Alternative Organizational Structures
 What
are alternative ways to design an
organizational structure?
 What are the advantages and disadvantages
of various design alternatives ?
 How do we make these choices in light of
organizational context?
– External environment
– Organizational life-cycle
– Organizational technology
Functional Structures
CEO
Vice President
Research and Development
Vice President
Sales & Marketing
Vice-President
Manufacturing
Vice-President
Materials Mngt
Vice-President
Finance
Strengths:
Weaknesses:
•Economies of scale
•in-depth skill development
•Stable Environment
•Routine Technology
•Slow in responding environment
•Hierarchy overload
•Poor horizontal coordination
•Emphasis on functional goals
•Less emphasis on innovation
Divisional Structures
Structures that are uni-focussed in that the divisions
are organized according to product groups, services,
geography,programs, or markets.
 Product
Structure (Self contained product
groups structure)
 Geographic
 Market
Structure
Structure
Self contained product groups structure
CEO
Product
Group 1
R&D
Mfg
Acct
Product
Group 2
Mkt.
R&D
Mfg
Acct
Product
Group 3
Mkt
R&D
Mfg
Acct
Mkt
Strengths:
Weaknesses:
•increases coordination
across functions
•allows adaptations
•decentralizes decision making
•accommodates large size
•reduces coordination
across product lines
•reduces economies of scale
•reduces specialization
•reduces standardization
Geographic Structure
CEO
Central
Support Functions
Regional
Operations I
Local
Oper. 1
Local
Oper. 2
Regional
Operations II
Local
Oper. 3
Local
Oper. 1
Local
Oper. 2
Regional
Operations III
Local
Oper. 3
Local
Oper. 1
Local
Oper. 2
Local
Oper. 3
Divisional Market Structure
CEO
Central Support Functions
VP
Market I
(Commercial
Division)
VP
Market II
(Consumer
Division)
VP
Market III
(Government
Division)
VP
market IV
(Corporate
Division)
Hybrid Structures
Structures that are multi-focussed in that both
product and function, or product and geography,
are emphasized at the same time.
•
Product division structure
•
Multidivisional structure
•
Product team structure
Product division structure
CEO
VP
R&D
VP
Mkt
VP
Pro.Div. 1
Mngr.
Production
Mngr.
Logistics
VP
Pro.Div. 2
Mngr.
Production
Mngr.
Logistics
VP
Pro.Div. 3
Mngr.
Production
Mngr.
Logistics
VP
Acct
Multidivisional structure
CEO
Senior VP
Marketing
Division
Manager A
Func.
Mngr.
Func.
Mngr.
Senior VP
R&D
Senior VP
Accnt.
Division
Manager B
Func.
Mngr.
Func.
Mngr.
Func.
Mngr.
Division
Manager C
Func.
Mngr.
Func.
Mngr.
Func.
Mngr.
Func.
Mngr.
Product team structure
CEO
VP
R&D
Product
Development
Teams
VP
Marketing
VP
Manufacturing
PTM
PTM
Product Div..
Product Div..
VP
Accounting
PTM
Product Div..
Generic Hybrid Structures
Product Division
Multi-Divisional
Product Team
Advantages
Advantages
Advantages
•More adaptive at division
level without sacrificing
efficiency in centralized
functions
•Better alignment between
functional and divisional goals
•More sophisticated control
& integration systems
•Better capital resource
allocation decisions
•corporate level can focus on
long-term strategies
•Higher decentralization
•Higher integration at
team level
•responsive to market
demands and shorter
development time
Disadvantages
• Higher administrative
Disadvantages
Disadvantages
•Measurement of divisional
performance
•New layers in management
•Limited coordination
across teams
•Loss of corporate control
overhead
• Misalignment between
vertical & horizontal
coordination
Matrix Structure
CEO
Governing
Board
Vice President
Engineering
Vice President
Marketing
Vice President
Finance
Vice President
Res. & Dev.
Vice President
Purchasing
Product A
Manager
Product B
Manager
Product C
Manager
Product D
Manager
Strengths
Weaknesses
•Reduces functional barriers
•Increases communication
•Flexible use of human resources
•Product & functional focus
•Lacks stable control structure
•Ambiguity of dual authority
•Time consuming
•May increase costs
A Critical Contextual Factor:
THE EXTERNAL ENVIRONMENT

Why is it important?
• Need for INFORMATION
• Need for RESOURCES
 How
is it conceptualized?
The Critical Dimensions of Environment
•
•
•
•
Complexity (Homogeneous ---- Heterogeneous)
Dynamism (Stable ---- Unstable)
Munificence (Resource Rich ---- Resource Poor)
Organization of the environment (Market
Structure)
Environmental Dimensions and
Organizational Design
Internal Strategies
Complexity
Contingency
Perspective
Dynamism
Task
Environment
Specialization
Buffering
Departments
Centralization
Coordination
Standardization
External Strategies
Munificence
Market Str.
Resource
Dependency
Perspective
Strategic alliances
Cooptation
Interlocking directorates
Executive recruitment
Public relations
Mergers & Acquisitions
Political activity
Trade Associations
Pharmaceutical Industry
Years between the launch of a drug
and its first competitor
Internal Strategies

1977 Inderal Hypertension
1977 Tagamet Ulcer

1980 Capoten Hypertension
1985 Seldane Hayfever

1987 AZT AIDS

1987 Mevacor Cholesterol
1988 Prozac Depression

1990 Diflucan Fungal infection
1992 Recombinate Haemophilia
1995 Invirase AIDS
0
2
4
6
8
Number of Years
10
12
Supply chain
management
Reduction of inventories
Strategic sourcing
Advertising directly to
consumers
Differentiated
advertising
Strategies for managing environmental
Uncertainty

Add new positions and departments as the task
(Specific) environment becomes more complex.

Establish buffer mechanisms to protect the technical
core of the organization from environmental changes.

Create new boundary roles that monitor the
environmental demands.
Strategies for Managing Symbiotic
Interdependencies
Symbiotic interdependencies arise when the
output of one organization is input for another.
 Interorganizational Strategies:
• Developing a good reputation
• Co-optation
• Strategic alliances
– Long-term contracts
– Networks
– Minority ownership
– Joint-ventures
• Mergers, takeovers, and vertical integration
Strategies for Managing
Competitive Interdependencies
Competitive interdependencies arise when
organizations compete for similar scarce inputs or
outputs.
 Interorganizational Strategies
• Collusion and cartels
• Trade associations
• Political activity (Regulations and lobbying)
• Strategic alliances
• Mergers and takeovers