Appendix A - Background Information on Organizational Design
There are a number of organization designs, including many combinations
or hybrids of models. Seven designs are shown below:
Product
Geographic
Function
Process
Centered
Hybrid
Matrix
Front
End /
Back
End
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Appendix A - Background Information on Organizational Design
Functional Organizations
Description
 Activities and employees grouped according to their business function
 Rely on functional expertise to support core competencies
 Most logical and simple form, focusing on a narrow range of skills / expertise
 Applicable when technology is routine, small number of products, and / or if interdependence across
functional units is minimally required
Strengths
 Ideal when specialized resources are required
 Can be efficient given economies of scale and cost controls
 Collaboration and quality within each function
 Supervision easier
 Easier to mobilize specialized skills when needed
Weaknesses
 Difficult to manage when numerous product lines / customer services are offered
 Quick action / decisions may be difficult
 More difficult to manage performance / accountability relative to contribution to value chain
 Loyalty to functional silos may cause lack of coordination / cooperation
 Cost reduction and organizational efficiency may be a challenge
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Appendix A - Background Information on Organizational Design
Product Organizations
Description
 Each unit is responsible for the design, production, and sales of a product / family of products
 All resources are directly available to the unit
 Each product unit is responsible for planning, within the context of corporate business strategies
Strengths
 Adaptable to fast-changing external environment
 Applicable for global perspectives
 Product contribution / revenue / profit are easily calculated
 Accountability is clear
 Coordination across functions easier, given all resources within a unit are supporting the same product
 Speed and often quality of decision making is enhanced
Weaknesses
 High cost structure due to poor economies of scale
 Duplication
 Reduced specialization of skill
 Difficulty in coordination of multiple products within a single geographic area
 Potential conflicts between product unit and business unit interests
 Often slower rate of growth than other organizational structures
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Appendix A - Background Information on Organizational Design
Geographic Organizations
Description
 Geographic regions report directly to the CEO
 Each region has full control of all activities within its geographic boundaries
 Corporate retains responsibility for strategic planning
Strengths
 Responsive to geographic demands
 Economies of scale possible if regional manufacturing facilities may be shared
 Emphasizes geography as a profit center, which demands product development and marketing focused on
a geographic area
 Quality of local management with respect to customers and markets
Weaknesses
 Duplication and high overhead cost
 Potential conflicts among regions and with corporate headquarters
 Product variations and new technologies are not easily transferred
 Flow of products to other worldwide markets more difficult
 Global business strategy more difficult to implement
 Functional areas (R&D, marketing, ...) are difficult to coordinate and achieve synergies
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Appendix A - Background Information on Organizational Design
Matrix Organizations
Description
 Multiple reporting relationships represented by grids and webs
 Formal systems of multiple decision making, communications, and balance of power
 Common in engineering and project intensive organizations
 Multiple contacts are intended to facilitate collaboration and coordination
Strengths
 May provide simultaneous attention to geography, function, and product
 Forces consideration of all factors and may lead to agreement on mid / long-range actions
 Multiple expertise focusing on problems
 Allocation of scarce resources more efficient
 Wide range of communications
 Career opportunities for technical specialists to generalize easier than in traditional pyramid structures
Weaknesses
 Complex and often difficult to manage
 Encourages power struggles and political units
 High cost
 Decision making slow and encourages meeting intensive culture
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Appendix A - Background Information on Organizational Design
Front End / Back End Organizations
Description
 Some functions focused on customer interaction, while others are focused on product development
 Front end: sales, service, software applications; Back end: R&D, engineering, purchasing, manufacturing
 Relatively recent model; both ends may have their own P&L
 Integration activities and linkages include marketing, business development, information systems
 Telecommunications implemented in 19xx’s
Strengths
 Responds to special customer needs, such as front end education and software applications
 Products and services presented in an integrated and interrelated manner to customers
 Performance of both ends is easily measured
Weaknesses
 May have difficulty linking the two ends
 Cooperation and coordination may be problematic
 Back end may attempt to sell to external markets, front end may provide customers with outsourced
products
 Flexible accounting and budgeting systems required
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Appendix A - Background Information on Organizational Design
Process-Centered Organizations
Description
 Business organized horizontally around linked, end to end processes
 Foundation is multifunctional teams, often self directed and self managed
 Teams, not functions or individual jobs, define the structure
 Rewards focused on team performance
 Decisions are made at point of contact by empowered employees
 Decentralized, with few supervisors
 Functional expertise maintained through centers of excellence
Strengths
 Business outcome, customer focused
 Productivity, speed, and quality likely to be improved
 Layers of supervision removed resulting in cost reduction
 Fewer power bases and political problems
 Cost management more effective
Weaknesses
 Operating culture difficult to change
 Roles and responsibilities must be completely redefined, employees trained, and leaders coached
 Ability to maintain technical excellence may be more difficult
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Appendix A - Background Information on Organizational Design
Process centered organizations involve a fundamental shift along all of
the major axis of a business:
Component
Functional / Traditional
Process / Innovative
Job definition
Simple
Complex
Culture
Control
Empower
Structure
Hierarchy
Flat
Units
Department
Team
Focus
Boss
Customer
Measurement
Output
Outcome
Career
Promotion
Growth
Compensation
Position
Value-added
Manager
Supervisor
Coach
Executive
Scorekeeper
Leader
Goals
Shared
Incongruent
Perspective
Narrow
Broad
Values
Protective
Productive
Source:
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