A Specialist A
Engineer B Machinist B Specialist B
Engineer C Machinist C Specialist C


one-person, one-boss or the line-of-authority principle and are unable to function in a matrix

Amorphous structure

Description. The amorphous structure grows of its own accord. In the absence of
guidelines or of formal organizational charts, individual managers develop the organizations they
need to accomplish their own purposes. Amorphous systems reflect either a tremendous amount
of senior management trust in its middle managers or apathy to the organizational structure. Each
group develops in its own way with its own resources and needs. Sometimes termed organic
organizations for the exponential ways in which they grow, amorphous organizations represent a
high-risk, high-return alternative to the organizational manager.

If amorphous organizations work, the people in them can be highly motivated and
productive. If they dont, the people in them can be highly frustrated and unproductive. Perhaps
the best early modern example of the amorphous organization was Digital Equipment
Corporation (DEC) in its early years in which it grew, amorphously, to be the second-largest
computer manufacturer. Organization charts were virtually nonexistent in the firm. Departments
and divisions grew out of individual interests and decisions over the years. Management was not
completely without control; instead, they placed a high level of trust in the capacity of
subordinates to shape and determine the form of the work. Another example comes from
DenmarkLars Kolind, president of a hearing-aid company, Oticon, reorganized his company
into what he called a spaghetti organization.
Concerned by the lack of fluid communication
and the boundaries between organizational departments, he threw out all job descriptions, fired
all secretaries, and tore down the walls in the headquarters office building. Computers,
telephones, and other office equipment were loaded onto carts and employees were told that
when you need to work on a project with someone, just wheel your carts together so you are side
by side. Oticon reported that profits and innovation soared and costs came down subsequent to
this radical reorganization.

Organic or amorphous forms seem to be gaining in popularity during the explosion
of the Information Age in entrepreneurial, high-tech companies, many of which are based on
Internet connections. The emergence of the so-called virtual organizations in which most
functions of the traditional organization are subcontracted also complicates the current panorama
of structural alternatives. If a company contracts with an independent manufacturer to produce a
product designed under contract and distributes and sells the product through an independent
sales organization, where is the organization? Does it have a structure? If the organization
consists of a pool of employees working at home on a variety of projects, connected through a
variety of networks, perhaps only temporarily until a project is completed, where is the
organization? New theories of network organizations are emerging and influencing design
decisions. The varieties are infinite. See Figure 7.

See The Tom Peters Seminar (New York: Vintage Books, 1994), 29.


Figure 7. Amorphous form

Advantages. Amorphous organizations have the potential to provide a highly motivating
environment for achievement-oriented, internally motivated individuals. As long as a company
has the right kind of talent, it can respond relatively quickly to environmental or technological
changes. Further, those kinds of people are often employed by entrepreneurs who are focused on
rapid growth and either believe that too much structure is stifling or they do not have enough
time to pay attention to the challenges of organizing.

Disadvantages. Amorphous organizations can become morasses of confused, undirected
effort, producing little more than friction and heat. For an amorphous organization to persist, the
recruiting system must be refined to select only those who fit the needs of the organization. This
uncontrolled growth can be very expensive and even fatal.

Hybrid structures

Description. We can readily identify a variety of hybrids of the foregoing types of
organizational structures in society. To try to get the benefits of each, many firms mix the
features of two or more of the forms. Obviously, the danger is getting the disadvantages of each
instead. Hybrids often build on one of the two forms by adding various mechanisms to increase
integrationsuch as task forces and work teams, which are frequently used to coordinate
activities among divisions of a functional or product form organization.

The common hybrid forms include (a) the functional/product form in which product
managers do not have complete control over the operations or financing arms of the business and
(b) the geographic/customer form in which the area managers also have customer segment
breakdowns in their sales forces. For example, see Figure 8.

Chief Executive Officer
? ? ?
? ?
? ?
Chief Executive Officer


Staff Functions
Brand Manager
Counter Top
Brand Manager
Brand Manager
Office Products
Vice President
Vice President
Vice President
Vice President
Chief Executive Officer

Figure 8. Functional/Product form

Advantages. Hybrids provide the means for adapting an organizations structure to the
demands of the environment, current staffing characteristics, and other design constraints like in-
place systems and historical momentum. The options are almost limitless, yet most organizations
tend to revolve around one or more of the seven previously outlined.

Disadvantages. Hybrids can be confusing. Managers and employees, people in general
actually, usually prefer to reduce uncertainty, and the more complex an organization is the more
ambiguous is the experience of each individual manager. In that confusion about whos doing
what and who is reporting to whom about what, people working in hybrids can become frustrated
and disillusioned.


Organizational structure is a key element in the functioning of an effective organization.
It is also a common lever that many executives pull in an attempt to increase the efficiency of
their companies. If an organizations structure does not fit well with its environment and internal
systems, it will be unable to function at high levels of effectiveness and efficiency. Yet seldom is
there a clearly appropriate organizational structure for any one situation. Managers charged with
redesigning or influencing the design of organizations should keep in mind the basic
considerations of fit, differentiation, integration, technology, size, span of control, and line
authority, as they seek to shape or create organizational structures that will work. As they do,


they have a variety of alternatives from which to chooseand a vast arena of possible variations.
Further, the new Information Age organizationsin which powerful new information networks
are distributing, de facto, greater decision-making power to people in all reachesare evolving
into new forms. These infocracies are distributing power to those who have access to both
customers and information databases and can therefore merge the two to make good business

The new Information Age organizations will evolve through the creativity of their
leader/managers and how they think about organizations. Gareth Morgan, for example, poses a
different perspective in Images of Organizations in which he poses metaphors for thinking about
organizations as a way of sharpening design thinking. Organizations, he suggests, can be thought
of as machines, as living organisms, as brains, as cultures, as political systems, as psychic
prisons, as foci of constant change, and as instruments of domination.
How we think about
organizations clearly will shape our design decisions in them. In Organizing for the Future, J ay
Galbraith and Ed Lawler collect articles about creating high-involvement organizations in which
the collective creativity of most employees can be unleashed.
These ideas would seem to inform
managers who worry about the potential for trapped bureaucratic behavior in their
corporations. Clearly this is an issue widely considered in the explosion of e-commerce
companies springing up. Peter Drucker has postulated that the work of the future will revolve
around projectsan argument so convincing to many that Tom Peters has published a book, The
Project 50, which outlines the characteristics of effective project managersall presumably
operating within an organizational structure that encourages effective project behavior.
project-based company in many respects would be the next step in the decentralization design
employed by HP and J ohnson & J ohnsonkeeping business units small enough to be creative
and highly coordinated.

This note was intended to give you a quick overview of the major organizing principles
developed over the last 200 years, to introduce you to the types of organizational structure
commonly employed in the 20th century, to heighten your awareness that organizational
structure is a key leader decision point for building effective organizations, and to stimulate your
thinking about organizational hybridsmixing and matching pieces of what we knew
historically about organizational design and theory as we embark on a new, information-based
millennium. It seems clear that organizational forms will continue to evolve and perhaps even
that new principles will be discovered and employed. The wise and effective organizational
leader will keep abreast of these developments and use them to good advantage in organizing the
efforts of employees to meet strategic objectives.

Gareth Morgan, Images of Organizations (Thousand Oaks, CA: Sage, 1986).
J ay R. Galbraith, Edward E. Lawler III and Associates, Organizing for the Future (San Francisco, CA: J ossey-
Bass, 1993).
Thomas J . Peters, The Project 50 (New York: Alfred Knopf, 1999).



For those interested in learning more about organizational design and organization
structure in particular, here are some selected resources for further reading.

Chandler, Alfred D., J r. Strategy and Structure: Chapters in the History of the American
Industrial Enterprise. Massachusetts: The MIT Press, 1990.
Daft, Richard L. and Lee Lyon. Organization Theory and Design. Minnesota: West Publishing
Company, 1983.
Dalton, Gene W. and Paul R. Lawrence. Organizational Structure and Design. Illinois: Richard
D. Irwin, Inc., 1970.
Davis, Stanley M. and Paul R. Lawrence. Matrix. Pennsylvania: Addison-Wesley Publishing
Company, 1977.
Etzioni, Amitai. Modern Organization. New J ersey: Prentice-Hall, Inc., 1964.
Galbraith, J ay R. and Edward Lawler III and Associates. Organizing for the Future. San
Francisco, CA: J ossey-Bass, 1993.
Handy, Charles B. Understanding Organizations. England: Penguin Books, 1976.
Kast, Fremont E. and J ames E. Rosenzweig. Organization and Management: A Systems
Approach. New York : McGraw-Hill Book Company, 1970.
Lawrence, Paul R. and J ay W. Lorsch. Organization and Environment. Illinois: Richard D.
Irwin, Inc., 1969.
Miller, E. J . and A. K. Rice. Systems of Organization. London: Tavistock Publications, 1967.
Morgan, Gareth. Images of Organizations. Thousand Oaks, CA: Sage, 1986.
Organ, Dennis W. and Thomas Bateman. Organizational Behavior. Texas: Business
Publications, Inc., 1978.
Ouchi, William G. The M-Form Society. New York: Avon, 1984.
Pfeffer, J effrey. Organizations and Organization Theory. Massachusetts: Pitman Publishing,
Inc., 1982.
Pinchot, Gifford and Elizabeth. The End of Bureaucracy and the Rise of the Intelligent
Organization. San Francisco: Berrett-Kohler, 1994.
Thompson, J ames D. Organizations in Action. New York: McGraw-Hill Book Company, 1967.
Tosi, Henry, L. Theories of Organization. Chicago: St. Clair Press, 1975.