Semester 2 2019

Tutorial 1 Solutions

ENGINEERING MANAGEMENT 3000/5039

Q1 // to Q8 // Solutions

Students should find more information using the lecture notes, university and internet
resources. You are welcome to discuss the topics in groups and draw conclusions.

Q9/Explain what is meant by the degree of "vertical", "horizontal" and "spatial" differentiation
when describing the complexity of an organisational structure.

Q9 // Solutions

“Complexity” is the degree of vertical, horizontal, and spatial differentiation in an organisation.

Vertical differentiation (The Y Axis):

Hierarchical structure consisting of a vertical dimension of differentiated levels of authority and
responsibility. Differentiation by degrees of authority.

The vertical organisation has a structure with power emanating from the top down. There's a
well-defined chain of command with a vertical organisation, and the person at the top of the
organisational chart has the most power. Employees report to the person directly above them in
the organisational structure. Each person is responsible for a specific area or set of duties.

Horizontal differentiation (The X Axis):

Differentiation by specialisation, often referred to as departmentalisation. People with similar
abilities working together on specialised tasks. Horizontal differentiation separates workers
by their assigned tasks, such as accounting, sales or computer networking.
Growth is a key driver for horizontal differentiation, but is not the sole one. Environment and
technology may also demand specialisation.

Engineering Management 3000/5039 1 Tutorial 1 Solutions

A horizontal organisation has a less-defined chain of command. Employees across lines have
similar input into how the organisation is run. Instead of each person having clearly defined
duties, employees may work in teams, with everyone on the team having an input. Employees
may perform many different functions and may report to several supervisors, rather than a
single boss. Project managers or team leaders report to a team of supervisors, with members of
each team being essentially equal in terms of power.

How Horizontal Differentiation Works

The process of horizontal differentiation starts when the company delegates specialized tasks to
particular employees. This form of differentiation prevents the company from having only a few
employees assigned to carry out multiple tasks. The process also allows the company's employees
and managers to stick to tasks related to their field of expertise. For instance, employees in the
accounting department will focus on maintaining financial data and examining tax laws, while
those in the sales department put their efforts toward bringing in new clients and higher
revenues.

Differentiation and Structural Changes

As a company uses more horizontal differentiation and fractures into departments with increasing
specificity in their tasks, each department leader shares an equal rank with the others. The
leaders come together in regular meetings to relate news on how their departments have helped
the company. The departments may even share organizational jurisdiction on company-wide
projects. As more departments and sub-departments evolve within a company, the horizontal
differentiation process spurs more vertical differentiation.

Combining Differentiation Styles

Horizontal differentiation categories are not limited strictly by job task. Larger companies also
employ horizontal differentiation by product type, location or service. For instance, the head of
the accounting department in a company's Melbourne office shares the same rank and
responsibilities as his counterpart in the Sydney office. In a video game company, the lead
programmer for the latest sports game has the same level on the company's org chart as his
counterpart on the team developing the newest "first-person shooter."

Spatial Differentiation is Geographic diversity.

A company that uses spatial differentiation uses employees at different locations to

accomplish different tasks. These locations can include a manufacturing plant, a
warehouse, a distribution center and a retail shop.

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Q10. What are the advantages and disadvantages of the following type of organisational
structures:

(a) Matrix Structure (b) Hierarchical Structure (c) Divisional Structure (d) Projectised Structure

(e) Draw a typical representation of the four organisational Structures listed above.

Q10 // Solution

(a) Matrix Organisational Structure

A matrix structure provides for reporting levels both horizontally as well as vertically.
Employees may be part of a functional group but may serve on a team that supports a new
product development. This kind of structure may have members of different groups working
together working on a specific project.

Advantages of a Matrix organisational structure

• Provides the opportunity of people from various departments to work closely together.
• Allows for quick decisions to be made within the project teams, as you have at your disposal
specialised knowledge of representatives from across the company.
• Faster customer response times.
• Encourages team members to contribute valuable information to solve the issue(s) before
decisions are made, leading to employee satisfaction and increased motivation.
• Greater collaboration between functional areas.
• Greater job security, since when the project is finished you can return to your main job.

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Disadvantages of a Matrix organisational structure

• You would be working for two managers with competing priorities.
• You will need to manage your time and prioritise your work load.
• With two bosses we have increased internal complexity as confusion may arise.
• Miscommunication and ineffective management can result in employee dissatisfaction
and low morale.
• Prolonged issues may cause an organisation to experience high employee turnover.
• Additional overheads due to duplication of management.

(b) Functional / Hierarchical/ Departmentalised Organisational Structure

Functional organisational structures are the most common. A structure of this type groups
individuals by specific functions performed. Common departments such as human resources,
accounting and purchasing are organised by separating each of these areas and managing them
independently of the others.

For example, managers of different functional areas all report up to one Functional Area
Manager who has responsibility for the overall operation of that Function area.

The advantage of this type of structure is that functions are separated by expertise but the
challenges comes in when different functional areas turn into silos that focus only on their area
of responsibility and don’t support the function of other departments.

Functional Organisational Structure

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Advantages of a Functional organisational structure

• The boundaries between departments and jobs descriptions are clearly defined
• Everyone understands the chain of command. This is an especially useful during a crisis,
when decision-by-committee or subordinate hesitation could be disastrous.
• The boss gives an order and can expect compliance.

• Clear reporting line.

• Well defined processes.
• Visible career path.

Disadvantages of a Functional organisational structure

• Staff in one department may feel isolated from the rest of the company. This creates a
Silo effect. For example people in a Design area may never have the opportunity to liaise
with people from say, Marketing.
• Very bureaucratic, slow to get approvals leading to slow customer response times.
Processes slow down because communication and requests must travel up and then
back down the chain of command.
• Not an ideal structure for dynamic business environments.
• Lack of big picture view of the overall company directions and plans.
• Hierarchical structures centralize power and authority at the highest levels possible. This
can create the “Ivory Tower” effect where senior management can become too far
removed from what is actually happening on a day to day basis. So instead of making
decisions on big-picture issues, planning and providing leadership, the higher
management may be caught up in the day-to-day operations, making decisions about
things that are best left in the hands of those closer to the situation.

(c) Divisional Organisational Structure

A divisional organisational structure gives a larger business enterprise the ability to segregate
large sections of the company's business into semi-autonomous groups. These groups are
mostly self-managed and focused upon a narrow aspect of the company's products or services.

A divisional organisational structure usually consists of several parallel teams focusing on a

single product or service line. For example car manufacturers and software companies

Unlike functional/hierarchical departments, divisions are more autonomous, each with its own
top executive typically managing their own hiring, budgeting and advertising. Though small
businesses rarely use a divisional structure, it can work for such firms such as advertising
agencies which have dedicated staff and budgets that focus on major clients or industries.

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Divisional Organisational Structure

Advantages of a Divisional organisational structure

• Divisions work well because they allow a team to focus on a single product or service,
with a leadership structure that supports its major strategic objectives.
• Each division having its own executive manager makes it more likely the division will
receive the resources it needs from the company.
• A division's focus allows it to build a common culture that contributes both to higher
morale and better product knowledge of the division's portfolio. It is far more
preferable to having its product or service dispersed among multiple departments
through the organisation.
• Single product or service focus.
• Decentralises decision making allowing for better decisions to be made by the people
that are closer and more familiar to the issues.
• Clear job descriptions / role definitions.
Disadvantages of a Divisional organisational structure
• A company comprised of competing divisions may allow office politics instead of sound
strategic thinking to affect its view on such matters as allocation of company resources.
• This can lead to one division sometimes act to undermine another division.
• Divisions may become “compartmentalised”, leading to a situation where a product
produced from say division A is not compatible with a product from division B. This
could be avoided if divisional executives communicated with each other and familiarised
themselves with what is happening in all the other divisions.
• To be successful, divisions must be well managed. Executive leadership is the single
most important determinant of success for a company using a divisional structure.

An alternative for Divisional Structures

Large organisations that want the focus of a division could instead spin off into a free-standing
subsidiary. Smaller organisations can work through major projects via dedicated departments or
ad-hoc cross-functional work teams.

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(d) Projectised Organisation Structure

Projectised organisations are very dynamic and learn very fast. The project manager has been
given the full authority to run the project and allocate the resources. Although he/she may be
supported by higher management, at the end of the day the project manager is fully responsible
for the outcome of the project.

The projectised organisation structure is opposite to the functional organisation structure. Here,
either there will be no functional manager, or if he/she exists, he/she will have a very limited
role and authority.

Advantages of a Projectised organisational structure

• The project manager has full authority, over resources, the budget and allocating the
work assignments.
• Decisions are made quickly.
• A projectised organisational structure is very adaptive and learns from internal
resources as well as from others’ experiences.
• Clear objectives are given.
• Team members have a strong sense of identity/belonging.
• Deeper understanding of the project.
• Shorter lines of communications, due to the single authority, less time is consumed in
communication, and response to stakeholders’ concerns is faster.
• Clear reporting structure.

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Disadvantages of a Projectised organisational structure

• Low job security as when the project is completed the team is disbanded, and team
members and all other resources are released.
• In projects, there is always a deadline and usually a tight schedule, which makes the
work environment stressful.
• Inconsistency in the application of standards and company policies from one project
manager in one team to another.
• Duplication of personnel and resources.
• No long term goals as they are solely project focused.
• Limited career path.
• Since the project manager has full authority and power over his team members, he can
become arrogant. A lack of power is a problem for project managers in functional
organisations, while abundance of power of a project manager can be a problem for
team members in projectised organisations.

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