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CREATING EFFECTIVE ORGANIZATIONAL DESIGNS

CREATING EFFECTIVE ORGANIZATIONAL DESIGNS

STRATEGIC MANAGEMENT BUAD 4980

STRATEGIC MANAGEMENT BUAD 4980

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Organizational Structure

The formalized patterns of interactions that link a firm’s tasks, technologies, and people

Organizational StructureOrganizational Structure

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Organizational structures vary by the size, functional needs and complexity of each firm

As firms grow more complex and diverse, their organizational structure must change to allow the firms to remain effective and efficient

Organizational StructureOrganizational Structure

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Types of organizational structures

Simple

Functional

Divisional and SBU

Matrix

International

Organizational StructureOrganizational Structure

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Organizational StructureOrganizational Structure

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Simple Structure

An organizational form in which the owner-manager makes most of the decisions and controls activities, and the staff serve as an extension of the top executive

Simple StructureSimple Structure

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Advantages

Coordination of tasks by direct supervision (usually a single manager / owner)

Highly centralized control, immediate response

Informal policies, procedures and performance review system

Fosters creativity

Simple StructureSimple Structure

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Disadvantages

Informality and individualism may lead to organizational conflict

Employees may act in self-interest, rather than the organization as a whole

Lack of controls may lead to misuse of resources

Retention based on loyalty rather than opportunities for advancement

Simple StructureSimple Structure

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Functional Structure

Organizational form in which the major functions of the firm, such as production, marketing, R&D, and accounting, are grouped internally

Single or related products

Volume-based production

Some vertical integration

Functional StructureFunctional Structure

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Functional StructureFunctional Structure

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Advantages

Enhanced coordination and control

Centralized decision making

Organizational-level perspective

More efficient use of managerial and technical talent

Facilitates career paths and development in specialized areas

Functional StructureFunctional Structure

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Disadvantages

More complicated organizational dynamics and personality conflict

Communication barriers between functional areas

Short-term, functional thinking

Difficult to establish uniform performance standards

Functional StructureFunctional Structure

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Divisional Organizational Structure

An organizational form in which products, projects, or product markets are grouped internally into divisions

Also called multidivisional structure or M-Form

Each division has its own functional structure

Divisions are largely autonomous, with accountability to corporate management

Divisional StructureDivisional Structure

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Divisional StructureDivisional Structure

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Advantages

Strategic business unit (SBU) structure

Separation of strategic and operating control

Quick response to important changes in external environment

Minimal problems of sharing resources across functional departments

Development of general management talent is enhanced

Divisional StructureDivisional Structure

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Disadvantages

Expensive – duplication of resources across divisions

Dysfunctional competition can occur between divisions

Difficult to achieve standardization of company image, values and quality across divisions

Focus on short-term performance

Divisional StructureDivisional Structure

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Strategic Business Unit (SBU) Structure

Organizational form in which products, projects, or product market divisions are grouped into homogeneous units

Usually found in extensive multi-product, multi-market organizations

Each SBU operates as a profit center

Strategic Business Unit StructureStrategic Business Unit Structure

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Advantages

Facilitates planning and control by corporate management

Individual businesses can react more quickly to important environmental changes

SBU’s are “homogeneous” in nature – more likely to share resources and limit divisional competition within SBU

Strategic Business Unit StructureStrategic Business Unit Structure

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Disadvantages

Difficult to achieve synergies across different SBU’s

Limited incentive to share technologies or expertise across SBU’s

Additional level of management increases overhead expenses

Increases organizational distance between divisional operations and corporate management

Strategic Business Unit StructureStrategic Business Unit Structure

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Holding Company Structure

Organizational form in which the divisions have a high degree of autonomy both from other divisions and from corporate headquarters

Also known as a Conglomerate

Portfolio of businesses within the corporation have little in common as a result of unrelated diversification

Small corporate management and staff organization

Autonomous, independent businesses

Holding Company StructureHolding Company Structure

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Advantages

Lower corporate overhead and fewer managerial levels

Increased motivation for autonomous divisional executives

Quick response capability to environmental changes

Holding Company StructureHolding Company Structure

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Disadvantages

Lack of corporate control

Dependency by corporate management on expertise of divisional management

Limited staff capabilities or managerial bench strength to support divisions

Holding Company StructureHolding Company Structure

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Matrix Organizational Structure

Organizational form in which there are multiple lines of authority and some individuals report to at least two managers

Functional departments are combined with product groups on a project by project basis

Can combine geographic market focus and product line focus

Matrix Organizational StructureMatrix Organizational Structure

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Matrix Organizational StructureMatrix Organizational Structure

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Advantages

Facilitates the use and sharing of specialized personnel, equipment and facilities

Avoids divisional duplication of specialized resources

Resource sharing and collaboration enable effective response to changing environmental needs

Provides professionals with a broader range of responsibility and experience

Sharing innovative / new technology or systems

Matrix Organizational StructureMatrix Organizational Structure

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Disadvantages

Uncertainty relating to dual-reporting relationships

Power struggles between key managers and conflict over use of resources

Complicated working relationships

Group decision-making and reliance on teamwork may slow decision time and efficiency

Matrix Organizational StructureMatrix Organizational Structure

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Three major contingencies influence structure adopted by firms with international operations

1. Type of strategy driving the firm’s foreign operations

2. Product diversity

3. Extent to which the firm is dependent on foreign sales

International Organizational StructuresInternational Organizational Structures

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Structures used to manage international operations

International Division

Geographic-Area Division

Worldwide Functional

Worldwide Product Division

Worldwide Matrix

International Organizational StructuresInternational Organizational Structures

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Structures used to manage international operations International Division – International operations

are managed as a separate division from domestic divisions

Geographic-Area Division – Operations in distinct geographical regions are grouped together as divisions

Worldwide Functional – Global markets for multiple products in a common functional form are homogeneous

Worldwide Product Division – Global markets for a single product are homogeneous

Worldwide Matrix – Matrix structure applied to global operations

International Organizational StructuresInternational Organizational Structures

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Global Start-Up

Business organization that, from inception, seeks to derive significant competitive advantage from the use of resources and the sale of outputs in multiple countries

Global Start-UpsGlobal Start-Ups

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Criteria for Going Global

Required human resources are globally dispersed

Foreign financing may be less costly, easier to obtain or more appropriately structured

Target customers are located internationally

Entry timing requires immediate global presence to avoid imitation by foreign competitors

The volume necessary to cover development and other fixed costs requires access to global markets

Global Start-UpsGlobal Start-Ups

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Strategy vs. Structure

The type of strategy the corporation follows usually dictates the appropriate divisional structure

The ability to change strategy may be limited by existing organizational structures

Expense and complexity of changing an in-place organizational structure

Corporate Strategy and Organizational

Structure

Corporate Strategy and Organizational

Structure

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Organizational Structure – Reward and Evaluation Systems

Organizational Structure – Reward and Evaluation Systems

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Types of Organizational Boundaries

Vertical boundaries between levels in the organization’s hierarchy

Horizontal boundaries between functional areas

External boundaries between the firm and its customers, suppliers, and regulators

Geographic boundaries between locations, cultures and markets

Organizational BoundariesOrganizational Boundaries

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Boundaryless Organizational Designs

Organizations in which the boundaries, including vertical, horizontal, external, and geographic boundaries, are permeable

Organizational BoundariesOrganizational Boundaries

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Barrier-Free Organizations

Organizational design in which firms bridge real differences in culture, function, and goals to find common ground that facilitates information sharing and other forms of cooperative behavior

Internal problem solving teams

Emphasis on resource sharing

Getting close to customers and developing customer solution partnerships

Boundaryless OrganizationsBoundaryless Organizations

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Barrier-Free Organizations – Pros and Cons

Barrier-Free Organizations – Pros and Cons

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Modular Organization

Organization in which non-vital functions are outsourced, which uses the knowledge and expertise of outside suppliers while retaining strategic control

Outsources nonvital functions to “best-in-class” suppliers or producers

Modular OrganizationsModular Organizations

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Modular Organization Advantages

Lower overall costs

Hire suppliers with more talent and knowledge than exists within the company

Avoid production management issues

Capacity balancing

Inventory control

Technological obsolescence

Focus scarce resources where needed to maintain competitive advantage

Modular OrganizationsModular Organizations

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Modular Organizations – Pros & ConsModular Organizations – Pros & Cons

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Virtual Organization

Continually evolving network of independent companies that are linked together to share skills, costs, and access to one another’s markets

Formal or informal partnerships or alliances

Pool talent and resources that any single organization does not possess, or would be difficult to assemble

Virtual OrganizationsVirtual Organizations

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Virtual Organizations – Pros & ConsVirtual Organizations – Pros & Cons

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Combine different organizational concepts to create effective boundaryless organizations

Outsource parts of the value chain to reduce cost / increase quality

Enter into partnerships or alliances to develop or access technology and to enter new markets

Eliminate barriers within the organization to enhance problem-solving, shorten response time, expand core competencies and improve performance

Effective Boundaryless OrganizationsEffective Boundaryless Organizations

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Common Culture and Shared Values

Shared goals

Mutual objectives

Trust

Boundaryless Organizations –

Success Factors

Boundaryless Organizations –

Success Factors

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Horizontal Organizational Structures

Group similar or related business units under common management control

Facilitate sharing resources and support systems to exploit synergies

Consistent training and development

Cross-functional teams and decision-making groups

Boundaryless Organizations –

Success Factors

Boundaryless Organizations –

Success Factors

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Horizontal Systems and Processes

Common organizational systems, policies and procedures across functional divisions

Quality, safety, training and human resource systems

Process control systems, JIT, Six-sigma, statistical quality control, Class A practices

Boundaryless Organizations –

Success Factors

Boundaryless Organizations –

Success Factors

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Communications and Information Technology

Cross-functional communication systems to enhance decision-making, sharing and avoid costly travel

Common management information and enterprise resource planning systems

Integration of systems to customers and suppliers to increase speed, supply chain efficiency and information accuracy

Boundaryless Organizations –

Success Factors

Boundaryless Organizations –

Success Factors

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Ambidextrous Organizational Designs

Organization designs that attempt to simultaneously pursue modest, incremental innovations as well as more dramatic, breakthrough innovations

Achieve adaptability in approaching volatile markets and alignment of value-creating activities

Requires strong and participative management, clearly championing objectives and vision and regulating resource allocations

Breakthrough teams work independent of traditional functional teams, but share skills and knowledge in a controlled way

Ambidextrous Organization DesignsAmbidextrous Organization Designs

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