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MGT 5391:

Session # 8

8 Types of Structures

http://macy.ba.ttu.edu/5491 Week #11organizational structure 1


Inputs TRANSFORMATION Outputs
Environmental
Results From High
Drivers
Performance / Exemplar
Organizations
1. External/ THE ORGANIZATION DESIGN PUZZLE:
Global Business HIGH PERFORMANCE LEARNING ORGANIZATION
Environment
1. Macro Organizational
2.Internal Organizational Effectiveness
Environment Structures
8. Shared Leadership
A.Corporate,
Business, & Decision Making 2. The Job/work 1. Customers
Worksite And Systems
Individual: 2. Financial/
Capabilities And 7. Recognition and Interdependence Business
Barriers (Culture) Financial Reward and 3. Technologies
Systems Design “FIT” 3. Employees
6. People and
B.Vision Human Resource 4. Information and 4. Organizational
Direction Systems Knowledge Systems Innovation
(VDSP)
5. Micro Organization 5. Societal
C. Organizational Structures: Team Design
Strategies

D. Business Organizational Processes (Individual, Group, Organizational and


Models Business Processes (Total Quality, Business Processes, etc.)

E. Labor
(Employee)
Management (Feedback)
Mutuality
F. Transformation/ Figure 1.
Change
Processes High performing organizations: Overall open systems model of critical
components
________________
Source: Modified from Macy, et al., (1995). Presented to the National Academy of Management, Vancouver, Canada, August.

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The Common Eight Different Options for
Organization Structure

1. The Headquarters Structure


2. The Centerless – Decentralization Structure
3. The Functional Structure
4. The Product Structure
5. The Market (Customer) Structure
6. The Geographical Structure
7. The Process Structure
8. The Hybrid Structure – Combinations of the
above seven

http://macy.ba.ttu.edu/5491 Week #11organizational structure 3


OST
Eight TRANSFORMATION Categories - 1

MACRO STRUCTURE
1. CORPORATE Office
2. S.B.U. (Global and Regional)
3. Value Chain: Demand and
Supply sides
4. Business/Product Teams
5. Enterprise Teams

Concepts:
•Coordination/interface
• Communication
• Power & Control (Decision Making)-
Redistribution of Power & Control
• Reporting
• Capabilities
• Conflict
• Complexity
Today’s
• Information
• Centralization
• Span of Control
Focus
• Division of Labor
•Vertical and/or Horizontal Structure
http://macy.ba.ttu.edu/5491 Week #11organizational structure 4
Traditional Organization
Power Information
Knowledge Rewards

Outcomes = Lower Performance


(3.8% Financial
Performance Improvement Per
Year)

High Performance Work System


#1 Macro Structure #4 IS/IT
Power Information #3 Technologies
#5 Micro Structure
Knowledge Rewards #7 Recognition &
#2 Job/Work
Financial Reward Systems
#8 Shared Leadership
Outcomes = Higher Performance
# 6 Human Resource (10% Financial
Systems Improvement Per
Performance Year)

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Organization Structure is
about:
- Power and Control and the
Re-distribution of Power and

Control (Less Layers -fewer


chiefs)
- Decision Making at the
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Traditional Organization
Environment

n s
De
io
at

ci
ic

si
un

on
m

M
m

ak
Co

in
g
Boundaries of the System
Source: B.A.Macy, Successful Strategic Change Berrett-Koehler Publishers, San Francisco, CA (forthcoming) Week #11organizational structure 7
http://macy.ba.ttu.edu/5491
Organization Structure is
about:
- Effective Communication
- Effective Coordination
- Speed/Responsiveness to
the Customer (both internal &

external)
- Empowerment throughout
http://macy.ba.ttu.edu/5491 Week #11organizational structure 8
21ST CENTURY ORGANIZATIONAL STRUCTURE DESIGN BLOCKS:
To Deliver Business Results

Corporation Organization

Global Strategic Business Unit (S.B.U.)

Market Focus/Demand Side Alignment


Enterprise Teams (Customer, Product, Channel, and Process

Supply Side Alignment to Manufacturing

Business Centers - Lines of Business


(Process Product Supply Mini-Businesses)

SDWT’s to Work Teams

Individuals
Source: B.A.Macy, Successful Strategic Change Berrett-Koehler Publishers, San Francisco, CA (forthcoming)
http://macy.ba.ttu.edu/5491 Week #11organizational structure 9
Typical Different Levels of 21st Century
Macro Organization Structures
1. Corporate Office/G.O. Structure

2. Regional/Global Structure

3. Business Teams

4. Product Teams

5. Enterprise Teams (Customer & Supplier


Sides of Value Chain)
Source: B.A.Macy, Successful Strategic Change Berrett-Koehler Publishers, San Francisco, CA (forthcoming)
http://macy.ba.ttu.edu/5491 Week #11organizational structure 10
21st Century Organization Design
GBU’s Markets/ Sales
Orgs. MDO’s
-Bus. “A” -Western Europe
-Bus. “B” -Central or Eastern Europe
-Bus. “C” -Middle East & Africa
-Bus. “D” -Northern Asia
-Bus. “E” -Greater China
-Bus. “F” -North America
-Bus. “ ” -Latin America
8

-South America

-Others

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21st Century Organization Design

Global Business Services (GBS) & In/ Outsourcing

Corporate Functions/ Expertise Centers

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21st Century Organization Design
GBU’s Markets/ Sales
Orgs. MDO’s
-Bus. “A” -Western Europe
-Bus. “B” -Central or Eastern Europe
-Bus. “C” -Middle East & Africa
-Bus. “D” -Northern Asia
-Bus. “E” -Greater China
-Bus. “F” -North America
-Bus. “ ” -Latin America
8

-South America
-Others…

Global Business Services (GBS) & In/ Outsourcing

Corporate Functions/ Expertise Centers


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Question:
Is your Firm a “Cost Center” or a “Profit Center”?

Cost center: P/L Center:

Emphasis on: Emphasis on:


– Costs •Customer Satisfaction/
Loyalty/ repeat business
•Quality
•Service
•Innovation
•Production
•Costs

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Four Key Concepts / Issues of Structure
( to be analyzed for your case)

• Integration
• Coordination
• Communications
• Power & Control

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Time

6th Century – early GO/ Corporate Office P/L


1970

1970’s-Now SBU/ GBU


P/L

1980’s-Now LOB’s/ Brands/ Products


Modified P/L

E&T/ Stores/
1990’s-Now Countries/Regions
Modified P/L

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Fifteen Trends in Organizational Design at the Firm Level

Creation of a Separate
1
“Company”(sell stock)

Innovative Changes Structures and Processes


8
2 Corporate Office (smaller)
Distributed
3 Global S.B.U.’s IT
Systems
4 E-Commerce SBU (Supplier-
Organization
-
5 Total Value Chain Design Customer
(SAP/EDI)
6 Global Enterprise Teams (Mini-business
with P/L Responsibility)

7 Regional Customer Enterprise Teams


(Mini-Business with P/L Responsibility)
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Fifteen Trends in Organizational Design at the Firm Level

Other Types of Aligned of Enterprise Teams


9

Innovative Changes Structures and Processes


(Product, Channel,or Process) 8

Matrix Enterprise Teams: Product/Channel/ Distributed


10 Customer and/or Process IT
Some Centralization - Great De- Systems
11 (Supplier-
Centralization
Organization
Integrative Learning/Coaching and Training -
12 Systems (Learning Contract) Customer
(SAP/EDI)
13 Innovative Pay Systems (Share the Wealth)

14 Simple & Innovative Business/People


Measurement Systems
15
Co-location: Customer, Team and Leaders
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The Four Main Questions of Horizontal
Design Alignment
Corporate
Design

Strategic Business Unit (S.B.U./


G.B.U. Design
Supply-Chain/
Product
Demand/Chain
Supply
Alignment

_____
Source: Barry A. Macy, Successful Strategic Change, Berrett-Koehler Publishers, San Francisco, CA. http://macy.ba.ttu.edu/5491
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The Typical Five Different Types Organization Structures in Exemplar Organizations
(N=102 North America Organizations)

1. Corporate Office

Macro Business Level 2. S.B.U.’s/GBU’s

3. Business Teams Value-Chain Design


1, 2, 3, 4, & 5
4. Product Teams Supply Demand
Side Side
5. Customer Account Teams
(Enterprise Teams)

Source: B.A.Macy, Successful Strategic Change Berrett-Koehler Publishers, San Francisco, CA (forthcoming)
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Multi-International Consumer Products Firm: Current Structure – Sept. 2001

Corporate
GBU Key
Consumer 7 Global Customers/
Teams (30) Teams Trade

Consumers
Customer Business
External Relations Teams
Office GBS * Teams (6) (130)
Top
Core Functions Gov’t.
Management

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The Common Eight Different Options for
Organization Structure
1. The Headquarters Structure
2. The Centerless – Decentralization Structure
3. The Functional Structure

4. The Divisional/Product Structure

5. The Market (Customer) Structure
6. The Geographical Structure

7. The Process Structure

 8. The Hybrid Structure – Combinations of the


above seven
 Are recommended for Cleansheet Design http://macy.ba.ttu.edu/5491 Week #11organizational structure 22
he CENTERLESS CORPORATION
The Real World

Global
Core

Smaller Business

Power/Control & Corporate Units


(S.B.U.’s/
Governance Hub Lines of Business/
Markets/Products)
Source: Booz-Allen & Hamilton

Centralized
Services
Group

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Nike: Another Type of Differentiated Network
(everything outside Nike HQ is outsourced)

Product Product
Distribution Design
Nike
Headquarters
(Broker)
Product
Advertising
Manufacturing

Accounts
Receivable

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Examples of Decentralization (D) and
Centralization (C)
• Sales & Marketing (C)
• Process Development (D)
• Process Engineering (D)
• R&D (C&D)
• Customer Service (D)
• General Manager/V.P. (C)
• Value-Chain/Supply Chain (C-to SBU)
• Lab/Quality (D)
• HR (D)
• Engineering/Maintenance (D)
• IS/Product Acct./SHE/Training (C&D)
B.A. Macy, Successful Strategic Change, Berrett-Koehler Publishers, San Francisco, CA (forthcoming) http://macy.ba.ttu.edu/5491 Week #11organizational structure 25
The Question of Centralization
and Decentralization

Centralized “Design Fit” De-Centralized

Not either
“Centralized” or
“De-Centralized”,
but design fit
(what is best for
the business)

B.A. Macy, Successful Strategic Change, Berrett-Koehler Publishers, San Francisco, CA (forthcoming) http://macy.ba.ttu.edu/5491 Week #11organizational structure 26
Value Chain

Back Front

Core Market
Technologies Conceive Design Develop Procedure Market Sales Distribute Support (Customer)

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Organization

Structure

Trends
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Typical Movement from a “National”
Structure to a “Multi-National” Structure
High
5
International/
Centerless
Integrated/
Structure
Centerless
4 Structure
GBU
GBU
Structure
3 Structure
Market SBU
Share SBU
Structures
2 Structures
International
International
1 Division
Division
Structure
Structure
National
National
National
Structure
Structure
Structure
Low

Early Time
Time Very Mature
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Traditional vs. Innovative System
Changes - 1
STRUCTURE :

TALL FLAT

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Trends in Organizational Shapes

Yesterday Today

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Traditional vs. Innovative System
Changes - 2

TASK ORIENTATION:

INDIVIDUALIST/ TEAM/
SPECIALIST GENERALIST

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Traditional vs. Innovative System
Changes - 3

DECISION-MAKING:

CENTRALIZED DECENTRALIZED

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Traditional vs. Innovative System
Changes - 4

PHILOSOPHY:

AUTHORITARIAN PARTICIPATIVE

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Traditional vs. HPO Changes - 5
PARTICIPATIVE/
EMPOWERMENT
PHILOSOPHY:

POWER & REDISTRIBUTION


CONTROL OF POWER AND
CONTROL
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Four Elements for Structural Design
Hierarchical
Groupings

Structural
Linking
Mechanisms

Formal Processes Informal


and Systems Organizations
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Eight Primary Options

For Choosing Macro

Organizational Structure

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Choosing Macro Organization Structures -1
1. The Headquarters Structure Model

• Power and Control and Decision Making at Headquarters


• Communication flows from H.Q. to the field; from field to H.Q.
• Coordination at H.Q.; NOT between and among the
Field units
• Efficiency is main goal
2. The Centerless-Decentralized Structure Model
• Integrated Network
• Differentiated Network
•S.B.U., LOB’s, and field units is where the Power and
Control and Decision Making resides
• H.Q. acts as a “holding company”
• Communication flows from the S.B.U.’s, LOB’s, and
field units; also into H.Q.
• Coordination is within and across the S.B.U.’s, LOB’s,
and field units
• Effectiveness is the goal http://macy.ba.ttu.edu/5491 Week #11organizational structure 38
Choosing Macro Organization Structures -2
3. “Functional Structure”

•Small-size, single-product
•Undifferentiated market
•Scale or expertise within the function
•Long product development and life cycles
•Common standards

4. “Product Structure”
•Product or Groups of Products focused
•Multiple products for separate customers
•Short product development and life cycle
•Minimum efficient scale for functions or outsourcing
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Choosing Macro Organization Structures - 3
5. “Market (Customer) Structure”
•Key market (customer) segments
•Products and/or services unique to segment
•Buyer (customer) strength
•Customer knowledge advantage
•Rapid customer service and product cycles
•Minimum efficient scale in functions or outsourcing
6. “Geographical Structure”
•Low value-to-transport cost ratio
•Service delivery on-site
•Closeness to customer for delivery or support
•Perception of the organization as “local” (not global)
•Geographical market (customer) segments needed
7. “Process Structure”
•Best seen as an alternative to the functional structure
•Potential for new processes and radical change to processes
•Reduced working capital
•Need for reducing process cycle times http://macy.ba.ttu.edu/5491 Week #11organizational structure 40
Choosing Macro Organization Structures - 4
8. “Hybrid Structure Model”

• Best seen as a combination option to the above seven different types


of structures

• A combination of one to three of the above seven types of structure

• Perception of the organization as being both “global” and “local”

• Horizontal S.B.U.’s, LOB’s: Integrated/Differentiated Networks

• Matrix Design

• Market/Customer Focus Enterprise Teams

• Used where the need for great flexibility (market/customer and innovation)
is demanded.

• Potential to maximize learning (information and knowledge sharing)


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Dell’s Fast-Cycle Segmentation
In 1994, Dell was
a $3.5 billion company Small customers
Large customers
(Business and consumer)

In 1996,
$7.8 billion
Government
Large Midsize Small
and
companies companies customers
education

In 1999,
$18 billion
Global State
Large Midsize Small
enterprise Federal and Education Consumers
companies companies companies
accounts local

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The Headquarters Structure Model

•Power and Control and Decision Making at Headquarters

• Communication flows from H.Q. to the field; from field to


H.Q.

• Coordination at H.Q.; NOT between and among the


Field units

• Efficiency is main goal

• Usually, early on in the Organizational Life Cycle

Source: B.A. Macy, Successful Strategic Change, Berrett-Koehler Publishers, San Francisco, CA (forthcoming) http://macy.ba.ttu.edu/5491 Week #11organizational structure 43
The Headquarters Model

Headquarters

Field Field Field


A B C
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Centralized Headquarters Model

A B Mainly Flows
of Goods
H.Q.
F C

E D Tight, Simple
Controls; (key
strategic decisions
made centrally)

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CHARACTERISTICS OF CENTRALIZED HEADQUARTERS
MODEL

Strategic Key Configuration Role of Development


Approach Strategic of assets and Global and diffusion
capability capabilities operations of knowledge

Centralized Information and


Global Global - Implementing
Knowledge
scale and globally parent - developed and
efficiency scaled company retained at the
strategies center; Not in
business/product
units

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A 2 nd Option: Coordinated Headquarters Model

Mainly Knowledge
A B Flows
(Technology products,
processes, systems
H.Q.
F C

E D
Formal System controls;
(planning, budgeting,
replicating parent company
administrative system
5

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2. The Centerless- Decentralized
Structure Model
• S.B.U.’s, LOB’s and field units is where the
Power and Control and Decision Making resides
(Networked)

• H.Q. acts as a “holding company”

• Communication flows from the S.B.U.’s, LOB’s,


and field units; also into H.Q. (Networked)

• Coordination and integration is within and across


the S.B.U.’s, LOB’s, and field units (Networked)

• Effectiveness is the goal http://macy.ba.ttu.edu/5491 Week #11organizational structure 48


Centerless-Decentralized Structure
Mainly Financial Flows
(Capital out; dividends back)

Headquarters: Loose, simple


Controls; (Strategic
decisions decentralized)
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The Peer-to-Peer Model
HQ

Unit
Peer - 1

HQ HQ

Unit Unit
Peer - 2 Peer - 2

HQ

Unit
Peer - 3

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CHARACTERISTICS OF CENTERLESS-DECENTRALIZED
STRUCTURE

Strategic Key Configuration Role of Development


Approach Strategic of assets and Global and diffusion
capability capabilities operations of knowledge

Multi- National Decentralized Sensing & Information and


-national Responsive- and exploiting Knowledge
-ness nationally local developed and
self-sufficient opportunities retained within
each global
(very local)
business/
product unit

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Integrated Network Model
Distributed, Specialized
Resources and capabilities

Large Flows of
Components,
Products, Resources,
People, Information
and Knowledge
Complex Process of Coordination Among
and cooperation in an environment of Interdependent
Shared Decision Making (Networked) Units

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Differentiated Network Structure

• A recent innovation in organizational


architecture is the use of differentiated
network structures.

• A network structure design is a cluster


of different Organizations (Units, S.B.U.’s,
LOB’s) whose actions are coordinated
by contracts and/or mutual agreements
rather than through a formal hierarchy.

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Re-conceptualizing the Structure of an Multi-National Corporation
as a Differentiated Network
Differentiated structures
within each S.B.U./Subsidiary
S.B.U. /SUBSIDIARY 1 S.B.U./SUBSIDIARY 2

Differentiated
Inter-linkages relationships
across between the
Business Units Much Smaller headquarters
Headquarters and each
Business
Unit

S.B.U./SUBSIDIARY 4 S.B.U./SUBSIDIARY 3
____________________________
Source: B.A. Macy, Successful Strategic Change, Berrett-Koehler Publishers, San Francisco, CA (forthcoming) http://macy.ba.ttu.edu/5491 Week #11organizational structure 54
Nike: Another Type of Differentiated Network
(everything outside Nike HQ is outsourced)

Product Product
Distribution Design
Nike
Headquarters
(Broker)
Product
Advertising
Manufacturing

Accounts
Receivable

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The Typical Structure Path for a Multi-National Corporations

High
Worldwide Global
S.B.U. Matrix
(Differentiated
Network)
Alternative
Foreign Path #2
Product
Alternative
Diversity
Path #1

Regional
International S.B.U.
Low Division
Low Foreign Revenue as a High
Percentage of Total Revenue
Source: Stepford & Wells, 1972 http://macy.ba.ttu.edu/5491 Week #11organizational structure 56
he CENTERLESS CORPORATION
The Real World

Global
Core

Smaller Business

Power/Control & Corporate Units


(S.B.U.’s/
Governance Hub Lines of Business/
Markets/Products)
Source: Booz-Allen & Hamilton

Centralized
Services
Group

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3. “Functional Structure”
•Small-size, single-product

•Undifferentiated market

•Scale or expertise within the function

•Long product development and life cycles

•Common standards

• Usually, early on in the Organizational Life Cycle


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Functional Organization Structure

General manager

Finance Human resources

Research and Product


Operations
development marketing

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Hybrid Beatrice International: One Functional Automobile Products Business

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4. “Product Structure” Model

•Product or Groups of Products focused

•Multiple products for separate customers

•Short product development and life cycle

•Minimum efficient scale for functions or


outsourcing

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Moving to a Product Divisional (S.B.U., LOB)
Structure:

•The structure adopted to solve the control,


communication, coordination and
integration problems of functional
structures

(many kinds of products,


many different locations,
many types of customers/clients)

is the divisional or S.B.U. structure.


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• Product Divisional = S.B.U. structure—a
structure in which functions are grouped
together according to the specific
demands of products,markets, or clients/
customers.

• The type of divisional (S.B.U.) structure


selected is driven by the specific type of
control, communication, coordination
and/or client/customer problems
experienced.
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Product Group Structure of a Consumer Products Company

CEO

Corp. Headquarters Staff

Toiletries Soap Paper Food


S.B.U. S.B.U. S.B.U. S.B.U.

R&D
Towel
Tissue
Diapers
Sales

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Product Structure
CEO

Finance Human resources

Electronic Medical
Computers
instruments instruments

R&D Operations Marketing


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H. J. Heinz Product Division; ( S.B.U.) 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/S.B.U.’s
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• Multidivisional – S.B.U. Structure —a
structure in which staff/support functions
are decentralized and placed in
self-contained divisions.

• Typically used by an organization whose


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

• Some staff/support functions might remain


centralized at the H.Q. (e.g., both a
centralized R&D and a decentralized R&D)
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Multidivisional – S.B.U. Structure: G.E., I.B.M., Matsushita

CEO

Corporate Headquarters Staff

Senior Senior VP Senior VP Senior VP Senior VP


Corporate Marketing Finance Materials Research and
VP’s
Management Development

S.B.U./
Divisional Division A Division B Division C Division D
GM’s/
Presidents

Functional
Managers

Support functions Support functions Support functions Support functions

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Product Team Structure: Xerox, Hallmark and Chrysler

CEO

Functions

Vice President Vice President Vice President Vice President Vice President
Research and Sales and Manufacturing Materials Finance
Development Marketing Management

Product
Development
Teams
PTM PTM PTM

Matrix
Product Product Product
Division Division Division

Functional specialist
PTM Product Team Manager

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Hybrid Product and Function Structure

Commercial airplane
S.B.U.

Product 1: Product 2: Product 3:


Narrow Wide Central
body body fabrication

Engineering Quality Operations

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Apple Before and After Restructuring
Channel:

Dealers
Product 1:
Desktops
Mass
retailers
Product 2:
Mac Dealers
Laptops
Direct sales
Product 3:
Palmtops
Mail Order

Before Design After Design


http://macy.ba.ttu.edu/5491 Week #11organizational structure 71
Fourteen Trends in Organizational Design at the Firm Level

Creation of a Separate
1
“Company”(sell stock)

Innovative Changes Structures and Processes


8
2 Corporate Office (smaller)
Distributed
3 Global S.B.U.’s IT
4 M&A and JV Systems
(Supplier-
E-Commerce SBU (inside or outside firm) Organization
5 -
Customer
6 Total Value Chain Design (SAP/EDI)

7 Global Enterprise Teams (Mini-business


with P/L Responsibility)

8 Regional Customer Enterprise Teams


(Mini-Business with P/L Responsibility)
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5. “Market (Customer) Structure” Model

•Key market (customer) segments


•Products and/or services unique to segment
•Buyer (Customer) strength
•Customer knowledge advantage
•Rapid customer service and product cycles
•Minimum efficient scale in functions or
outsourcing

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Market (Customer) Structure

• When an organization experiences control,


communication, coordination, and
integration problems that are a function of
the differences in the various customer/
client groups being served, a market
(customer) structure is used.

• Such a structure aligns functional skills


and activities with different client/customer
needs.
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Market (Customer) Segments and Lateral Functions
S.B.U. General manager

Sales/marketing Information Finance Human Operations


technology Resources

Financial Governments Distribution


Health
services

Sales Sales Sales Sales

Marketing Marketing Marketing Marketing

Information Information Information Information


technology technology technology technology
Installation Installation Installation Installation
and repair and repair and repair and repair
Network Network Network Network
operations operations operations
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Week #11organizational structure 75
Mellon Bank Market Structure

CEO

Central Support Functions

Commercial Consumer Government Corporate


Division Division Division Division

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A Front-end Focus
•Customers buy all products.

•Customers want a single contact point.

•Customers want a sourcing relationship.

•There are opportunities for cross-selling and bundling.

•More value-added is customer-specific.

•Advantage of customer knowledge.


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Front-End Structure
CEO

Staff

Paper Toiletries Soup Front end


group group group

Regional team Customer team


Finance

Distribution

technology
Information
Sales

Operations

Operations
Marketing

Marketing

Sales
Vons

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Dell’s Fast-Cycle Segmentation
In 1994, Dell was
a $3.5 billion company Small customers
Large customers
(Business and consumer)

In 1996,
$7.8 billion
Government
Large Midsize Small
and
companies companies customers
education

In 1999,
$18 billion
Global State
Large Midsize Small
enterprise Federal and Education Consumers
companies companies companies
accounts local

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Three Potential Sources of Leverage in
Leveraged Business Groups

Back
Back Middle
Middle Front
Front
(Offering)
(Offering) Infrastructure
Infrastructure (Market/Customer)
(Market/Customer)

•Creation of •Means used to •How the Business


products/offerings produce and deliver goes to market?
products and
•“Platforms for services to
manufacturing customers •How the
products organization
responds to the
customer?
•Technologies
•The customers
underlying products
interface – typically
Enterprise Teams
Each component is a potential source of http://macy.ba.ttu.edu/5491
leverage Week #11organizational structure 80
6. “Geographical Structure” Model
•Low value-to-transport cost ratio

•Service delivery on-site

•Closeness to customer for delivery or support

•Perception of the organization as local

•Geographical market (customer) segments needed

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Geographic Structure
• When an organization experiences control,
communication, coordination and
integration problems that are a function
of geography, a geographic divisional
(S.B.U., LOB) structure is used.

• Such a structure organizes divisions/


S.B.U./LOB’s according to the
requirements of different locations (Local).
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Geographical (Pre-Restructuring)

CEO
Industrial Gases

AFROX
AFROX CIG
CIG U.K. AirCo
AirCo North
North Process
Process
(South U.K.Gases
Gases Pacific Plants
(SouthAfrica)
Africa) (Australia)
(Australia) (U.S.A)
(U.S.A) Pacific Plants

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Geographical Structural Change (Post-
Restructuring)
CEO
Industrial Gases

North
North Process
Process
South
SouthAfrica
Africa Australia
Australia Europe
Europe Americas
Americas Pacific
Pacific Plants
Plants

Food
Food

Chemicals
Chemicals
Global
Market
Sectors
Electronics
Electronics

Steel
Steel

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Geographic Structures: Crown Cork
& Seal, Neiman Marcus and
Wal-mart Regional
Operations

CEO
Regional Regional
Operations Operations
Central Support
Functions

Individual
stores
Regional
Operations

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Apple: Geographical Structure
CEO
John Sculley

Apple Apple Apple Apple


Products USA Europe Pacific

Europe
Canada
West

Europe
Sales Australia
North
Service and
Marketing Japan
France
To Regions

South Latin
Europe America

Far
East
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Geographical Structural Design: Xerox
1991 (Before)
Chairman

Marketing
Marketingand
and
Development
Development Chief
ChiefStaff
Staff Chief
ChiefFinancial
Financial
Research
Research Customer
Customer
and
andManufacturing
Manufacturing Officer
Officer Officer
Officer
Operations
Operations

U.S.
U.S.Operations
Operations Other
Other
World
WorldWide
Wide American
American Other
(Sales
(Salesand
and Rank
RankXerox
Xerox Geographic
Other
Geographic
marketing Operations Other
Other
Geographic
Other
Other
marketing Service) Operations Operating Units
Geographic
Service) Operating Units
Geographic
Geographic
Operating Units
Geographic
Geographic
Operating Units
Operating
Operating
OperatingUnits
OperatingUnits
Units
Units

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Xerox 1992: Hybrid Organization Structure (After)

Markets/Customers
Business
BusinessDivision
Division11
Technologies

Business
BusinessDivision
Division22
Technology Customer
Management Operations
Process Divisions
Business
BusinessDivision
Division33

Business
BusinessDivision
Division44

Business
BusinessDivision
Division55
Strategic
Services Governance
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7. “Process Structure”

•Best seen as an alternative to the functional


structure

•Potential for new processes and radical change


to processes

•Reduced working capital

•Need for reducing process cycle times

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Process Organization Structure

General manager

New product Order Customer


development fulfillment acquisition and
process process maintenance

New product teams Product teams Customer teams

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Work Flows Across Functional Structure
Scarce resource:
management time

General manager

Finance

Product Sales and


Operations
development marketing
Human resources

Work flow process to customer


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Lateral Processes Across Departments

General
manager

Lateral process

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A Generic Horizontal Organization with
Multiple Core Process Groups
Vice President

General General General General


Manager Manager Manager Manager
R&D Operations Strategy Finance

Manager Manager Manager

Process CORE PROCESS GROUP


Owner Performance
Team Team 1 Team 2 Team 3 Objective

Process CORE PROCESS GROUP


Owner Performance
Team Team 1 Team 2 Team 3 Objective

CORE PROCESS GROUP


Process
Owner Performance
Team Team 1 Team 2 Team 3 Objective
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Process Structure

Reengineering Functional Structures: Re-


engineering is the process of redesigning
how tasks are bundled into roles and
functions to improve organizational
effectiveness.

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Process Structure

• Reengineering involves shifting the focus


from functions isolated from each other
into horizontal/lateral business processes.

• A business process is any activity that cuts


across functional boundaries.

-Order fulfillment
-Inventory control
-Product design
- R&D
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Example Business Processes & Teams
Top Management

Process
Team Team Team
Coordinator

New Product Development Process


Process
Coordinator Team Team Team

Order Fulfillment Process


Process
Coordinator Team Team Team

Procurement, Logistics process


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8. Hybrid Structure Model – Combinations of
Some of the above Seven Structural Types

• Best seen as a combination option to the other seven


different types of structure.
• A combination of one to three or more of the above
seven types of structure.
• Perception of the organization as being both
“global” and “local”.
• Horizontal S.B.U.’s, LOB’s: Integrated/Differentiated
Networks
• Matrix Design
• Market/Customer Focus Enterprise Teams
• Used where the need for great flexibility (market/customer
and innovation) is demanded
• Potential to maximize learning (information and
knowledge sharing) http://macy.ba.ttu.edu/5491 Week #11organizational structure 97
Organization Form Options (or Grouping Alternatives)

•Function
•Work Process
1. Activity
Activity •Knowledge/skills/discipline
•Time

•Product
2. Output
Output •Service
•Project

•Market segment
3. User/Customer
User/Customer •User/Customer need
•Geography

Multifocused
Multifocused •Any Combination of
4. Organization
Organization Activity/Output/User
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Grouping by Output (AT&T Early 1990’s)

Chairman

Communications
Communications Communications
Communications Network
NetworkSystems
Systems
Computer
Computer(NCR)
(NCR)
Services
ServicesGroup
Group Products
ProductsGroup
Group Group
Group

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ABB (Simplified Structure)-1
CEO
(Percv Bamevik) (previous CEO –
Thought up this structure)

Executive
Committee

Power
Power Power
Power 47
47Other
Other
Robots
Robots
Transformers
Transformers Generation
Generation Business
BusinessAreas
Areas

Germany
Germany

U.S.A
U.S.A
National
Companies
Norway
Norway

137
137Other
Other
National
National
Companies
Companies
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ABB: Four Types of Organization Structures - 2
Corporate Office A
(Very Small)

a Single Financial Performance Measurement System


Tight/Clear Accountability/Responsibility Through
3 Regions and 4 Businesses Areas (BA’s) B
Regions-National Companies
11 1
1 22 33
Global
Business 2
Corporate 2
Structures Areas 3
3
4
4

Company Presidents C
Local Country (some are also Country Managers) - 1 or 2 levels
Companies and
5,000 Profit Centers
Many Profit (lead by Profit Center Managers; D
Center Structures 3 levels to lowest person)
________________
Source: B.A.Macy, Successful Strategic Change Berrett-Koehler Publishers, San Francisco, CA (forthcoming)
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ABB - Fall of 1998 - 3
What They Did:
• Break-up existing regional (local) S.B.U.’s
into smaller, more focused global
business S.B.U.’s
• 5,000 P/L Centers
Why?
• Streamlining the organization to tap
the trend towards greater globalization
• Shorten the decision process
• Flatten (once more) the structure
• Increase speed of decision making

____________________________
Source: B.A. Macy, Successful Strategic Change, Berrett-Koehler Publishers, San Francisco, http://macy.ba.ttu.edu/5491
CA (forthcoming) Week #11organizational structure 102
ABB-4
• The fundamental building block of this
Company are 5,000 small profit centers ($10-
12MM Sales/40-50 People). Resources are
placed within these units. There are only 150
Corporate staff (centerless – decentralized
holding company).
• H.Q. has 7/24/365 “real-time” information system
across the “A, B,C, & D” parts of their structure
(all have four common measures)

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structure 103
Asea, Brown, Boveri (ABB): One Business Area:
Relay Business Overview - 5

4 Global
Corporate 3 Business Corporate
Regions Areas

Business
President-
Regions Head
US Capability
Worldwide
Power Developer
Relay

Local/Country General Entrepreneur


Specific Manager-
Relays
B.A. Macy, Successful Strategic Change,
San Francisco: California:
Berret-KoehlerPublisherss (forthcoming) Profit Centers abb-2-28
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structure 104
ABB-10
The Partnership Between Financial
Wealth and Changes in Organization
Structures, Systems and Processes
Corporate Global Regions of Local One Customer Customers
Office Businesses the World Control Contact Point

Small Think Act • Many • Enterprise Rapidly


Globally Locally “Companies” Units/Teams Changing
(Matrix) (Matrix) (ABB-1,000) (CATS) Needs,
(ABB - 150 • Many Profit Wants, &
Xerox - Centers Desires
Europe - 300) (ABB -5,000)
• Tight
Accountability/ The Mirror
Responsibility
• Alignment Concept
________________
Source: B.A.Macy, Successful Strategic Change Berrett-Koehler Publishers, San Francisco, CA (forthcoming)
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Another Hybrid:

Procter & Gamble

(P&G)

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P&G’s Organization Structure: 2001
Corporation Functions

>18 mos.
< 18 mos.
GBU
Idea CBD (Sales)
(SBU’s)
MDO PRODUCTION/PROMOTION
Innovation Product CUSTOMERS/CONSUMERS
Global MDO/
P&L CBD Teams

GBS F
U • Marketing
N • R&D
C • IT
T
Country MDO I • HR
O • Sales
N • Product Supply
S
• Finance

CBD
Teams

Retail Customers

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The Key Pillars of a
Horizontal Organization

Global Retail
Demand Fulfillment Sales Sales/
Organization Organization Organization Customers Consumers

Service
Organization

Source: B.A.Macy, Successful Strategic Change Berrett-Koehler Publishers, San Francisco, CA (forthcoming)
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Enterprise Units: The “Mirror” Design Concept

The “Mirror”: One Contact Point

The Various Enterprise Customers/


Corporate Consumers
Global Units/ Retail
Office
SBU’s Team(s) Stores

1
2
3
4
5
6
7
etc.
(feedback)

Source: B.A.Macy, Successful Strategic Change Berrett-Koehler Publishers, San Francisco, CA (forthcoming)
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P&G’s Enterprise Teams
(Customer Business Development)

GBU Customer 67%

Consumers
*Teams Customers/
Customer Teams Trade/
GBS External Relations * Retail
Stores
* Teams (Exemplar)
Core Functions
Gov’t.

Dec. 2000

Note: GBU’s = Global S.B.U.’s


GBS = Global Business Services

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Another Hybrid Example –

HP

(from a Product Structure to

A Hybrid Model)

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THE OLD HP: 83 Product Structures
Each product unit was responsible for its own profit/loss performance

HOME PCs,
CEO SCANNERS,
HANDHELDS, LASER PRINTERS,
LAPTOPS PRINTER PAPER

EXECUTIVE COUNCIL

CONSULTING INK CARTRIDGES,


SERCURITY DIGITAL CAMERAS,
SOFTWARE, HOME PRINTERS
UNIX SERVERS
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Carly to HP: Snap to It = Three Phase Plan for Transition

NOW 2000: Improve growth and profits in core


businesses

- CONSOLIDATE
Folded HP’s 83 product divisions into four units: two product
development units that work with two sales and marketing groups--
one aimed at consumers, the other corporations.

- SET STRATEGY
Create a nine-person Strategy Council to allocate resources to the
best opportunities rather than leaving strategy to product chieftains
(see pages 195) .

- WHACK COSTS
Lower expenses by $1 billion by revamping internal processes
to tap the power of the Web.

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THE NEW HYBRID HP
CARLY FIORINA •AUTHORITY
•RECOMMENDATIONS
STRATEGY COUNCIL •IDEAS & INNOVATIONS
Nine fast-rising managers who advise •PRODUCTS & INFORMATION
the executive council on allocating
money and people to growth EXECUTIVE COUNCIL
initiatives. Eight top lieutenants, including heads
of the four front-and-back-end groups.
FRONT END

CORPORATE SALES FRONT END


$34 billion in annual revenues
CONSUMER SALES
JOB Meet near-term financial targets $15 billion in annual revenues
by selling technology solutions to JOB Sell consumer gear with focus on
corporate clients. Keep back-end meeting current-year earnings and revenue
units abreast of what’s, how’s. goals. Let back end know of must-have
products and features

BACK END FRONT END


PRINTERS
43% of annual production COMPUTERS
JOB Build new printing and 57% of annual production
imaging products to ensure HP’s JOBS Focus on future success by
long-term growth. Track trends with making computers that companies
help from front-end units. and consumers want, with sales
input from front-end

CROSS-COMANY INITIATIVES
Personnel from the front- WIRELESS SERVICES
and back-end groups DIGITAL IMAGING Develop wireless COMMERCIAL
collaborate on projects Make photos, drawings, technologies that will PRINTING
aimed at sniffing out new and videos so easy to fuel sales of HP-made Divert printing jobs
markets what will create create, store and send devices, ranging from from offset presses to
growth. as e-mail. handhelds to servers. Net-linked HP printers
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The Common Eight Different Options for
Organization Structure

1. The Headquarters Structure


2. The Centerless – Decentralization Structure
3. The Functional Structure
4. The Product Structure
5. The Market (Customer) Structure
6. The Geographical Structure
7. The Process Structure
8. The Hybrid Structure – Combinations of the
above seven

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