Organizational Theory

A functional structure is the bedrock of horizontal

differentiation. It is the first structure that
organizations adapt as they grow.

Functional Structure CEO

Research and Sales and Manufacturing Materials Finance

Development Marketing Management

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Organizational Theory
Moving to a Divisional Structure

The structure adopted to solve the control

problems of functional structures

(many kinds of products,

many different locations,
many types of clients)

is the divisional structure.

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Organizational Theory
Divisional structure
a structure in which
functions are grouped
together according
to the specific demands
of products, markets,
or customers.
The type of divisional structure selected
is driven by the specific type of control
problem experienced.
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Organizational Theory
Divisional Structure I: Three Kinds of
Product Structure

A product structure is a divisional structure

in which products are grouped into
separate divisions, according to their
similarities or differences.

There are three different types of product

structures seen in organizations.
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Organizational Theory
Product Division Structurea structure
in which centralized support functions
service the needs of a number of
different product lines.

Typically used by organizations whose

products are broadly similar and aimed
at the same market.

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Product Division Structure
CEO

Vice President Vice President Vice President Vice President

Sales and Research and Materials Finance
Marketing Development Management

PDM PDM PDM PDM

Canned Frozen Frozen Baked

Soups Vegetable Entrees Goods
Division Division Division Division

Centralized support functions

Divisions 4- 6
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Organizational Theory
Multidivisional Structurea structure in
which support functions are placed
in self-contained divisions.

Typically used by an organization whose

products are very different and that
operates in several different industries.

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Multidivisional Structure.
CEO

Corporate Headquarters Staff

Corporate Senior VP Senior VP Senior VP Senior VP

Managers Marketing Finance Materials Research and
Management Development

Divisional Division A Division B Division C Division D

Managers

Functional
Managers

Support functions Support functions Support functions Support functions

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Organizational Theory
Product Team Structurea divisional
structure in which specialists from the
support functions are combined into
product development teams.

Typically used by an organization whose

products are very technologically complex
or whose characteristics change rapidly
to suit customer needs.
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Organizational Theory
Divisional Structure II: Geographic Structure

When an organization experiences control

problems that are a function of geography,
a geographic divisional structure is used.

Such a structure organizes divisions

according to the requirements of different
locations.
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Geographic Structure

Regional
Operations

CEO
Regional Regional
Operations Operations
Central Support
Functions

Individual
stores
Regional
Operations

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Organizational Theory
Divisional Structure III: Market Structure

When an organization experiences control

problems that are a function of the
differences in the various customer groups
being served, a market structure is used.

Such a structure aligns functional skills and

activities with different customer needs.
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Market Structure

CEO

Central Support Functions

Commercial Consumer Government Corporate

Division Division Division Division

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Organizational Theory
Matrix Structure

The search for better and faster ways to

develop products and meet customer needs
led to the matrix structure.

A matrix structure groups people and

resources in two ways simultaneously:
-by function and
-by product
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 CEO
Matrix Structure

Vice President Vice President Vice President Vice President Vice President
Engineering Sales and Finance Research and Purchasing
Marketing Development

Product A
Manager

Product B Product Team

Manager

Product C
Manager

Product D
Manager

Two-boss employee
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Organizational Theory
A multidivisional matrix structure provides for
more integration between corporate and
divisional managers and between divisional
managers.

This structure makes it easier for top

executives from the divisions and from
corporate headquarters to coordinate
organizational activities.
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Multidivisional Matrix Structure

CEO

Senior Vice Senior Vice Senior Vice Senior Vice

President President President President
Marketing Finance Research and Materials
Development Management

Automobile
Products
Division

Personal
Computer
Division

Consumer
Electronics
Division
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Organizational Theory
A recent innovation in organizational
architecture is the use of network structures.

A network structure is a cluster of different

organizations whose actions are
coordinated by contracts and agreements
rather than through a formal hierarchy.

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Organizational Theory
Network structures often
result from outsourcing.

Outsourcing is the process of moving

activities that were previously performed
inside the organization to the outside
(where they are done by other companies).

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