Fundamentals of

Organization Structure

Structure Follows Strategy

(Alfred Chandler, Jr., Harvard Professor, 1918-2007)

You decide what you want to do (mission)

You decide how you will do it (strategy)

Then you design a structure that facilitates it.

FORD wanted to build a hybrid SUV.

Their traditional structure didnt fit with the new product

idea or with developing the new technologies.

They created a new structure to do it.

A cross-functional, autonomous team.

IBM also did this to create their first PC

A Simple Organization Chart

CEO
Vice President
Finance
Chief
Accountant

Budget
Analyst

Vice President
Manufacturing
Plant
Superintendent

Maintenance
Superintendent

Director
Human Resources
Training
Specialist

Benefits
Administrator

This is the traditional way to view an organization. Its been

around for over 150 years.
Whats traditional about this organizational chart?
Its structure is Functional. Traditionally, Organizations were
structured by functional areas.

Major Factors Influencing Structure

The organizations Environment

SWOT Analysis to determine the

organizations mission (purpose)

Culture

Size

The Organizations Goals

Mission > Goals > Strategy

Its Technology

Mission> Goals > Strategy >Technology

STRUCTURE

Technology

The Organizations Size

Mission > Goals > Strategy > Technology >Size

Strategy,
Goals

Environment

The Organizational Culture

Mission > Goals > Strategy > Technology > Size > Culture > Structure

Three Fundamental Dimensions

of Organization Structure

Authority Relationships (reporting relationships)

Hierarchical Levels* (How many levels of management?)

Degree of Centralization* (How much delegation of authority?)
Spans of supervision (How many workers per manager?)
Types of authority (Line, Staff, Functional)

Groupings of Tasks and People

(Product, functional, customer type, geographic, etc.)

Complexity (Simple or complex groupings?)
Specialization* (What extent do workers do specialized tasks?)
Standardization (To what degree are tasks spelled out.)

Communication and Control Systems

Formalization* (Reliance on written rules, procedures and policies)

*One of the structural dimensions

Line, Functional and Staff Authority

Line
Functional
Staff

Tellpeople
whattodo.

Holdpeople
accountable

Reprimand
&reward

Yes
Yes
No

Yes
No
No

Yes
No
No

The Traditional Organization

The traditional organization was vertically structured.

Formalized (Lots of written documentation)

Centralized (Not much delegation of authority.)
Specialized (Tasks were narrowly defined.)
Tall (Many levels of management)

Communication was largely vertical for better control.

Emphasis was on internal efficiency.
Organizations were not very adaptable to change, but
suitable for stable environments.
Traditional organizations have had to adapt to changing
environments by increasing horizontal communication, reducing
the levels of management, doing more delegating and becoming
less formalized and less specialized.

The Relationship of Organization Design to

Efficiency vs. Learning Outcomes
Horizontal Organization
Designed for Learning

Dominant
Structural
Approach

Horizontal structure is dominant

Shared tasks, empowerment
Relaxed hierarchy, few rules
Horizontal, face-to-face communication
Many teams and task forces
Decentralized decision making
Vertical structure is dominant
Specialized tasks
Strict hierarchy, many rules
Vertical communication and reporting systems
Few teams, task forces or integrators
Centralized decision making

Vertical Organization
Designed for Efficiency
Increasing amount of environmental uncertainty and change

Degree of Coordination
and Information Capacity
Horizontal Linkage Mechanisms

Teams

Needed for coordination and collaboration

The greater the environmental
uncertainty and/or change,
the more an organization
needs the horizontal linkages
in order to be responsive.

Full-Time
Integrators
Task
Forces

Liaison
Roles
Direct
Contact
Info.
Systems

Vertical
Info. Systems

Plans &
Schedules
Rules &
Procedures

Hierarchical Referral

Vertical Linkage
Mechanisms are needed
primarily for top-down
delegation & control

Types of Horizontal Linkages

Information Systems: Memos, letters, E-mail, database access
Direct Contact: Informal contacts, meetings, interactions.
Liaison Roles: A part-time responsibility for someone to
coordinate between two or more structural groups.

Task Forces: A temporary group representing several departments

or areas, formed to deal with special problems or projects.

Full-Time Integrators: Like a liaison except its a full-time job.

Brand managers and Product managers are good examples.

Teams: Like a task force only permanent. Often used when there is
a continuing need for coordination across functional areas.

Overview of Basic Structural Types

Functional Structure: People are grouped by skills relating to

a specific organizational function. (The traditional structure.)
Divisional (Product) Structure: People are grouped by
skills relating to organizational outputs or customer type.
Self-contained units that have all of the necessary functions.
Often the focus is on a product or service.
Geographical: People are grouped by skills relating to
geographical areas.
Matrix: Attempts to have the best of both functional and
divisional. Usually a last resort when other cross-functional
coordination techniques are insufficient.
Horizontal Groupings: Usually process-oriented and utilizing
self-directed teams.
Virtual (modular) Networks: Outsource the major functions.

Functional Structure
President

R&D

Manufacturing

STRENGTHS
Allows economies of scale.
Enables in-depth skill development
Enables organizations to
accomplish functional goals
Is best in small to medium-size
organizations
Is best when only one or a few
products

Marketing

Accounting

WEAKNESSES
Has slow response time to
environmental changes *
Top management may have
decision overload
Leads to poor horizontal
coordination
Results in less innovation
Restricted view of organizational
goals

* Most companies with functional structures make heavy use of horizontal

linkages for cross-functional coordination in order to be more adaptable.

Divisional / Product Structure

President
Product
Group #1
Mfg.

Acct.

Product
Group #2
Mkt.

STRENGTHS
Suited to fast change in unstable
environments
Product responsibility is clear
High cross-functional coordination
Allows unit adaptation to regional
situations
Decentralizes decision making

Mfg.

Acct.

Mkt.

WEAKNESSES
Prevents economies of scale
Leads to poor coordination across
product lines
Eliminates in-depth technical
specialization
Hard to integrate or standardize
across product lines

Includes groupings by customer type, product type and/or service type.

Reorganizing from a Functional Structure to

a Divisional Structure at Info-Tech
Info-Tech
President

Functional
Structure
R&D

Manufacturing

Divisional
Structure

R&D

Accounting

Marketing

Info-Tech
President

Electronic

Office

Virtual

Publishing

Automation

Reality

Mfg

Acctg

Mktg

R&D

Mfg

Acctg

Mktg

R&D

Mfg

Acctg

Mktg

About Info-Tech
(Their Mission Statement from their web site)
Our Mission
To enable our customers to sustain, grow and become
high-performance businesses using our knowledge, skills
& experiences. To help achieve their business goals by
leveraging best-in-class need driven industry practices.
Our AIM is to implement Performance-Centric
technology solutions using Collaborative Methodologies.

This was copied verbatim from their web site. It is a good example of how
vague and useless many mission statements can be.

Geographic Structure
President

East Coast

MidWest

STRENGTHS
Suited to fast change in unstable
environments
Customer responsibility is clear
High cross-functional coordination
within geographic or area
Allows unit adaptation to regional
situations
Decentralizes decision making

South

West Coast

Europe

WEAKNESSES

Prevents economies of scale

Leads to poor coordination across
customer / geographic lines
Eliminates in-depth technical
specialization
Hard to integrate or standardize
across geographic or customer lines

This is really a Divisional Structure that focuses on geographical

areas rather than product/service areas.

Matrix Organization
Showing the dual authority relationships
President
Director
of Product
Operations

Design
Vice
President

Mfg
Vice
President

Marketing
Vice
President

Controller

Procurement
Manager

Product
Manager A
Product
Manager B
Product
Manager C
Product
Manager D

Often needed in complex and dynamic environments where other structures

with cross-functional coordination are not working well.

Strengths and Weaknesses of the

Matrix Organization Structure
STRENGTHS

Achieves coordination
necessary to meet dual
demands from customers
Flexible sharing of human
resources across products
Suited to complex decisions
and frequent changes in
unstable environment
Provides opportunity for both
functional and product skill
development
Best in medium-sized
organizations with multiple
products and/or services

WEAKNESSES

Causes participants to experience dual

authority, which can be frustrating and
confusing
Requires participants to have good
interpersonal skills and extensive
training
Is time consuming; involves frequent
meetings and conflict resolution
sessions
Will not work unless participants
understand it and adopt collegial rather
than vertical-type relationships
Requires great effort to maintain power
balance between two sources of line
authority.

A Horizontal Structure
Top
Management
Team
Process
Owner

Team
1
Market
Analysis

Research

Team
2
Product
Planning

Team
3
Testing

Customer

New Product Development Process

Process
Owner

Team
1

Analysis

Purchasing

Team
2
Material
Flow

Team
3
Distrib.

Customer

Procurement and Logistics Process

Teams do their own scheduling, planning, innovating and decision making.

Process Owners are responsible for their teams and processes.

Strengths and Weaknesses of

Horizontal Structure
STRENGTHS

Flexibility and rapid response to

changes in customer needs

Directs the attention of everyone
toward the production and delivery of
value to the customer
Each employee has a broader view of
organizational goals

Promotes a focus on teamwork and

collaborationcommon commitment to
meeting objectives
Improves quality of life for employees
by offering them the opportunity to
share responsibility, make decisions,
and be accountable for outcomes

WEAKNESSES
Determining core processed to
organize around is difficult and
time-consuming
Requires changes in culture, job
design, management philosophy,
and information and reward
systems
Traditional managers may balk
when they have to give up power
and authority
Requires significant training of
employees to work effectively in a
horizontal team environment
Can limit in-depth skill
development

Virtual Networks
(Modular Structures)
Manufacturing
Companies

Accounting
Finance
Payroll

Customer
support

Management
Core

Legal
Services

Marketing

Advertising
and PR
Logistics and
distribution

The organization outsources most of its major functions and/or processes.

Strengths and Weaknesses of

Virtual Networks
STRENGTHS

WEAKNESSES

Allows small organizations to start

up and have access to resources

Loss of hands-on control

and people.

High need to manage

external relationships.

Low start-up costs

Highly flexible and responsive

Higher potential for conflicts

Lower overhead costs

Lack of corporate culture

At risk if partner/contract
firm drops out.

Hybrid Structure
Sun Petrochemical Products
President

Functional
Structure

Product
Structure

Human
Resources
Director

Chief
Counsel

Fuels
Vice
President

Technology
Vice
President

Lubricants
Vice
President

Financial
Services
Vice Pres.

Chemicals
Vice
President

A hybrid is simply the use of more than one type of structure. It is the most
common structure. Almost every organization has some functional
departments, even if they are utilizing a horizontal structure.

Determining the right Structure

Much of structure is finding the right balance between
horizontal linkages and vertical control.
How Much Horizontal coordination?
Too much is time consuming and expensive.
Too little horizontal coordination causes confusion,
delays and inefficiency.
How much Vertical Control?
Too much stifles creativity, morale and motivation.
There is probably no ideal structure for most situations.
Neither will you find many pure structural types.

S.O.B. Structure 1970s -1984

Dean
Division of Business and Economics
Chairperson
BE/DE/AOM

Chairperson
Business Administration

Chairperson
Economics

S.O.B. Structure 1985 - 1992

DEAN
School Of Business
Chairperson
GEN BUS

Chairperson
MGT / MKT

Chairperson
Accounting

Chairperson
Economics

Chairperson
BE/DE/AOM

S.O.B. Structure 1993-1999

DEAN
School of Business
Assistant
Dean
Coordinator
MGT and MKT

Coordinator
Accounting

Assistant
Dean
Coordinator
ECON / FIN

Coordinator
IM /GEN BUS

S.O.B. Structure 2000-2003

DEAN
School of Business
Assistant Dean
Faculty
Area Coordinator
MGT / MKT / IM / GB

Assistant Dean
Students
Area Coordinator
ECO / ACC / FIN

S.O.B. Structure 2003-2005

DEAN
School of Business
Assistant Dean
Faculty
Program Leader
MGT / IM

Program Leader
Marketing

Assistant Dean
Students

Program Leader
Accounting

Program Leader
ECO & FIN

Program Leader
International

S.O.B. Structure 2005 - 2008

DEAN
School of Business
Assistant Dean
Faculty
Chairperson
MGT / MKT / IDS

Assistant Dean
Students

Chairperson
ACC / IM

Chairperson
ECO / FIN / IB

S.O.B. Structure 2008 - Present

DEAN
School of Business
Assistant Dean

MGR SOB
Operations
Administrative
Assistant

Chairperson
MGT / MKT / IB

Chairperson
ACC / IM

Chairperson
Economics

Chairperson
Finance

Improvement?
Dean
Division of Business & Economics

1970s
Chairperson
BE/DE/AOM

Chairperson
Business Administration

Chairperson
Economics

DEAN
School of Business

Today
Assistant Dean

MGR SOB
Operations
Administrative
Assistant

Chairperson
MGT / MKT / IB

Chairperson
ACC / IM

Chairperson
Economics

Chairperson
Finance

The Relationship of Structure to Organizations

Need for Efficiency, Flexibility, and Learning
Functional
Structure

Dominant
Structural
Approach

Functional with
cross-functional Divisional Matrix
teams, integrators Structure Structure

Vertical
Control

Efficiency
Stability

Reliability E N V I R O N M E N T
Stable

Horizontal
Structure

Modular
Structure

Horizontal

Coordination
Change
Learning
Innovation
Flexibility

Changing

You have Structural Problems if

Decision-Making is delayed or of poor

quality.

Organization does not respond

innovatively to a changing environment.

Too much conflict from departments

being at cross-purpose.

What to know
1. Recognize the basic strengths and
weaknesses of each structural type.
2. Understand which situations are best for
which structure.
3. Have a basic understanding of each linking
mechanism.
4. By the end of this course you should be able
to look at an organizational structure along
with its Size, Technology, Goals, Culture,
and Environmental situation, and see if there
is a good fit.