Fundamentals of
Organization Structure
Organizations and ICT – 2014/2015
Fabiano Dalpiaz
1
Acknowledgements
 Most of these slides are taken from Daft’s book
“Organization Theory and Design”, chapter 3

Not part of the recommended literature – thus, unless you
have the book, take notes or ask notes to your colleagues
2
Lecture outline
1. Case study: CISCO
2. Organization Structure
3. The Role of Information
4. Organization Design Styles
5. Structural Alignment
3
1. Case study: CISCO
Company background
 Core business: routers/switches
 Other businesses:

Collaboration solutions
• VOIP
• Telepresence

Data centers

Security and surveillance
4
1. Case study: CISCO
Case study background
 300 locations in 90 countries
 65k employees
 46 data centers and server rooms supporting employees


14 for production / customer-facing
32 for product development
 Organizational structure: traditional, siloed
5
1. Case study: CISCO
The problem
 With two separate service organizations

Much duplication
• See the two financial support department, multiple engineering
and operations depts, etc.

Lack of focus: staff doing both implementation/deployment
and operational/innovation work
6
1. Case study: CISCO
Key ingredients for the solution
 Structure the organization around CISCO’s lifecycle model
1. Prepare (business case)
2. Plan (project feasibility)
3. Design (project set-up)
4. Implement (build, deploy)
5. Operate (monitor health)
6. Optimize (improve)
7
1. Case study: CISCO
Developing the solution: a new org. structure
 New departments, each for one specific phase
 Results in terms of maturity (vs. lack of focus)
8
2. Organization Structure
Definition
 An organization(al) structure defines how activities such as
task allocation, coordination and supervision are
directed towards the achievement of organizational
aims [1]
 Explicit and implicit institutional rules and policies
designed to provide a structure where various work roles
and responsibilities are delegated, controlled and
coordinated [2]
1D.S.
Pugh, “Organization Theory: Selected Readings”
2http://www.investopedia.com/terms/o/organizational-structure.asp
9
2. Organization Structure
Three key components of organization structure
 Vertical aspect of organizing
1. Formal Reporting Relationships including the number of
levels and the span of control
2. Grouping of Individuals into departments and of
departments into the total organization
 Horizontal aspect of organizing
3. Design of Systems to ensure effective
• communication
• coordination
• integration of efforts
10
2. Organization Structure
Organization charts – i.e., visualizing the structure
 What components does it cover?



Formal reporting?
Grouping into departments?
Design of systems?
11
2. Organization Structure
Organization chart, University College Utrecht
12
2. Organization Structure
Notes on organization charts as models
Loosely defined
relationships.
Intuitively, this
means “supported
by”, but nowhere is
stated what this
dotted line means
… neither if the
UCU Council
supports the Dean
or vice-versa
13
2. Organization Structure
Notes on organization charts as models
Strong reliance
on orientation.
Top-down reading,
where top
management is in
the upper part,
operational staff is
in the lower part
14
2. Organization Structure
Notes on organization charts as models
Some reliance on
shapes.
In this chart, ovals
are departments or
boards, while
rectangles are
individuals
Remark: no unique
style exists. When
reading another
chart, ovals may
be individuals!
15
2. Organization Structure
Notes on organization charts as models
Yet, they fulfill
their purpose,
which is that of
communicating
the basic
organization
structure
16
3. The Role of Information
From vertical to horizontal organization structures
17
3. The Role of Information
Information linkages
 Managers search for the best combination of vertical
and horizontal linkages that enable communication
and coordination among organizational elements
 Aim: both vertical and horizontal linkages are needed
 Linkages are concerned with information!
18
3. The Role of Information
Vertical information linkages
Vertical linkages coordinate activities between the top and
the bottom of the organization
1. Hierarchical referral are the vertical lines which identify
the chain of command
2. Rules and Plans


Rules enable peer employees to be coordinated, without
involving their managers
Plans provide boundaries for employees’ behavior (e.g.,
budget plans leave freedom of action within the budget limits)
3. Vertical information systems enable vertical information
dissemination in an organization

E.g., periodic reports
19
3. The Role of Information
Horizontal information linkages
Horizontal linkage refers to the communication and
coordinate activities across organizational departments
1. Information Systems enable information exchange
throughout the organization
2. Organization structuring mechanisms
a. Direct Contact is a higher level of horizontal linkage (i.e.
liaison role)
b. Task Force is a temporary committee composed of
representative from each department involved.
c. Full-Time Integrator responsible for coordination
d. Team is the strongest horizontal linkage
20
3. The Role of Information
a. Horizontal linkages: direct contact (liaison)
 Makes contacts with people outside area of responsibility


Internal to the organization
Outside the organization
 Liaisons don’t play decisional and informational roles
 They are interpersonal managers
21
3. The Role of Information
b. Horizontal linkages: task forces
 Task force: a temporary committee composed of
representatives from each organizational unit affected by a
problem
 An effective horizontal linkage for temporary issues
22
3. The Role of Information
c. Horizontal linkages: full-time integrator
 Full-time integrator: a permanent position or
department whose purpose is solely coordination
 Typically this person has a title/position:




Product manager
Project manager
Programme manager
Brand manager
23
3. The Role of Information
c. Horizontal linkages: full-time integrator
24
3. The Role of Information
d. Horizontal linkages: teams
 Team: permanent task force often used in conjunction
with a full-time integrator
 Virtual team: made up of organizationally or
geographically dispersed members

Primary link: information and communication technologies
 Important features of teams are fostering teamwork and
team building
25
3. The Role of Information
Information linkages: the landscape
26
4. Organization Design Styles
Three main elements of organization design
1. Required work activities

What has to be done?
2. Reporting relationships

The so-called chain of command
3. Departmental grouping options





Functional grouping
Divisional grouping
Multifocused grouping
Horizontal grouping
Virtual network grouping
27
4. Organization Design Styles
Functional structure
 Activities are grouped together by common function
from the bottom to the top of the organization



All engineers in the engineering dept
All marketing people in the marketing dept
Etc.
28
4. Organization Design Styles
Functional structure: strengths
 Allows economies of scale within functional departments

All people within the same department are homogeneous
 Enables in-depth knowledge and skill development

Through sharing among like-minded people
 Enables organizations to accomplish functional goals
 Is best with only one or a few products

Why?
29
4. Organization Design Styles
Functional structure: weaknesses
 Slow response time to environmental changes

Changes need a cross-functional response!
 May cause decisions to pile on top, hierarchy overload
 Leads to poor horizontal coordination

Can be enhanced through organizational linkages
 Results in less innovation
 Involves restricted view of goals

By function, rather than by organization
30
4. Organization Design Styles
Divisional structure
 Divisions are organized according to individual
products, services, projects, divisions, etc.

a.k.a., product structure, strategic business units
31
4. Organization Design Styles
Divisional structure: strengths
 Suited to fast change in unstable environment

Divisions are cross-functional!
 Leads to higher customer satisfaction

The interface to the customer is people working on the product
 Involves high coordination
 Best in large organizations with several products
 Decentralizes decision making

Product-per-product
32
4. Organization Design Styles
Divisional structure: weaknesses
 Eliminates economies of scale in functional
departments
 Eliminates in-depth competence and technical
specialization

E.g., engineers are spread out across multiple divisions
 Achieving high coordination incurs in overheads
 Makes integration and standardization across
product lines difficult

Why?
33
4. Organization Design Styles
Geographical structure
 Organizing to meet needs of customers by geography
 It is particular common in large nonprofit orgs
 Multinational corporations are organized by country
 Focuses managers/employees on specific geog. regions
 Strengths and weaknesses like divisional organization
34
4. Organization Design Styles
Matrix structure
 Prerequisite conditions



Shared resources across the organization
Two or more critical outputs required: products and
technical knowledge
Environment is complex and uncertain
 Two variations: functional and product matrix

Depending on row/columns
 A dual-authority structure can help to ensure a balance
between vertical and horizontal aspects of organizations
35
4. Organization Design Styles
Matrix structure: example
36
4. Organization Design Styles
Matrix structure: strengths
 Achieves coordination to meet dual demands

Both product-specific and function-specific
 Flexible sharing of human resources across products
 Suited to complex decisions and unstable environment
 Promotes both functional and product skill development
 Best in medium-sized organizations with multiple products
37
4. Organization Design Styles
Matrix structure: weaknesses
 Dual authority causes confusion
 Needs good interpersonal skills and extensive training
 Time consuming

Dual authority means more bureaucracy
 Needs common understanding among participants
 Requires great effort to maintain power balance
38
4. Organization Design Styles
Horizontal structure
 Organization around core processes







Structure is created around cross-functional processes
Self-directed teams are the basis of organization design and
performance
Process owners are responsible for entire process
People on the team are given authority for decisions
Can increase organization’s flexibility
Customers drive the horizontal corporation
The culture promotes openness, trust and collaboration
39
4. Organization Design Styles
Horizontal structure: example
40
4. Organization Design Styles
Horizontal structure: strengths
 Promotes flexibility and rapid response to changes
 Focus on the production and delivery of value
 Each employee has a broader view of organization goals
 Promotes a focus on teamwork and collaboration
 Improves quality of life for employees
41
4. Organization Design Styles
Horizontal structure: weaknesses
 Determining core processes is difficult and time
consuming
 Requires many changes
 Traditional managers may baulk when they have to give up
power and authority
 Requires significant training of employees
 Can limit in-depth skill development
42
4. Organization Design Styles
Virtual Network structure
 Extends the concept of horizontal coordination and
collaboration beyond the boundaries of the
organization
 Most common strategy is outsourcing
 Virtual or modular structures subcontract most of its major
functions to separate companies
43
4. Organization Design Styles
Virtual network structure: strengths
 Enables organizations to obtain talent and resources
worldwide
 Gives a company immediate scale and reach without huge
investments
 Enables the organization to be highly flexible and
responsive to changing needs
 Reduces administrative cost
44
4. Organization Design Styles
Virtual network structure: weaknesses
 Managers do not have hands-on control over many
activities and employees
 Requires a great deal of time to manage relationships
 Risk of organizational failure
 Employee loyalty and corporate culture might be
weak
45
4. Organization Design Styles
Hybrid structure
 Organizations often use a hybrid structure that
combines characteristics of various structure
approaches tailored to specific needs
 Most of the organizations employ hybrid styles

The pure ones are good for illustrating the differences though
46
Summary
 Multiple organizational design styles exist
 No always-better solution exists!
 The choice depends on the context and org. goals!
 … but hybrid is the most common choice
47