1.

The Functional Structure

2. Divisional Structure
3. The Strategic Business Unit (SBU) Structure
4. The Matrix Structure
Organizational structure:

- refers to how job tasks are formally divided, grouped and coordinated. [A system
of tasks reporting, relationships and communication channels linking individuals
and groups in the organization]

- Structure changes as environnemental conditions change

Changes in strategy often require changes in the way an organization is

structured for two major reasons.

a. First, structure largely dictates how objectives and policies will be

established.
For example, objectives and policies established under a geographic
organizational structure are couched in geographic terms. Objectives and
policies are stated largely in terms of products in an organization whose
structure is based on product groups.
The structural formula for developing objectives and policies can
significantly impact all other strategy-implementation issues.
b. The second is that structure dictates how resources will be allocated.
 Selecting an organizational structure

1. The Functional Structure:

 Groups together people with similar skills, expertise, sharing similar

responsibilities in similar areas of interests (each one in his own areas of expertise)
groups tasks and activities by business function such as product/operations, marketing,
finance/accounting, R&D, and computer information systems.
 Typically work well for small organization producing few products or services
in a relatively predictable environment with low demand of innovation or change

President

Vice President Vice President Vice President Vice President

Marketing Production HR Finance

ADVANTAGES
 is the simplest and least expensive
 Centralized control of operations. (Minimizes the need for an elaborate
control system).
 Promotes in-depth functional expertise(specialization of labor)
 Enhances operating efficiency where tasks are routine.
 Allows rapid decision-making.
 High quality in solving technical problems.
 In depth training and skill development within each function.
 Clear career paths.
 DISADVANTAGES
 It forces accountability to the top. (Problems are moved forward to the
upper level for solving).
 Minimizes career development opportunities.
 Sometimes characterized by low employee morale.
 Functional coordination problems. (Lack of coordination.)
 Inter-functional rivalry (may lead to internal conflict)
 Overspecialization and narrow viewpoints
 Hinders development of cross-functional experience
 Slower to respond in turbulent environments (communication and
problem solving across functions this can result in slowing the
decision making process and problem solving.
 Unclear responsibilities in areas such as innovation, product quality.

2. Divisional Structure: [Product, geographical, customer, process]

 Groups together people that work together on the same product or process serve
the same customer or located within the same geographic areas

When to use:
 The organization is managing diverse product line.
 The organization is expanding to cover wider geographical areas.
  Typically work well for complex organization producing multiple
and differentiated products with diversified strategies and who are
working in different competitive environments.
The divisional structure can be organized in one of four ways:

1. Geographic area: (or area structure)

President
(common in international operations
allowing to focus more on cultural and Middle East European
regional differences or when the product Division Division
need to be differentiated on the basis of
areas)
 is appropriate for organizations whose strategies need to be tailored to fit the
particular needs and characteristics of customers in different geographic
regions.

2. Product or service:
General
(Allows high degree of accountability as Manager
costs, profits, failures, successes are
clearly identified) Personal
Food
care product
 Is most effective for implementing
strategies when specific products or services need special emphasis.

3. Process:
Catalog Sales
Manager
(Group of related tasks creating
something of a value to the customer) Product Order
Purchasing fulfillment
 Is similar to a functional structure,
because activities are organized according to the way work is actually
performed.

4. Customer.
(requirements of each customer is different)
Industrial Consumers
Division Division
 With a divisional structure, functional activities are performed both centrally
and in each separate division.

ADVANTAGES:

 Decentralized decision making.

 Each business is organized around products.

 Puts profit/loss accountability on manager.

 Facilitates rapid response to environmental changes.

 Allows efficient management of a large number of units.

 Creates career development opportunities for managers.

 Allows new businesses and products to be added easily (flexibility in

changing size by adding or deleting divisions).

 Improved cross functional coordination.

 Clear point of responsibility for product delivery and quality.
 Focused expertise on customers/ products/ regions.

DISADVANTAGES

 May lead to costly duplication of functions.( increase costs; increase

deficiencies as resources and efforts are duplicated).

 Inter-divisional rivalry. (may lead to internal conflict)

 Corporate managers may lose in-depth understanding.

3. The Strategic Business Unit (SBU) Structure (a recent form of the divisional
structure)

Divisions or group of divisions composed of independent product-market segments

that are primary responsibility and authority for the management of their own
functional areas.

The SBU structure groups similar divisions into strategic business units and delegates
authority and responsibility for each unit to a senior executive who reports directly to
the CEO.

ADVANTAGES:
This change in structure can facilitate strategy implementation by improving
coordination between similar divisions and channeling accountability to distinct
business units.

DISADVANTAGES:
 It requires an additional layer of management, which increases salary
expenses.
 The role of the group vice president is often ambiguous.

CONDITIONS:
 Any size
 A unique mission
 Identifiable competitors
 External market focus
 Control over its business functions
(E.G. instead of organizing food on the basis of the packaging technology:
canned, packed they are divided according to the customer segments they serve)
4. The Matrix Structure
 The matrix structure (sometimes called the matrix organization) it
combines the functional and divisional structure.
 It is designed to gain the advantage and minimize the disadvantages of
the functional and divisional structures.
 The matrix is formed by using permanent cross functional teams to
integrate functional expertise in support of a clear divisional focus on
project, product or program.
 The matrix structure in the multinational organizations offers a flexibility
to deal with the regional differences as well as the multi products,
programs or regional needs.
 The matrix structure is the common solution for the organizations that
pursues the growth strategies in a dynamic and complex environment
 Functional & product form are combined simultaneously at the same
level.
 Workers belong to 2 formal groups: a functional and a project (or
program or product) team.
 Employee have 2 superior, functional superior & horizontal product
manager (reporting to 2 bosses one within the functions and the other
within the team).

When to use?
► Scarce resources
► Ideas need to be cross fertilized across projects
► External environment is very complex and changeable
 General Manager

Manager of Projects Manufacturing Engineering Sales Manager

Manager Manager

Project A

Project B

Functional personnel assigned to both projects and coordinating

with their functional departments

ADVANTAGES:

 Project objectives are clear.

 There are many channels of communication.
 Workers can see visible results of work.
 Projects can be shut down easily.
 Better inter-functional cooperation in operations and problem solving.
 Increased flexibility in adding, removing and changing operations to
meet changing demands.
 Better customer service since there is always a program, product,
project manager who is fully informed and available to answer all and
every enquiries.
 Better performance accountability through the program, product,
project managers.
 Improved decision making as problem solving takes place at team
level, where the best information is available.
 Improved strategic management since top management levels are
freed from unnecessary problem solving to focus time into strategic
issues.
DISADVANTAGES:

 It is the most complex of all designs because it depends upon both

vertical and horizontal flows of authority and communication.
 It can result in higher overhead cost because it creates more managerial
positions.
 It also creates dual lines of budget authority, dual sources of reward and
punishment, shared authority, and dual reporting channels.

 boss system could create a conflict between the two in exercising

power and authority
 Strong teams loyalties could cause losing the focus on the larger
organizational goals, adding team leaders cause increase in costs.

** Distinct phase exist in the DEVELOPMENT OF matrix structure

1. Temporary cross functional task forces:

Project manager is in charge as the key horizontal link

2. Product or brand management:

The functional is still the primary organizational structure, product manager act
as integrator of semi permanent product or brand.

3. Mature matrix:
A true dual authority structure, functional & product structure are permanent.
5. Network structure

Warehouse
Off-shore
Supplier
manufacturing
and packaging
firm

Business
Core

Furniture

Furniture design Accounting and

studio financial firm

Alliance with other

furniture manufacturer

 many activities are outsource

 series of independent firms or business units that are linked together by
computers in an IS
 Used when the environment is unstable
Nike, Reebok, Benetton use the network structure on their operation functions by
subcontracting manufacturing to other companies in low cost location around the
world.
The organization operates with a central core business linked to outside
suppliers and contractors by a networks of relationships that utilize the latest tech.
to engage in strategic alliances and business contracts sustaining operations
without the costs of owning all the functions.

 Emerged as a result of information and communication technology (sort of

boundary less organizations or virtual corporations)

 Very suitable for entrepreneurial and small firms, the same concept can be used
in large organizations such as in the case of outsourcing.

ADVANTAGES:

 Rapid response time

 Firm’s emphasize their own core competencies
 Very flexible
 Reduces capital intensity
 Allowing the firm to operate with less employees.
 A more simplified internal systems.
 Reducing costs overheads.
 Increased operations efficiency and therefore increasing competitiveness.
 no geographical boundaries.

DISADVANTAGES:

 With large size it is often difficult to maintain control over the network of
relationships and contracts.
 If one part of the network fail to deliver, the whole system will fall.(single
point of flair)
6. Team Structures:

Uses extensively permanent and temporary cross-functional

teams to improve lateral relations. Members are coming from
different functional working closely together to improve
performance or solve a problem

 Pros: solve the problem of lack of coordination and

communication across function, boost the morale as people from
different part of the organization are working together, improve the
quality and the speed of the decisions making process, synergies
are expected as people having different technical expertise work
together.

 Cons: difficulty for team members to balance between the team

and the function assignment, passing too much time in meeting –
time – that is not always productive.

2 other models in organizational design:

Bureaucratic Organizations Adaptive Organizations

(Mechanistic) (Organic Design)
Authority Centralized Decentralized
Rules and procedures Many Few
Spans of control Narrow Wide
Tasks Specialized Shared
Teams and Taskforces Few Many
Coordination Formal and impersonal Informal and personal
Response to change Slow Rapid
Best fit Stable environment Dynamic environment
A mix of both can also be used. Consider When each of them can be used
effectively??? 9contingency approach)
6 Key elements to address:

1. Work specialization:
to what degree tasks are subdivided into separate jobs;
= breaking an activity into separate steps each one will be performed by a
separate individual = Efficiency in using organizational resources
a. Paying less to unskilled labor.
b. Repetitive tasks save time and increase experience and thus
efficiency.
c. Easier and less costly to train employees to perform repetitive jobs
than to perform all the jobs.
 Matching some industries were products are standards (McDonald’s)
or operations are complex (Car or plane manufacturing)
 Work specialization can increase productivity to a certain extent after
which the productivity decreases due to human diseconomies (fatigue,
boredom, and stress) will cause decrease in productivity and poor
quality.
 Put employees into teams (interchanging skills); enlarge the scope of
their activities, give the chance to do a whole and complete job.

2. Departmentalization:
On what basis the jobs will be grouped together
- Function based (manufacturing, personnel, marketing… etc) Aims at
achieving economies of scale by putting employees with common skills
and orientation into common units.
- Product based (e.g. Proctor and Gamble) aims at increasing the
accountability for the product performance, since all the activities related
to this product are gather under the direction of a single manager.
- Geographical or territorial: especially when customers with the same
needs are scattered geographically
- Process based:
- Customer based: (e.g. Mobile: large or corporate customers, individuals,
small businesses)
 Can be used all in one corporation
 Current trend goes for “CROSS FUNCTIONAL TEAMS”
3. Formalization:
To what degree there are rules and regulations to direct the employees and
managers?
[Work standardization].
Job descriptions, procedures, organizational rules to minimize the individual
input in the job so that the way the job is done is consistent and uniform
4. Decentralization # Centralization:
Where decisions making authority lie?
Centralization refers to the degree to which a decision making is
concentrated at a single point in the organization.
Decentralization: [delegation of authority] The degree to which a decision
making is pushed at lower level employees.
 Current Trend: DECENTRALIZATION (participative decision
making process makes employees feel less alienated, solving problem faster,
more input from people to solve problems in a creative way, make the
organization more flexible and responsive, lower level manager are typically
more able to solve problems as they are closer to the operations)
5. Chain of command:
To whom individuals and groups report? Is less powerful now due to the
increasing trend in empowering employees and tech, advancement that allows
more information and less degree of formalization in communicating with
anyone within the organization.
2 basic concepts:

a. authority: refers to the rights inherent in a managerial position to give

orders and expect the orders to be obeyed.

b. Unity of command: reporting to only one supervisor (otherwise conflict

demands from different supervisors)

 Current trend now is to EMPOWER EMPLOYEES even at

operational level to make decisions previously made by management,
SELF-MANAGED, CROSS-FUNCTIONAL TEAMS have reduced the
importance of those 2 basic concepts.
6. Span of control:
How many individuals can a manager efficiently and effectively direct?
The wider the span of control is the more efficient is the organization, how?
Because this will reduce the number of mangers Management salaries  cut
overheads and reduces costs  increase flexibility  allow closer relations to
the customer

However too large spans can cause a reduction of effectiveness when managers
do not have time to provide necessary support and time to their subordinates.

Narrow spans are expensive, complicates the vertical communication, isolate

upper management, slower the decision making process, discourage employee
autonomy by making supervision and control tighter.

 Current trend now is to WIDER SPAN OF CONTROL

Structural Trends:

a. Shorter chains of command: streamlining, cutting unnecessary managerial

levels to make the organization flatter rather than taller.
b. Less unity of command: more cross functional teams , taskforces and
horizontal structures are used,
c. Wider spans of control: as a result of shorter chain of command, employees
empowerment and less direct supervision
d. More delegation and empowerment
e. Employee’s empowerment is contributing to more decentralization, however
the information technology allow retention of centralized control
f. Organizations are reducing the size of the staff with a better quality

Among the different structural design the following can be chosen to allow the
organization to take advantage of the potential growth, match the high
technological change in the industry and face competition ……………….. for
the following reasons.