Chapter 3: Fundamentals of Organizational Structure

Report
Fundamentals of
Organizational Structure
Organization Structure
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Three Components
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Formal reporting relationships
Grouping of people and departments
Design of systems to ensure effective
communication, coordination, and integration
Linkages

Vertical

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
Control
Centralized decision-making
How achieved:
Hierarchical referral
 Rules and plans
 Vertical Information Systems
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Linkages

Horizontal

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Learning
Decentralized decision-making
How achieved:
Information systems
 Direct contact
 Task forces
 Integrator
 Teams
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Organizational Structure
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Required Work Activities
Reporting Relationships
Departmental Grouping Options
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Functional
Divisional
Multifocused
Horizontal
Modular
Functional Structure
CEO
Finance
Marketing
Engineering
Divisional Structure
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
AKA Product Structure
Decentralized decision-making
Strengths
Weaknesses
Divisional Structure
CEO
Product
One
Product
Two
Product
Three
Divisional Structure
CEO
Soft
Drinks
Aquafina
Gatorade
Geographical Structure

Designed according to where product will
be offered
Geographic Structure
CEO
United
States
Asia
Europe
Matrix Structure


Combines functional and divisional structure
Conditions

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Need to share scarce resources
Two critical outputs:

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In-depth knowledge and new products
Complex and uncertain domain
Who’s in charge?
Strengths
Weaknesses
Horizontal Structure


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
Reengineering
Faster and better service for customers
Organized around processes and teams
Strengths
Weaknesses
Modular Structure

Subcontracts processes

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Manages them from a central hub
Business focuses only on core competency
Strengths
Weaknesses
Hybrid Structure


Centralized functional structure for stable
products; other products may have selfcontained departments
Certain departments work through entire
organization (functional), but processes
are focused in other areas (horizontal).
Applications


Have scarce resources and need
efficiency?
Need inter-functional coordination,
innovation, and learning?
What Causes Problems?
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Decision-making is delayed
Non-responsiveness to environmental
changes
Too much conflict/ “Turf wars”

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