CHAPTER 9

STRATEGIC
ORGANISATION
DESIGN

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LECTURE OUTLINE
Overview: Designing organisation

structures
Assessing structural alternatives
Weighing contingency factors
Matching strategy & structure
Promoting innovation

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DESIGNING ORGANISATION
STRUCTURE
Strategy & structure: which comes first?
Strategy & structure are closely linked with each
other.
Mismatches in strategy/structure lead to
difficulties.
Factors influencing organisation design
Contingency factors: technology, size,
environment.
Need to promote innovation: roles, differentiation,
transfer processes.
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DESIGNING ORGANISATION
STRUCTURE
Contingency
Contingencyfactors
factors
Technology
Technology
Size
Size
Environment
Environment

Strategy
Strategy

Organisational
Organisationalgoals
goals
Organisation
structure
Organisation structure
(efficiency
&&
(efficiency
Functional
Functional
effectiveness)
Divisional
effectiveness)
Divisional
Hybrid
Hybrid
Matrix
Matrix
Structural
Structuralmethods
methodsfor
for
promoting
promotinginnovation
innovation
Roles
Roles
Reservations
Reservations
Differentiation
Differentiation
Transfer
Transferprocesses
processes

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ASSESSING STRUCTURAL
ALTERNATIVES
Functional structure
Divisional structure
Hybrid structure
Matrix structure
Emergent structure

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ASSESSING STRUCTURAL
ALTERNATIVES
Functional structure

Structure in which positions are grouped

according to their main functional (or specialised)
area.
CEO

Manager,
Manufacturing

Manager,
Distribution

Manager,
Administration

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ASSESSING STRUCTURAL
ALTERNATIVES
FUNCTIONAL STRUCTURE:
Advantages

In-depth expertise development

Clear career path within function
Efficient use of resources
Possible economies of scale
Ease of coordination within function
Potential technical advantage over
competitors

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ASSESSING STRUCTURAL
ALTERNATIVES
FUNCTIONAL STRUCTURE:
Disadvantages
Slow response to multifunction problems
Decision backlog at top of hierarchy
Bottlenecks due to sequential tasks
Inexact measures of performance
Narrow training of future managers

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ASSESSING STRUCTURAL
ALTERNATIVES
Divisional structure:
Structure in which positions are
grouped according to similarity of
products, services
or markets.

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ASSESSING STRUCTURAL
ALTERNATIVES
CEO,
CEO, Alpha
Alpha Industries
Industries

Chief
ChiefGeneral
General
Manager
Manager
Copier
Copierproducts
products

Chief
ChiefGeneral
General
Manager
Manager
Photographic
Photographic
products
products

Chief
ChiefGeneral
General
Manager
Manager
Scanner
Scannerproducts
products

Chief
ChiefGeneral
General
Manager
ManagerComputer
Computer
Storage
Storageproducts
products

Chief
ChiefGeneral
General
Manager
Manager
Industrial
Industrial
imaging
imagingproducts
products

Chief
ChiefGeneral
General
Manager
Manager
Marine
electronic
Marine electronicproducts
products

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ASSESSING STRUCTURAL
ALTERNATIVES

DIVISIONAL STRUCTURE:
Advantages

Fast response to environmental change

Simplified coordination across functions
Simultaneous emphasis on organisational

goals
Strong customer orientation
Accurate measurement of performance
Broad training in management skills
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ASSESSING STRUCTURAL
ALTERNATIVES
DIVISIONAL STRUCTURE:
Disadvantages

Resource duplication in each division

Reduction of in-depth expertise
Competition amongst divisions
Limited sharing of expertise between divisions
Innovation restricted to each division
Neglect of overall goals

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ASSESSING STRUCTURAL
ALTERNATIVES
Hybrid structure:
Structure adopting both functional and
divisional structures at the same
management levels.

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913

ASSESSING STRUCTURAL
ALTERNATIVES
HYBRID STRUCTURE:
Advantages
Alignment of corporate &

divisional goals
Functional expertise &/or
efficiency
Adaptability & flexibility in
divisions
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914

ASSESSING STRUCTURAL
ALTERNATIVES
HYBRID STRUCTURE:
Disadvantages

Conflicts between corporate

departments & divisions

Excessive administration overhead
Slow response to exceptional
situations
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ASSESSING STRUCTURAL
ALTERNATIVES
Matrix structure:
Structure superimposing a horizontal set of
divisional reporting relationships onto a
hierarchical functional structure.

Appropriate when:
Need for a strong focus on both functional &

divisional dimensions.
Need to quickly process information & coordinate
activities.
There is pressure for shared resources.

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Assessing Structural
Alternatives
GM,
Transport

GM,
Sales

GM,
HRM

GM,
Finance

Manager,
Business A

Transport,
Business A

Sales,
Business A

HRM,
Business A

Finance,
Business A

Manager,
Business B

Transport,
Business B

Sales,
Business B

HRM,
Business B

Finance,
Business B

Manager,
Business C

Transport,
Business C

Sales,
Business C

HRM,
Business C

Finance,
Business C

Manager,
Business D

Transport,
Business D

Sales,
Business D

HRM,
Business D

Finance,
Business D

Manager,
Business E

Transport,
Business E

Sales,
Business E

HRM,
Business E

Finance,
Business E

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ASSESSING STRUCTURAL
ALTERNATIVES
MATRIX STRUCTURE:
Advantages

Decentralised decision-making
Strong product coordination
Improved environmental monitoring
Flexible use of human resources
Efficient use of support systems
Fast response to change

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918

ASSESSING STRUCTURAL
ALTERNATIVES
MATRIX STRUCTURE:
Disadvantages
High administrative costs
Confusion over authority & responsibility

(potential)
Excessive focus on internal relations
Overemphasis on group decision-making
Slow response to change (possible)
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ASSESSING STRUCTURAL
ALTERNATIVES
Emerging structures:
Process structure
Type of departmentalisation where positions are
grouped by a complete flow of work.

Networked structure
Form of organising where many functions are
contracted out to other independent firms &
coordinated by use of information technology
networks to operate as if they were within a single
corporation.
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920

WEIGHING CONTINGENCY
FACTORS
The best structure for an organisation
depends on contingency factors such as:
Technology
Size
Environment

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WEIGHING CONTINGENCY
FACTORS
Technology:
Technological complexity

(Woodward)

Unit & small batch production

Large batch & mass production
Continuous process production

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WEIGHING CONTINGENCY
FACTORS
Technology:
Technological interdependence

(Thompson)

Pooled interdependence
Sequential interdependence
Reciprocal interdependence

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WEIGHING CONTINGENCY
FACTORS
Size
Size effects
effects
on
on structure
structure
With
Withgrowth:
growth:
more
moredepartments,
departments,
shift
shiftfrom
fromfunctional
functional
to
todivisional
divisionalform
form

With
Withgrowth:
growth:
more
morestaff
staffpositions
positions
to
toassist
assistsenior
senior
management
management

With
Withgrowth:
growth:
additional
additionalrules
rules
&&regulations
regulations
(formalisation)
(formalisation)

With
Withgrowth:
growth:
tendency
tendencyto
todecentralise
decentralise
(enabled
(enabledby
by
formalisation)
formalisation)

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WEIGHING CONTINGENCY FACTORS

Stable environments,
mechanistic

Unstable/uncertain
environments, organic

narrow tasks
prescribed tasks
hierarchical control
decision-making levels
communication vertical
instructions by superiors
loyalty to organisation
obedience to superiors

general tasks, subject to

continuous negotiation
network control
decision making rests with those
with knowledge
communication across & between
levels
supervision is information & advice
commitment to organisational
goals, possession of expertise

Lawrence
Lawrence&&Lorsch:
Lorsch:Balance
Balanceof
ofdifferentiation
differentiation&&integration
integration

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MATCHING STRUCTURE & STRATEGY

Managers must match strategy & structure to
achieve effectiveness, e.g.:
Niche
Niche
differentiation:
differentiation:
narrow
narrowtarget
targetmarket
market

Cost
Costleadership:
leadership:

Innovative
Innovative
differentiation:
differentiation:

Market
Marketdifferentiation:
differentiation:

complex
complexproduct
product
ororservice
serviceinnovations
innovations

organisational
organisational
efficiency,
efficiency,
lower
lowerprices
prices

advertising,
advertising,prestige
prestige
pricing
pricing&&
market
marketsegmentation
segmentation

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PROMOTING INNOVATION
Structures ability to support

strategy can be enhanced by

using structural means to
encourage innovation.
Innovation is critical to various

differentiation strategies.
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927

PROMOTING INNOVATION
Four major means of using organisation
structure to facilitate innovation are:
Vital roles
Idea champion, sponsor, orchestrator

Reservations
Organisation units devoted to the generation of innovative
ideas

Differential paradox
Separating innovation process decreases chance of
implementation

Transfer process
The difficulty of translating ideas into products/services
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928

LECTURE SUMMARY
Overview: Organisation structure design
Strategy & structure closely linked
Factors influencing design: contingency
factors, need for innovation
Assessing structural alternatives

Functional, divisional, hybrid, matrix, emerging

structures

Weighing contingency factors

Technology, size, environment

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PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin

929

LECTURE SUMMARY
Matching strategy and structure

Structure must match chosen strategy for

effectiveness.

Promoting innovation

Structure may enhance innovation.

Key factors: vital roles, reservations, differential
paradox, transfer process

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