Lecture 6

MGT689: Organization Behavior and Design

Designing Organizational
Structures

Page 1

Designing Organizational Structures

Structural Contingency Theory

Uncertai
nty

Organizat
ion
Design
Org
Structure
Orgl
Policies
Mgmt
Practices

Behavio
r

Organizat
ion
Outcomes,
e.g.

Innov/Learni
ng

Adaptability
Efficiency

Commitment/
Satisfaction

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Designing Organizational Structures

Designing Organizational Structures

There are three (3) basic organizational designs:
1. Functional
2. Divisional (grouping may by product, service, region,
etc)
3. Matrix
You need to be fully familiar with these three basic designs
and the differences among them.
The text also discusses functional with horizontal linkages
and hybrid designs. Functional with horizontal linkages
is simply a variation of functional design. A hybrid design
is any combination of the three basic designs e.g.
functional with divisional or functional with matrix. In
reality almost all organizations are hybrid designs. Can you
explain why this is so?
The text summarizes strengths and weaknesses of each of the
basic organizational designs quite well. The next five slides
provide a summary of the Page
strengths
and weaknesses for each of
3
the basic organizational designs. As you read through these
slides keep in mind how the strengths and weaknesses provide

Designing Organizational Structures

Functional Structure
President

R & D

Manufacturing

Accounting

STRENGTHS

Marketing

WEAKNESSES

Allows economies of scale with functionalHas

departments
slow response time to environmental changes
Enables in-depth skill development
May cause decisions to pile on top, hierarchy ove
Enables organizations to accomplish functional
Leads goals
to poor horizontal coordination among depar
Is best in small to medium-size organizations
Results in less innovation
Is best when only one or a few products Involves restricted view of organizational goals

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Degree of Horizontal
Coordination/Integration Required*

Designing Organizational Structures

Production Technology and

Organizational
Structure
High

Cross-Functional
Teams
Full-Time
Integrators

Task Forces
Liaison Roles
Direct Contact
Schedules/Reports/Info Systems

Low
Low

Capacity To Coordinate/Integrate
High
Horizontally
* Depends on Production Technology (Uncertainty) & Task Interdepende
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Example of a Product Divisional Structure

Note:

Grouping may be by region, product group, service

group, client, etc.
President

Division A
Division B
Product Group 1 (e.g. Cell phones)
Product Group 2 (e.g. Video games)

Mfg

Acct

Mkt

Mfg

Acct

Mkt

STRENGTHS
WEAKNESSES*
Suited to fast change in unstable environment.
Product responsibility and contact points
Eliminates
are economies of scale in fun
clear.
departments
May increase coordination across functions
Leads to poor coordination across pr
Eliminates in-depth technical specia
w/in a product group.
Decentralizes decision making.
Integration or standardization acros
Allows unit adaptation to differences
lines
in is
regions,
difficult
clients.

Can you identify and issues that would stem from these weaknesses?
*Comparing to a Functional Structure Page 6

Designing Organizational Structures

One Example of Functional w/

Horizontal Linkages
Note:

There are MANY variations on Functional w/

President
Horizontal
Linkages

Dir of
Product Operations

VP
R&D

VP
Manufacturing

VP
Accounting

VP
Marketing

Product Mgr
Product A
Product Mgr
Product B

STRENGTHS

WEAKNESSES

Informal authority may be hard to exercise

Capability for coordination to meet dual demands from
Time-consuming: involves frequent meetings and co
customers and environment may be enhanced
resolution sessions
Allows for more flexible sharing of human resources
Will not work if integrators are ineffective at e
Suited to complex decisions and unstable environment
informal influence
Opportunity for functional and product skill development

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Designing Organizational Structures

Example of Matrix Structure

President

Dir of
Product Operations

VP
R&D

VP
Manufacturing

VP
Accounting

VP
Marketing

Product Mgr
Product A
Product Mgr
Product B

STRENGTHS

WEAKNESSES

Dual authority can be frustrating and confusing

Capability for coordination to meet dual demands from
Time-consuming: involves frequent meetings and co
customers and environment
resolution sessions
Flexible sharing of human resources
Will not work unless participants understand ado
Suited to complex decisions and unstable environment
collegial relationships/collaborative culture
Opportunity for functional and product skill development
Requires great effort to maintain power balance

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Designing Organizational Structures

A Few Notes Re: Strengths and Weaknesses of

Divisional Structure
When you read through the strengths and weaknesses of the
Divisional structure, you have to keep the following in mind:
1. Divisions (self-contained units) may be created around
product lines, clients served, geographic regions, etc.
Recall IBM created divisions around product lines. But the
grouping factor will vary depending on the particular
business. The important thing to keep in mind is that each
division operates as a self-contained unit i.e. it has all
the resources needed to produce the product line, or serve
the client group, etc. as the case may be.
2. This is quite important and students seem to miss this
point. The strengths and weaknesses of the Divisional
Structure listed on the prior slide are comparing the
Divisional structure to the Functional structure.
Think of
IBM before they broke themselves into 14 autonomous business
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units (or divisions). Under
a functional structure they
produced/serviced 14 different product groups. Now go back
and read through the strengths and weaknesses of the

Designing Organizational Structures

Example of Hybrid Structure Functional w/

Product Divisions
President

Chief
Counsel

Human
Resources
Director

Fuels Division
Vice President

Technology
Vice President

Lubricaants/
Waxes Division
Vice President

Financial
Services
Vice President

Resources and
Strategy Senior
Vice President
Public
Affairs
Director

Chemicals Division
Vice President

Raw
Materials
Vice President

STRENGTHS

WEAKNESSES

Adaptability and coordination in product division with

Potential for excessive administrative overhead
efficiency in centralized functional departments
Can lead to conflict between division and corpo
Better alignment between corporate and division goals
departments
Allows unit adaptation to differences in products/regions/clients

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Designing Organizational Structures

Organizational Structures

Page 12

Case Analysis Aquarius

Analyze
Aquarius with respect to: Environment,
Advertising
Goals, Culture, Size and Technology

Design a new Organization structure that takes

into consideration the contextual variables
and information flows (What is it now?)
Would a matrix structure be feasible for
Aquarius? Why or why not?

Page 17

Case Analysis Aquarius

Advertising

Analyze Aquarius with respect to:

Environment unstable (clients change often, consumer
behavior /\)
Goals - be creative and satisfy customers
Culture structure/functional FT integrators -> horizontal
linkage
Size mid sized
Technology non-routine depending on creativity and art

Design a new Organization structure that takes into consideration

the contextual variables and information flows FUNCTIONAL,
DIVISIONAL, MATRIX?
a.
b.
c.
d.

Treat Account managers as project managers

Product structure with departments reporting to each account
ex
Account execs reporting to client group vps functional
department reporting to each account ex
OTHER ideas
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Case Analysis Aquarius Advertising

Would a matrix structure be feasible for

Aquarius? Why or why not?
Requirements for a Matrix Structure:
a. Duel domain competitive issue Service and
creativity require both competence within each
function but coordination across functions
b. Is the environment uncertain? - yes rapid
environmental changes will occur clients and
employees change
c. Need to share resources? yes as too many
required for individual client focus
Probably they dont have the right individuals now
in place with the amount of necessary
organizational savvy to pull it off need a lot
of coordination between functions and currently
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the account executives
are bypassed and they
would need training. Currently there is a need