Fundamentals of Organization Structure in Economics

Fundamentals of Organization Structure

Chapter 3 Organization Theory and Design Twelfth Edition Richard L. Daft @2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.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
• Horizontal information and coordination reflected in organization chart

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Sample Organization Chart

CEO Vice President Finance Vice President Manufacturing Director Human Resources Chief Accountant Budget Analyst Plant Superintendent Maintenance Superintendent Training Specialist Benefits Administrator

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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

Vertical Organization Designed for Efficiency (Mechanistic)

Horizontal Organization Designed for Learning (Organic)

• Horizontal structure is dominant
• Shared tasks, empowerment
• Relaxed hierarchy, few rules
• Horizontal communication, face-to-face
• Many teams and task forces
• Decentralized decision making

Dominant Structural Approach Vertical structure is dominant

• Specialized tasks . Strict hierarchy, many rules
• Vertical communication and reporting systems
• Few teams, task forces, or integrators
• Centralized decision making

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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 coordinates activities across organizational departments - not traditionally drawn on the organizational chart

• Information Systems
• Liaison Roles Task Forces
• Full-Time Integrator Teams

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Ladder of Mechanisms for Horizontal Linkages

President Finance Department Engineering Department Purchasing Department Marketing Department Financial Accountant Product Designer Buyer Project Manager- New Product A Market Researcher Budget Analyst Draftsperson Buyer Advertising Specialist Management Accountant Electrical Designer Buyer Project Manager- New Product C Market Planner Project Manager- New Product B

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Teams and Horizontal Coordination

President Marketing Vice President Programming Vice President Research Vice President Social Media Sales Manager Social Media Chief Programmer Social Media Basic Research Supervisor Social Media Products Team Applications and Testing Supervisor Security Products Sales Manager Security Products Chief Programmer Security Products Research Supervisor Security Products Team Security Products International Manager Advertising Manager Customer Service Manager Procurement Supervisor

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Relational Coordination

• High level of horizontal coordination
• Frequent, timely, problem-solving communication
• Relationships of shared goals, shared knowledge, and mutual respect

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Horizontal Coordination and Linkages

High Organizational 'silos" (coordination not required) Effective Horizontal Design Relational Coordination Degree of Departmental Separation Teams Full-time Integrators Task Forces Liaison Roles Excessive coordination Low Information Systems Low High Amount of Work Process Coordination Required

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Organization Design Alternatives

Required Work Activities Reporting Relationships Departmental Grouping Options

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Departmental Grouping Options

CEO Functional Grouping Engineering Marketing Manufacturing CEO Divisional Grouping Product Division 1 Product Division 2 Product Division 3 CEO Marketing Manufacturing Multifocused Grouping Product Division 1 Product Division 2 CEO Horizontal Grouping Human Resources Finance Core Process 1 Core Process 2 Accounting Marketing Virtual Network Grouping Distribution Manufacturing

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Functional Structure

V Activities grouped by common function V All specific skills and knowledge are consolidated Promotes economies of scale v Slow response to environmental changes Prevalent approach but few companies can respond in today's environment without horizontal linkages

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Functional: Strengths & Weaknesses

Functional Strengths

1. Allows economies of scale within functional departments
2. Enables in-depth knowledge and skill development
3. Enables organization to accomplish functional goals
4. Is best with only one or a few products

Functional Weaknesses

1. Slow response time to environmental changes
2. May cause decisions to pile on top; hierarchy overload
3. Leads to poor horizontal coordination among departments
4. Results in less innovation
5. Involves restricted view of organizational goals

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Divisional Structure

V Product structure or strategic business units V Divisions organized according to products, services, product groups v Good for achieving coordination across functional departments v Suited for fast change V Loses economies of scale V Lacks technical specialization

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Reorganization from Functional to Divisional

Functional Structure Info-Tech President R & D Manufacturing Accounting Marketing Divisional Structure Info-Tech President Electronic Publishing Office Automation Virtual Reality R&D Mfg Acct Mkt R&D Mfg Acct Mkt R&D Mfg Acct Mkt

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Divisional: Strengths & Weaknesses

Divisional Strengths

1. Suited to fast change in unstable environment
2. Leads to customer satisfaction because product responsibility and contact points are clear
3. Involves high coordination across functions
4. Allows units to adapt to differences in products, regions, customers
5. Best in large organizations with several products
6. Decentralizes decision making

Divisional Weaknesses

1. Eliminates economies of scale in functional departments
2. Leads to poor coordination across product lines
3. Eliminates in-depth competence and technical specialization
4. Makes integration and standardization across product lines difficult

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Geographic Structure

V Organizing to meet needs of users/customers by geography Many multinational corporations are organized by country Focuses managers and employees on specific geographic regions v Strengths and weaknesses similar to divisional organization 19

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Sample Geographic Structure

CEO Americas Brazil Asia/Pacific Western Europe/ Middle East North America Japan Latin America Australia

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Matrix Structure

✓ Multifocused with strong horizontal linkage ✓ Conditions for Matrix:

• Share resources across the organization
• Two or more critical outputs required: products and technical knowledge
• Environment is complex and uncertain

✓ Allows organization to meet dual demands ✓ Largest weakness is that employees have two bosses and conflicting demands

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