Chapter 3
Chapter 3
Fundamentals of Organization
Structure
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Organization Structure
• Formal Reporting Relationships
– Number of levels
– Span of Control
• Grouping of Individuals
– Creation of Departments
• Design of Systems
– Communication, Coordination and integration
of efforts
• Define Structural Framework and
interactions
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A Sample Organization Chart
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Information-Sharing Perspective
on Structure
Vertical and horizontal information flow
– Traditional organization designed for
efficiency?
• Centralized authority focused on top level
decision-making
– Learning organization which emphasizes
communication and collaboration
• Decentralized authority focused on shared
tasks and decisions
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Efficiency versus
Learning Outcomes
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Vertical Information Sharing
• Vertical linkages coordinate activities
between the top and the bottom of the
organization
• Hierarchical referral are the vertical lines
which identify the chain of command
• Rules and Plans create vertical links
• Reports, computer systems and written
information are vertical information
systems
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Horizontal Information Sharing
• Horizontal linkage coordinate activities
across organizational departments - not
traditionally drawn on the organizational
chart
Information Systems
Direct Contact (i.e. liaison role)
Task Forces
Full-Time Integrator
Teams (virtual)
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Ladder of Mechanisms for
Horizontal Linkages
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Organization Design Alternatives
Reporting Relationships
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Departmental Grouping Options
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Functional Structure
Activities grouped by common function
All specific skills and knowledge are
consolidated
Promotes economies of scale
Slow response to environmental changes
Prevalent approach but few companies
can respond in today’s environment
without horizontal linkages
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Divisional Structure
Product structure or strategic business units
Divisions organized according to products,
services, product groups…
Good for achieving coordination across
functional departments
Suited for fast change
Loses economies of scale
Lacks technical specialization
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Functional vs. Divisional Structure
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Geographic Structure
Organizing to meet needs of
users/customers by geography
Many multinational corporations are
organized by country
Focuses managers and employees on
specific geographic regions
Strengths and weaknesses similar to
divisional organization
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Sample Geographic Structure
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Matrix Structure
Multifocused with strong horizontal linkage
Conditions for Matrix:
1. Share resources across the organization
2. Two or more critical outputs required: products and
technical knowledge
3. Environment is complex and uncertain
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Sample Matrix Organization
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Horizontal Structure
Organization around core processes.
Shift towards horizontal structure during
re-organization
Eliminates vertical
hierarchy and
departmental
boundaries
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Characteristics of
Horizontal Structure
Structure is created around cross-functional
processes
Self-directed teams, not individuals are dominant
players
Process owners are responsible for entire process
People on the team are given authority for decisions
Can increase organization’s flexibility
May harm performance if critical processes are not
correctly defined
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Virtual Networks and Outsourcing
Extend horizontal coordination beyond the
boundaries of the organization
Most common strategy is outsourcing
• Contract out certain tasks/functions
Virtual or modular structures subcontract
most of its major functions to separate
companies
The virtual network organization serves as
a central hub with contracted experts
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Virtual Network at TiVo
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Virtual Network Strengths
and Weaknesses
Ability to draw on worldwide resources
Flexibility and use of new technologies
Reduced overhead
Lack of control
Extreme decentralization
Dependence upon external organization
Difficult to develop corporate culture
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Hybrid Structure
Combination of various structure
approaches
Greater flexibility
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Application of Structural Design
• Each structure meets different needs and is a
tool that can help managers be more effective
• Structural alignment aligns structure with
organizational goal
• Symptoms of Structural Deficiency:
– Decision making is delayed or lacking quality
– Organization cannot meet changing needs
– Employee performance declines, needs are not meet
– Too much conflict
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Design Essentials
• Structure must provide a framework, linking
organization into whole
• Provide vertical and horizontal linkages
• Variety of alternatives for grouping
• Virtual network extends horizontal coordination
• Matrix structure attempts to achieve balance
• Managers must find right balance
• The purpose of the organization chart is to
encourage and direct activities
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