Chapter 3

Fundamentals of Organization
Structure

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 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
• Define Structural Framework and
interactions
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 A Sample Organization Chart

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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

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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 coordinate activities
across organizational departments - not
traditionally drawn on the organizational
chart
 Information Systems
 Direct Contact (i.e. liaison role)
 Task Forces
 Full-Time Integrator
 Teams (virtual)

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 Ladder of Mechanisms for
Horizontal Linkages

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 Organization Design Alternatives

Required Work Activities

Reporting Relationships

Departmental Grouping Options

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 Departmental Grouping Options

Functional Divisional Multifocused

Grouping Grouping Grouping

Horizontal Virtual Network

Grouping Grouping

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

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

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 Functional vs. Divisional Structure

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

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 Matrix Structure
 Multifocused with strong horizontal linkage
 Conditions for Matrix:
1. Share resources across the organization
2. Two or more critical outputs required: products and
technical knowledge
3. 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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 Sample Matrix Organization

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 Horizontal Structure
 Organization around core processes.
 Shift towards horizontal structure during
re-organization
 Eliminates vertical
hierarchy and
departmental
boundaries

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 Characteristics of
Horizontal Structure
 Structure is created around cross-functional
processes
 Self-directed teams, not individuals are dominant
players
 Process owners are responsible for entire process
 People on the team are given authority for decisions
 Can increase organization’s flexibility
 May harm performance if critical processes are not
correctly defined

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 Virtual Networks and Outsourcing
 Extend horizontal coordination beyond the
boundaries of the organization
 Most common strategy is outsourcing
• Contract out certain tasks/functions
 Virtual or modular structures subcontract
most of its major functions to separate
companies
 The virtual network organization serves as
a central hub with contracted experts
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 Virtual Network at TiVo

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 Virtual Network Strengths
and Weaknesses
 Ability to draw on worldwide resources
 Flexibility and use of new technologies
 Reduced overhead
 Lack of control
 Extreme decentralization
 Dependence upon external organization
 Difficult to develop corporate culture

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 Hybrid Structure
 Combination of various structure
approaches

 Tailored to specific needs

 Often used in rapidly changing

environments

 Greater flexibility

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 Application of Structural Design
• Each structure meets different needs and is a
tool that can help managers be more effective
• Structural alignment aligns structure with
organizational goal
• Symptoms of Structural Deficiency:
– Decision making is delayed or lacking quality
– Organization cannot meet changing needs
– Employee performance declines, needs are not meet
– Too much conflict
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 Design Essentials
• Structure must provide a framework, linking
organization into whole
• Provide vertical and horizontal linkages
• Variety of alternatives for grouping
• Virtual network extends horizontal coordination
• Matrix structure attempts to achieve balance
• Managers must find right balance
• The purpose of the organization chart is to
encourage and direct activities
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