Lecture 3: Fundamentals of Organization Structure

Question 1

Basic Questions of Structural Design

Answer 1

1. Required Work Activities
   -> What needs to get done?
2. Reporting Relationships
   -> Who reports to whom?
3. Department Grouping Options
   -> Who works together

Question 2

Functional Structure

Answer 2

=> Functional grouping

• Activities grouped by common function
• All specific skills and knowledge are grouped together
• Promotes economies of scale
• Slow response to environmental changes
• Decisions pile up on top
• Coordination across functions is difficult
• Departments live in different thought worlds

=> Few companies can respond in today’s environment without horizontal linkages

Question 3

Divisional Structure

Answer 3

=> Product structure and strategic business units

• Divisions organized according to products, services, product groups
• Good for achieving coordination across functional departments
• Suited for fast change
• Diminishes economies of scale
• Diminishes technical specialization
• Makes integration and standardization between divisional groups difficult
  -> Little sharing and learning across units

Example: Siemens

Question 4

Geographic Structure

Answer 4

• Organizing to meet the 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 group

Example: Fresenius Medical Care

Question 5

Matrix Structure

Answer 5

= Multi-focused with strong horizontal linkage

• Allows organizations to meet dual demands
• The largest weakness is that employees have two bosses and potentially conflicting demands
• Requires a high level of interpersonal skills, information sharing, collegial attitude and trust
• Requires a great effort to maintain the right power balance

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

=> Example: Procter and Gamble

Question 6

Horizontal Structure

Answer 6

= Organizing around core processes

• vertical hierarchy structure is eliminated
• Self-directed teams are dominant players
• Process owners are responsible for the entire process
• Teams have their own authority and decision-making power
• Can increase flexibility
• Trust, openness, and collaboration are very important

Example 2 for Structural Innovator: W.L. Gore &Associates

Question 7

Hybrid Structure

Answer 7

• Combination of various structure approaches
• Tailored to specific needs
• Often used in rapidly changing environments
• Greater flexibility
• BUT: also greater complexity
  -> more challenging in making organizations work effectively and efficiently

Question 8

Virtual networks and outsourcing

Answer 8

• Extend horizontal coordination beyond the boundaries of the organization
• Most common strategy: Outsourcing
• Virtual or modular structures subcontract most of their major functions to separate companies
• The virtual network organization serves as a central hub with contracted experts

Weaknesses:
- dependence on the partner to deliver
- Conflict resolution through legal processes is largely unpredictable
- Danger of losing critical capabilities

Question 9

Symptoms of Structural Deficiency

Answer 9

• Decision-making is delayed or lacks quality
• Organization cannot meet changing needs
• Employee engagement and performance declines
• too much conflict

=> Alignment and consistency is key