Chapter Three

Fundamentals of
Organization Structure

Thomson Learning
2004 3-1
A Sample Organization Chart

CEO

Vice President Vice President Director

Finance Manufacturing Human Resources

Chief Budget Plant Maintenance Training Benefits

Accountant Analyst Superintendent Superintendent Specialist Administrator

Thomson Learning
2004 3-2
The Relationship of Organization
Design to Efficiency vs. Learning
Outcomes
Horizontal Organization
Designed for Learning
Horizontal structure is dominant
Shared tasks, empowerment
Relaxed hierarchy, few rules
Horizontal, face-to-face communication
Dominant Many teams and task forces
Decentralized decision making
Structural Vertical structure is dominant
Specialized tasks
Approach Strict hierarchy, many rules
Vertical communication and reporting systems
Few teams, task forces or integrators
Centralized decision making

Vertical Organization
Designed for Efficiency
Thomson Learning
2004 3-3
Ladder of Mechanisms for Horizontal
Linkage and Coordination

H IGH Teams
Coordination Required

Full-time Integrators
Amount of Horizontal

Task Forces

Direct Contact

LOW Information Systems

LOW HIGH
Cost of Coordination in
Time and Human Resources
Thomson Learning
2004 3-4
Project Manager Location
in the Structure
President

Finance Engineering Marketing Purchasing

Department Department Department Department
Financial
Project Manager
Accountant Product
Market New
Designer
Researcher Product A
Buyer
Budget
Analyst Draftsperson Advertising Project Manager
Specialist New
Buyer Product B
Management
Accountant Electrical Project Manager
Designer Market New
Planner Buyer Product C

Thomson Learning
2004 3-5
Teams Used for Horizontal
Coordination at Wizard Software
Company
President

Marketing Vice Pres. Programming Vice Pres Research Vice Pres

Videogames Videogames Basic Research

Videogames
Chief Engineer Supervisor
Sales Manager

Videogames Product Team Applications and Testing

Supervisor

Memory Products Memory Products Memory Products

Sales Manager Chief Programmer Research Supervisor
Memory Products Team
Memory Products
International Manager
Customer Service Procurement
Manager Supervisor
Advertising Manager

Thomson Learning
2004 3-6
 Structural Design Options for
Grouping Employees into
Departments
Functional
Grouping CEO

Engineering Marketing Manufacturing

Divisional
Grouping CEO

Product Product Product

Division 1 Division 2 Division 3
Source: Adapted from David Nadler and Michael Tushman,
Strategic Organization Design (Glenview, Ill.: Scott Foresman, 1988), 68.
Thomson Learning
2004 3-7
 Strengths and Weaknesses of
Functional Organization Structure
STRENGTHS: WEAKNESSES:
Allows economies of Slow response time to
scale within functional environmental changes
departments May cause decisions to pile
Enables in-depth on top, hierarchy overload
knowledge and skill Leads to poor horizontal
development coordination among
Enables organization departments
to accomplish Results in less innovation
functional goals Involves restricted view of
Is best with only one organizational goals
or a few products
Source: Adapted from Robert Duncan, What Is the Right
Organization Structure? Decision Tree Analysis Provides the Answer,
Organizational Dynamics (Winter 1979): 429.
Thomson Learning
2004 3-8
 Strengths and Weaknesses of
Divisional Organization Structure
STRENGTHS: WEAKNESSES:
Suited to fast change in Eliminates economies of
unstable environment scale in functional
Leads to client satisfaction departments
because product responsibility Leads to poor
and contact points are clear coordination across
Involves high coordination product lines
across functions Eliminates in-depth
Allows units to adapt to competence and
differences in products, technical specialization
regions, clients Makes integration and
Best in large organizations with standardization across
several products product lines difficult
Decentralizes decision-making
Source: Adapted from Robert Duncan, What Is the
Right Organization Structure? Decision Tree Analysis
Thomson Learning
Provides the Answer, Organizational Dynamics
(Winter 1979): 431.
2004 3-9
Reorganization from Functional
Structure to Divisional Structure at
Info-Tech
Functional Info-Tech
President
Structure

R&D Manufacturing Accounting Marketing

Divisional Info-Tech
Structure President

Electronic Office Virtual

Publishing Automation Reality

R&D Mfg Acctg Mktg R&D Mfg Acctg Mktg R&D Mfg Acctg Mktg

Thomson Learning
2004 3-10
Structural Design Options for
Grouping Employees (Continued)
Multifocused
Grouping
CEO

Marketing Manufacturing

Product
Division 1

Product
Division 2

Source: Adapted from David Nadler and Michael

Tushman, Strategic Organization Design (Glenview, Ill.:
Scott Foresman, 1988), 68.
Thomson Learning
2004 3-11
Structural Design Options for
Grouping Employees (Continued)
Horizontal
Grouping
CEO

Human Resources Finance

Core
Process 1

Core
Process 2

Source: Adapted from David Nadler and Michael Tushman,

Strategic Organization Design (Glenview, Ill.: Scott Foresman,
1988), 68.
Thomson Learning
2004 3-12
 Geographical Structure
for Apple Computer
CEO
Steve Jobs

Apple Apple Apple Apple

Products Americas Europe Pacific

Canada France Australia

Latin
America/ Japan
Caribbean

Sales Asia
Service and
Marketing
to Regions

Source: www.apple.com
Thomson Learning
2004 3-13
Dual-Authority Structure in a
Matrix Organization
President

Director Design Mfg Marketing Procure-

of Product Vice Vice Vice Controller ment
Operations President President President Manager

Product
Manager A

Product
Manager B

Product
Manager C

Product
Manager D

Thomson Learning
2004 3-14
 Strengths and Weaknesses of
Matrix Organization Structure
STRENGTHS: WEAKNESSES:
Achieves coordination Causes participants to experience
necessary to meet dual dual authority, which can be
demands from customers
frustrating and confusing
Flexible sharing of human
Means participants need good
resources across products
Suited to complex decisions interpersonal skills and extensive
and frequent changes in training
unstable environment Is time consuming; involves

Provides opportunity for frequent meetings and conflict

both functional and product resolution sessions
skill development Will not work unless participants
Best in medium-sized understand it and adopt collegial
organizations with multiple rather than vertical-type
products
relationships
Requires great effort to maintain
Source: Adapted from Robert Duncan, What Is the Right
Organization Structure? Decision Tree Analysis Provides the ThomsonLearning
Answer,Organizational Dynamics (Winter 1979): 429.
2004 3-15
power balance
 Matrix Structure for
Worldwide Steel Company
President
Vertical Functions
Mfg. Industrial
Mfg. Marketing Finance Metallurgy Field Sales
Services Relations
Vice Vice Vice Vice Vice
Vice Vice
President President President President President
Horizontal Product Lines

President President

Open Die
Business Mgr.

Ring Products
Business Mgr.

Wheels & Axles

Business Mgr.

Steelmaking
Business Mgr.

Thomson Learning
2004 3-16
A Horizontal Structure
Top
Management
Team

Process Team Team Team

Owner 1 2 3

Market Product
Analysis
Research
Planning
Testing Customer
New Product Development Process

Process Team Team Team

Owner 1 2 3

Material
Analysis Purchasing
Flow
Distrib. Customer
Sources: Based on Frank Ostroff,

Procurement and Logistics Process

The Horizontal Organization, (New York:
Oxford University Press, 1999); John A. Byrne,
The Horizontal Corporation, Business Week,
December 20, 1993, 76-81; and Thomas A. Stewart,
The Search for the Organization of Tomorrow,
Thomson Learning
Fortune, May 19, 1992, 92-98. 2004 3-17
 Strengths and Weaknesses of
Horizontal Structure
STRENGTHS:
Flexibility and rapid response to
changes in customer needs
Directs the attention of everyone
toward the production and delivery
of value to the customer
Each employee has a broader view
of organizational goals
Promotes a focus on teamwork
and collaborationcommon
commitment to meeting objectives
Improves quality of life for
employees by offering them the
opportunity to share responsibility,
make decisions, and be
accountable
Sources: Based on Frank Ostroff, forWhatoutcomes
The Horizontal Organization:
Organization of the Future Looks Like and How It Delivers Value to
Thomson Learning
Customers, (New York: Oxford University Press, 1999);
and Richard L. Daft, Organization Theory and Design, 6th ed.,
(Cincinnati, Ohio: South-Western College Publishing, 1998) 253.
WEAKNESSES:
Determining core processes
to organize around is difficult
and time-consuming
Requires changes in culture,
job design, management
philosophy, and information
and reward systems
Traditional managers may
balk when they have to give
up power and authority
Requires significant training
of employees to work
effectively in a horizontal
team environment
the
Can limit in-depth skill
2004
development 3-18
 Hybrid Structure
Part 1. Sun Petrochemical Products
President

Functional Chief
Human Technology Financial
Resources Vice Services
Structure Counsel
Director President Vice Pres.

Product Fuels Lubricants Chemicals

Vice Vice Vice
Structure President President President

Sources: Based on Linda S. Ackerman, Transition Management:

An In-Depth Look at Managing Complex Change,
Organizational Dynamics (Summer 1982): 46-66;
Thomson Learning
and Frank Ostroff, The Horizontal Organization,
(New York: Oxford University Press, 1999), Fig. 2.1, 34.
2004 3-19
Hybrid Structure
Part 2. Ford Customer Service
Division
Vice President and
General Manager

Functional Strategy and Human

Structure Finance Communication Resources

Director and
Process Owner Teams
Horizontal Structure

Parts Supply / Logistics Group

Director and
Process Owner Teams

Vehicle Service Group

Director and
Process Owner Teams

Technical Support Group

Sources: Based on Linda S. Ackerman, Transition Management:
An In-Depth Look at Managing Complex Change, Organizational Dynamics Thomson Learning
(Summer 1982): 46-66; and Frank Ostroff, The Horizontal Organization,
(New York: Oxford University Press, 1999), Fig. 2.1, 34. 2004 3-20
Organization Contextual Variables
that Influence Structure

Culture Size
Chapter 10 Chapter 9

Structure
(learning vs.
Strategy, efficiency) Technology
Goals Chapters 7,8
Chapter 2

Environment
Chapters 4, 6
Sources: Adapted from Jay R. Galbraith,
Competing with Flexible Lateral Organizations, 2nd ed.
(Reading, Mass.: Addison-Wesley, 1994), Ch.1;
Jay R. Galbraith, Organization Design (Reading, Mass.:
Addison-Wesley, 1977), Ch. 1.
Thomson Learning
2004 3-21
The Relationship of Structure to
Organizations Need for Efficiency vs.
Learning
Functional with
Functional cross-functional Divisional Matrix Horizontal Modular
Structure teams, integrators Structure Structure Structure Structure

Horizontal:
Coordination
Learning
Dominant Innovation
Structural Vertical: Flexibility
Control
Approach
Efficiency
Stability
Reliability

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2004 3-22
Symptoms of
Structural Deficiency
Decision making is delayed or lacking in
quality
The organization does not respond
innovatively to a changing environment
Too much conflict is evident

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2004 3-23