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1010Managing Organizational

StructureManaging Organizational

Structure

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1010Today’s Operative WordToday’s Operative Word

Don’t -- as in…No!Nyet!No way!Go away!

10-3© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

OverviewOverview

How to group tasks into motivational jobs

The need to centralize and decentralize authority

Choosing the right structure

10-4© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

OverviewOverview

How to coordinate, integrate and evolve jobs and structure as an organization grows

Using strategic alliances and networks to increase efficiency and effectiveness without adding structure

Why structure -- like bread dough – wants to rise and expand making today’s operative word vital

10-5© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Why Study Structure?Why Study Structure?

In order to empower your people to achieve goals efficiently and effectively, you must use SWOT to pick the structure best suited to your internal resources and the external environment

10-6© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Organizational StructureOrganizational Structure

Structure, control systems, culture and human resource management systems combine to determine how efficiently and effectively an organization uses resources

10-7© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Designing Organizational StructureDesigning Organizational Structure

Organizational Structure

The system of responsibilities and reporting relationships that enables workers to use resources to achieve goals efficiently and effectively.

10-8© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

The Organizational EnvironmentThe Organizational Environment

Organizational StrategyDifferent environments require different strategies

and structuresA differentiation strategy needs flexible structure to

foster innovationA low-cost strategy may need more rigid structure to

drive cost-controlIncreased vertical integration or diversification also

requires a more flexible structure because it requires reacting quickly to multiple, complex environments tracked by a small “corporate” staff using KPIs

10-9© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Forces Affecting StructureForces Affecting Structure

TechnologyThe combination of skills, knowledge, tools,

equipment and computers used to run the

organization frequently forces the structure

into new shapes that require new and

different management methods

10-10© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Forces…Forces…

Human Resources Highly skilled workers whose jobs require

teamwork that usually needs flexible structure

Professionals (e.g., CPA’s, doctors, lawyers, etc.) often have internalized professional norms that affect structure

10-11© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

The Organizational EnvironmentThe Organizational Environment

Managers must take into account environment, strategy,

technology, and human

resources when

designing the

organization’s structure

10-12© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Job DesignJob Design

Job design: dividing tasks into specific jobs to create an effective and efficient workforce

Job simplification: reducing the number of tasks each worker performs

Warning: too much simplification can cause boredom

10-13© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Job DesignJob Design

Job enlargement: increasing the number of tasks in a job to reduce boredom

Job enrichment: expanding the depth or breadth of responsibility to increase worker involvement

10-14© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Grouping Jobs into FunctionsGrouping Jobs into Functions

Functional StructureAn organizational structure including all departments an organization requires to produce its goods or servicesAdvantages

Encourages learning from others doing similar jobs. Easy for managers to monitor and evaluate workers.

Disadvantages Difficult for departments to communicate with others (silo effect) Preoccupation with department goals obscures organizational

goals Requires unified corporate plan and cross-departmental teams

to breach silo walls

10-15© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Divisional StructuresDivisional Structures

Divisional Structure An organizational structure composed of separate

business units each of which houses all the functions necessary to produce a specific product for a specific customer Divisions create smaller, manageable parts of a firm Divisions develop a business-level strategy to compete Functional managers report to divisional managers who

report to corporate management GE (a diversified conglomerate) is an example of this sort

of corporation; this approach requires KPIs to be effective

10-16© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Types of Divisional StructuresTypes of Divisional Structures

Product Structure Customers are served by self-contained divisions

that handle a specific type of product or service (such as jet engines or luxury cars). Allows functional managers to specialize in one product

area Division managers become experts in their area Removes need for direct supervision of division by

corporate managers (corporate just tracks KPIs such as customer satisfaction index or ROI)

Divisional management improves the use of resources

10-17© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Types of Divisional StructuresTypes of Divisional Structures

Geographic Structure Each region, country or area containing

customers with differing needs is served by a local, self-contained division locally producing or importing products to meet those needs.

10-18© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Types of Divisional StructuresTypes of Divisional Structures

Global geographic structureDifferent divisions serve each world region when

managers find different problems or demands across the globe.

Generally occurs when managers pursue a multi-

domestic strategy

10-19© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Types of Divisional StructuresTypes of Divisional Structures

Market (Customer) Structure Each kind of customer is served by a self-

contained division (e.g., Toyota, Lexus, Scion) Global market (customer) structure

Customers in different regions buy similar products so firms can locate manufacturing facilities and product distribution networks where they decide is best. Also achieves economy of scale. Firms pursuing a global strategy will use this type of structure.

10-20© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Product Team Design StructureProduct Team Design Structure

Product Team Structure Members permanently assigned to the team and empowered

to bring a product to market. Avoids problems of two-way communication and the

conflicting demands of functional and product team bosses. Cross-functional team is composed of a group of managers

from different departments working together to perform organizational tasks. Each team member has a channel back to his-her department.

Breaks down silo walls to focus silo power on satisfying customers

Toyota product development

10-21© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Hybrid StructuresHybrid Structures

Hybrid Structure The structure of a large organization with many

divisions that simultaneously uses many different organizational structures Managers can select the best structure for a particular

division—one division may use a functional structure, another division may have a geographic structure.

The ability to break a large organization into smaller units makes it easier to manage.

Customized, complex and confusing, but can be made to work if central management uses KPIs to track results.

10-22© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Coordinating Functions:Allocating Authority

Coordinating Functions:Allocating Authority

Authority: the power to hold people accountable for their actions and to make decisions concerning the use of organizational resources

Hierarchy of Authority: an organization’s chain of command, specifying the relative authority of each manager – the power spine

10-23© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Allocating AuthorityAllocating Authority

Span of Control The number of subordinates reporting directly to a

manager (How many departments do you oversee?) Line Manager

Managers in the direct chain of command who have authority over people and resources lower down

Primarily responsible for the production of goods or services (e.g., a plant manager)

Staff Manager Functional-area specialists who give advice and support

to line managers (e.g., a human resources specialist)

10-24© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Tall and Flat OrganizationsTall and Flat OrganizationsTall structures have many levels of authority and

narrow spans of control. Can slow decision-making and implementation Can hinder coordination Can garble communications as they are repeated down the

line Can separate decision-making from execution.

Flat structures have fewer levels and wider spans of control.

Creates quicker decision-making and communication but can overwork managers

Requires good line-of-sight control

10-25© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Downside of DecentralizationDownside of Decentralization

Decentralization diffuses control by distributing leadership; can cause loss of unified purpose, direction and focus

Rule of thumb: extremely decentralized organizations need a strong corporate culture so everyone has an embedded compass – all pointing in the same direction; replace external (management) control with internal (corporate DNA) control

Toyota faces this problem as it tries to evolve into a more decentralized, global organization

10-26© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Strategic AlliancesStrategic Alliances

Strategic Alliance Managers pool or share firm’s resources and

know-how with another company and the two firms share the risks and rewards of starting a new venture (Ford and Toyota on hybrids)

Network Structure: A series of strategic alliances an organization

creates with suppliers, manufacturers, and distributors to produce and market products.

10-27© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Basic Rules of StructureBasic Rules of Structure

Silos (vertical); demand (horizontal)Badly designed structure can garble

communication, divide decision from execution, and slow reaction time

Can frustrate initiative and leadershipNo bread dough; just say “NO!”In-source, outsource or leave empty

10-28© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

SummarySummaryLook in, look out. Base structure on your resources

and the external environment.Keep it small, simple, flexible, flat, and fast.Continually re-assess structure to see if it can be

improved to better match the changing environment, avoid waste, and provide more value to customers.

As you decentralize and empower, reinforce corporate DNA to assure shared direction, shared focus, and consistent decision-making.

Make certain managers have the right incentives and KPIs to motivate and measure performance; never get FDH (Fat Dumb Happy).