Organizational Design
Slides are Courtesy of Professor Joe
Labianca
Organization Charts
Page 2
Example Org Chart: Cox Communications (Metro Newspaper Structure)
Publisher
GM
Finance
Page 3
HR
Advertising
Controller
IT
Production
What do organization charts tell us?
Basic Information
• Who reports to whom
• Who has the ultimate official authority to make decisions
• Which people are being asked to specialize in what areas
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Types of Groupings
Groupings for specialization happen around two basic types of
groups:
1. Functional groupings (e.g., Accounting, Human Resources,
Marketing, Nursing)
2. Divisional groupings
– Products or Services (e.g., Computer Hardware, Software, IT
Consulting Services, Sports Medicine, Plastic Surgery)
– Geographic Areas (e.g., Northern KY, Southern KY, Eastern KY)
– Clientele (e.g., Educational institutions, Government,
Corporate; Women’s Clinics, Sports Clinics; High Net Worth
Banking)
Page 5
Functional vs. Divisional Grouping
Structures
Functional
Structure
CEO
Sales
Human Resources
Divisional
Structure
CEO
Hardware
HR
Page 6
Sales Acct
Accounting
Software
HR
Sales Acct
Consulting
HR
Sales Acct
The Apple-Orange Company Structure
(Part One)
• How will you structure your company?
– Functional?
– Divisional?
• Why do you prefer this structure?
– What are the advantages?
– What are the disadvantages?
• List the criteria you are considering when making
this decision
– Are there other pieces of information you wished you
had as you were making the decision? What were
they?
Page 7
Possible Functional Structure for
Apple-Orange
John
Carl
Production
Grow & Harvest
Sales
Research
Salespeople
Field Workers
Researchers
(Apples, Oranges, Pears,
Broccoli, Grapes, Eggplant)
(Apples, Oranges, Pears,
Broccoli, Grapes, Eggplant)
(Apples, Oranges, Pears,
Broccoli, Grapes, Eggplant)
Page 8
Functional Structure
Strengths
• Enables in-depth knowledge and
skill development within the
functional area
– (e.g., all researchers can learn from
each other, regardless of what
product they are currently
researching)
• Allows economies of scale within
functional departments
– (e.g., might not need as many
workers or managers because of
less duplication)
• Very efficient; helps to minimize
costs
Weaknesses
• Leads to poor horizontal
coordination among departments
• Involves restricted view of
organizational goals (functional
silo mentality)
• May cause decisions to pile on
top, creating overload at top of
hierarchy
• Slow response time to
environmental changes
• Results in less innovation
• Works best when there are few
products
• Low in adaptability
Possible Divisional Structure for
Apple-Orange
John
Carl
Apple Division
Orange
Division
Pear Division
Broccoli
Division
Grapes
Division
Eggplant
Division
Salespeople
(Apples)
Salespeople
(Oranges)
Salespeople
(Pears)
Salespeople
(Broccoli)
Salespeople
(Grapes)
Salespeople
(Eggplant)
Field Workers
(Apples)
Field Workers
(Oranges)
Field Workers
(Pears)
Field Workers
(Broccoli)
Field Workers
(Grapes)
Field Workers
(Eggplant)
Researchers
(Apples)
Researchers
(Oranges)
Researchers
(Pears)
Researchers
(Broccoli)
Researchers
(Grapes)
Researchers
(Eggplant)
Page 10
Example Divisional Structure: IBM
(pre-June 2002)
CEO
Hardware
HR
Finance
Sales
HR
Page 11
Software
IT
Finance
Services
HR
Sales
Finance
IT
Sales
Global Finance
IT
HR
Finance
Sales
IT
Divisional Structure
Strengths
• Allows divisions to adapt to
differences in products,
geographic regions, and
clients
• Decentralizes decisionmaking
• Suited to fast change in
unstable environments
• Best in large organizations
with several products
• Highly adaptable
Weaknesses
• Leads to poor coordination
across product lines
• Eliminates economies of
scale in functional
departments
• Restricts in-depth
competence and technical
specialization in a functional
area
• Very inefficient; great deal of
duplication
The Apple-Orange Company Structure
(Part Two)
Imagine that you chose the functional grouping in
Part One
As the company continues to grow, the decision is
made to diversify into the following products:
• Pears
• Eggplant
• Grapes
• Broccoli
Page 13
The Apple-Orange Company Structure (Part Two, continued)
Now place yourself in the role of the VicePresident of Research. What problems do you
foresee happening as the number of products
proliferates? What will happen to the VP of
Sales? The VP of Production?
Page 14
The Apple-Orange Company Structure
(Part Three)
Now imagine that you chose the divisional grouping
in Part One.
As the company continues to grow, the decision is
made to diversify into the following products:
• Pears
• Eggplant
• Grapes
• Broccoli
Page 15
The Apple-Orange Company Structure (Part Three, continued)
What problems do you foresee happening as the
number of products proliferates?
Page 16
The Organizational Environment’s Role in
Determining Structure
Page 17
An Organization’s Environment
(j)
(a)
International Industry
Sector
Sector
(i)
Socio-cultural
Sector
(h)
Government
Sector
DOMAIN
ORGANIZATION
(g)
Economic
Conditions
(f)
Sector
Technology
Sector
Page 18
(b)
Raw Materials
Sector
(e)
Market
Sector
(c)
Human Resources
Sector
(d)
Financial
Resources
Sector
Environmental Sectors
Industry
Competitors, industry size & competitiveness, related industries
Market
Customers, clients, potential users of products and services
Raw materials
Suppliers, manufacturers, real estate, services
Human resources
Labor market, employment agencies, universities, training schools,
employees in other companies, unionization, illegal immigration
Financial
Stock markets, banks, savings and loans, private investors
Technology
Production techniques, science, information technology
General economic
condition
Recession, unemployment rate, inflation rate, rate of investment,
economics, growth
Government
City, state, federal laws and regulations, taxes, services, court
system, political processes
Sociocultural
Demographics, values, beliefs, education, religion, work ethic,
consumer and green movements
International
Competition from and acquisition by foreign firms, entry into
overseas markets, foreign customs, regulations, exchange rates
Page 19
Relationship Between Structure and
Environment
Functional
Structure
Divisional
Structure
• Flexibility
• Change
• Innovation
Dominant
Structural
Approach
• Efficiency
• Reliability
• Reducing Costs
Simple, Stable Environments
Page 20
Environmental
Uncertainty
Complex, Unstable Environments
What happens between the extremes?
• Simple, stable environments = functional structures
• Complex, unstable environments = divisional structures
Q. What happens when you have a:
• simple, but unstable environment (e.g., fashion industry)?
• complex, but stable environment (e.g., universities,
hospitals)?
A. Organizations use:
• hybrid structures
• matrix structures
Page 21
Possible Matrix Structure for AppleOrange
John
Carl
Apple
Division
Orange
Division
Pear Division
Broccoli
Division
Grapes
Division
Eggplant
Division
Salespeople
(Apples)
Salespeople
(Oranges)
Salespeople
(Pears)
Salespeople
(Broccoli)
Salespeople
(Grapes)
Salespeople
(Eggplant)
VP of Sales
Field Workers
(Apples)
FieldWorkers
(Oranges)
Field Workers
(Pears)
Field Workers
(Broccoli)
Field Workers
(Grapes)
Field Workers
(Eggplant)
VP of
Production
Researchers
(Apples)
Researchers
(Oranges)
Researchers
(Pears)
Researchers
(Broccoli)
Researchers
(Grapes)
Researchers
(Eggplant)
VP of
Research
Page 22
Matrix Structures
• Provides opportunity for both functional
and product skill development
• Flexible sharing of human resources across
products, while still promoting efficiency
goals
• Team-based approach can be useful for
satisfying customers’ dual concerns for
innovation and cost-savings
• Causes employees to experience dual
authority (e.g., product manager and
functional manager), which can be
frustrating and confusing
• Meetings, meetings, and more meetings
– Is time consuming; involves frequent
meetings and conflict resolution
sessions
• Conflict between division heads and
functional dept heads is pushed down onto
employees
• Will not work unless participants,
particularly managers, understand it and
adopt collegial rather than vertical-type
relationships; often requires adoption of
360 degree reviews
• Means employees need good interpersonal
skills and extensive training, particularly in
conflict resolution
• Best in medium-sized organizations with
multiple products
Possible Hybrid Structure for AppleOrange
John
Carl
Salespeople
(Apples, Oranges,
Pears, Broccoli,
Grapes, Eggplant)
Apple Division
Orange
Division
Pear Division
Broccoli
Division
Grapes
Division
Eggplant
Division
Field Workers
(Apples)
Field Workers
(Oranges)
Field Workers
(Pears)
Field Workers
(Broccoli)
Field Workers
(Grapes)
Field Workers
(Eggplant)
Researchers
(Apples)
Researchers
(Oranges)
Researchers
(Pears)
Researchers
(Broccoli)
Researchers
(Grapes)
Researchers
(Eggplant)
Page 24
Hybrid Structures
• Allows organization to
balance achieving some
adaptability and
coordination in product
divisions and some
efficiency in centralized
functional departments
• Achieves some degree
of coordination both
within and between
product lines
• Leads to conflict
between divisions and
corporate departments
• Has potential to favor
the creation of
excessive administrative
overhead in the
corporate departments
What is the best organizational
structure?
• It depends
• No way of grouping people is perfect
• Every structure has its advantages and
disadvantages
Page 26
What determines the choice of
structure?
Environmental Uncertainty
Uncertainty is driven by two main factors:
1. Environmental complexity
• the number and similarity of elements (e.g., suppliers,
customers, regulators) in the organization’s
environment
2. Environmental dynamism
• the rate of change in the elements in the organization’s
environment
Page 27
Example of a Hybrid Structure: Sun
Petrochemical
President
Functional
Structure
Product
Structure
Page 28
Human
Resources
Director
Chief
Counsel
Fuels
Vice
President
Technology
Vice
President
Lubricants
Vice
President
Financial
Services
Vice Pres.
Chemicals
Vice
President
Matrix Example: Harland Checks’ Functional Matrix
VP Customer Care
Atlanta
IT
Process &
Quality
Reporting &
Forecasting
HR & Training
Sales & Mktg
Page 29
Salt Lake City
Milton
Guidance for Examination on Monday
• It will, unfortunately, be closed book
• Exam will cover the following topics:
– Motivation
– Personality and Individual Differences
– Organizational Design
• You can use translation software
• You can use laptop (but no consulting slides or
online sources when completing exam)
How to Prepare for Exam I
• Exam will be in-class on Monday. Questions will all be short essay
questions.
– You are being asked by your supervisor to provide your informed opinion
about how best to identify and manage important individual differences (both
visible ones, like gender and age, and less visible ones, like personality) at
work. What advice would you provide and why?
– You are managing a new team at work and are considering how best to
motivate them. Identify any three theories of motivation we have discussed in
class and explain how they could be useful to you in both conceiving and
defending your approach to motivating your team. Be sure to identify both the
potential advantages and disadvantages of each approach.
– You have been asked to rethink the appropriate organizational design for your
growing company. Which factors will you want to consider in making your
decision? Which structure would you pick and why. Be sure to identity the
potential advantages and disadvantages of each approach.
Resources for Motivation Theories
https://www.goldsmithibs.com/resources/free/
Motivation/notes/Summary%20%20Motivation.pdf