Chapter 11 Organization Structure © 2015 by McGraw-Hill Education This is proprietary material solely for authorized instructor use Not authorized for sale or distribution in any manner This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part Learning Objectives Identify five traditional organizational structures and the pros and cons of each Describe the product-team structure and explain why it is a prototype for a more open, agile organizational structure Explain five ways improvements have been sought in traditional organizational structures Describe what is meant by agile, virtual organizations Learning Objectives (contd.) Explain how outsourcing can create agile, virtual organizations, along with its pros and cons Describe boundaryless organizations and why they are important Explain why organizations of the future need to be ambidextrous learning organizations Organizational Structure • Organizational structure refers to the formalized arrangement of interaction between and responsibility for the tasks, people, and resources in an organization Simple Organizational Structure • • • A simple organizational structure is one where there is an owner and a few employees and where the arrangement of tasks, responsibilities, and communication is highly informal and accomplished through direct supervision This type of structure can be very demanding on the owner-manager Most businesses in this country and around the world are of this type Functional Organizational Structure • A functional organizational structure is one on which the tasks, people, and technologies necessary to the work of the business are divided into separate “functional” groups (such as marketing, operations, and finance) with increasingly formal procedures for coordinating and integrating their activities to provide the business’s products and services Ex 11.3 Functional Organization Structures Divisional Structure • A divisional organizational structure is one in which a set of relatively autonomous units, or divisions, are governed by a central corporate office but where each operating division has its own functional specialists who provide products or services different from those of other divisions Divisional Structure (contd.) • • This structure expedites decision making in response to varied competitive environments The division usually is given profit responsibility Ex 11.4 Divisional Organization Structure 10 Trends Affecting Organizations in the 21st Century • Globalization • The Internet • Speed 18 Ex 11.9 What a Difference a Century can Make 19 Efforts to Improve Traditional Structures • Redefine the role of corporate headquarters from control to support and coordination • Balance the demands for control/differentiation with the need for coordination/integration • • • Restructure to emphasize and support strategically critical activities Reengineer strategic business processes Downsize and self-manage 20 Restructure to Emphasize and Support Strategically Critical Activities • • Restructuring: Redesigning an organizational structure with the intent of emphasizing and enabling activities most critical to a firm’s strategy to function at maximum effectiveness Business Process Reengineering: A customer-centric restructuring approach It involves fundamental rethinking and radical redesigning of a business process so that a company can best create value for the customer by eliminating barriers that create distance between employees and customers 21 Restructure to Emphasize and Support Strategically Critical Activities (contd.) • • Downsizing: Eliminating the number of employees, particularly middle management, in a company Self-management: Allowing work groups or work teams to supervise and administer their work as a group or team without a direct supervisor exercising the supervisory role These teams set parameters of their work, make decisions about work-related matters, and perform most of the managerial functions previously done by their direct supervisor 22 Creating Agile, Virtual Organizations • • Virtual organization: a temporary network of independent companies—suppliers, customers, subcontractors, even competitors—linked primarily by information technology to share skills, access to markets, and costs An agile organization is one that identifies a set of business capabilities central to highprofitability operations and then builds a virtual organization around those capabilities 23 Outsourcing—Creating a Modular Organization • • • Outsourcing is simply obtaining work previously done by employees inside the companies from sources outside the company A modular organization provides products or services using different, self-contained specialists or companies brought together—outsourced—to contribute their primary or support activity to result in a successful outcome Business process outsourcing (BPO) is the most rapidly growing segment of the outsourcing services industry worldwide 24 Strategic Alliances • Alliances with suppliers, partners, contractors, and other providers that allow partners in the alliance to focus on what they best, farm out everything else, and quickly provide value to the customer 25 Types of Boundaries • • • • Horizontal boundaries—between different departments or functions in a firm Vertical boundaries—between operations and management, and levels of management, between “corporate” and “division” Geographic boundaries—between different physical locations; between different countries or regions of the world and between cultures External interface boundaries—between a company and its customers, suppliers, partners, regulators, and competitors 26 Becoming Boundaryless • • Jack Welch coined the term “boundaryless” to illustrate his vision for GE Outsourcing, strategic alliances, product-team structures, reengineering, restructuring—all are ways to move toward boundaryless organization • Technology, particularly driven by the Internet, has and will be a major driver of the boundaryless organization 27 Ex 11.14 From Traditional Structure to B-Web Structure 28 Ambidextrous Learning Organization • • • The evolution of the virtual organizational structure as an integral mechanism managers use has brought with it recognition of the central role knowledge plays in implementation The shift from exploitation to exploration (Rangan) indicates the growing importance of organizational structures that enable a learning organization to allow global companies the chance to build competitive advantage An ambidextrous organization emphasizes coordination over control as well as flexibility 29 Key Terms • Agile organization • Ambidextrous organization • Boundaryless organization • Business process outsourcing • Business process reengineering • Corporate lattice • Divisional organizational structure • Downsizing • External interface boundaries • Functional organizational structure • Geographic boundaries • Holding company structure 30 Key Terms (contd.) • • • • • Horizontal boundaries Lattice Learning organization Matrix organizational structure Modular organization • • • • • Organizational structure Outsourcing Product-team structure Restructuring Self-management 31 Key Terms (contd.) • • • Simple organizational structure Strategic alliances Strategic business unit • • Vertical boundaries Virtual organization 32 [...]... The Internet • Speed 18 Ex 11. 9 What a Difference a Century can Make 19 Efforts to Improve Traditional Structures • Redefine the role of corporate headquarters from control to support and coordination • Balance the demands for control/differentiation with the need for coordination/integration • • • Restructure to emphasize and support strategically critical activities Reengineer strategic business.. .Strategic Business Unit • The strategic business unit (SBU) is an adaptation of the divisional structure whereby various divisions or parts of divisions are grouped together based on some common strategic elements, usually linked to distinct product/market differences • The advantages and disadvantages of the SBU form are very similar to those identified for divisional structures 11 Holding... structure is one in which functional and staff personnel are assigned to both a basic functional area and to a project or product manager • The matrix form is intended to make the best use of talented people within a firm by combining the advantages of functional specialization and product-project specialization 13 Ex 11. 5 Matrix Organizational Structure 14 Ex 11. 5 (adapted) Matrix Organizational Structure... Downsize and self-manage 20 Restructure to Emphasize and Support Strategically Critical Activities • • Restructuring: Redesigning an organizational structure with the intent of emphasizing and enabling activities most critical to a firm’s strategy to function at maximum effectiveness Business Process Reengineering: A customer-centric restructuring approach It involves fundamental rethinking and radical redesigning... company can best create value for the customer by eliminating barriers that create distance between employees and customers 21 Restructure to Emphasize and Support Strategically Critical Activities (contd.) • • Downsizing: Eliminating the number of employees, particularly middle management, in a company Self -management: Allowing work groups or work teams to supervise and administer their work as a... levels of management, between “corporate” and “division” Geographic boundaries—between different physical locations; between different countries or regions of the world and between cultures External interface boundaries—between a company and its customers, suppliers, partners, regulators, and competitors 26 Becoming Boundaryless • • Jack Welch coined the term “boundaryless” to illustrate his vision for GE... make decisions about work-related matters, and perform most of the managerial functions previously done by their direct supervisor 22 Creating Agile, Virtual Organizations • • Virtual organization: a temporary network of independent companies—suppliers, customers, subcontractors, even competitors—linked primarily by information technology to share skills, access to markets, and costs An agile organization... worldwide 24 Strategic Alliances • Alliances with suppliers, partners, contractors, and other providers that allow partners in the alliance to focus on what they do best, farm out everything else, and quickly provide value to the customer 25 Types of Boundaries • • • • Horizontal boundaries—between different departments or functions in a firm Vertical boundaries—between operations and management, and levels... simplify and amplify the focus of resources on a narrow but strategically important product, project, market, customer, or innovation • The product-team structure assigns functional managers and specialists to a new product, project, or process team that is empowered to make major decisions about their product 16 Ex 11. 7 The Product-Team Structure 17 Trends Affecting Organizations in the 21st Century • Globalization... disadvantages of the SBU form are very similar to those identified for divisional structures 11 Holding Company Structure • A final form of the divisional organization is the holding company structure, where the corporate entity is a broad collection of often unrelated businesses and divisions such that it (the corporate entity) acts as financial overseer “holding” the ownership interest in the various parts