McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Organizational Structure
Chapter 11
Learning Objectives
1. Identify five traditional organizational structures
and the pros and cons of each
2. Describe the product-team structure and explain
why it is a prototype for a more open, agile
organizational structure
3. Explain five ways improvements have been
sought in traditional organizational structures
4. Describe what is meant by agile, virtual
organizations
11-3
Learning Objectives (contd.)
5. Explain how outsourcing can create agile, virtual
organizations, along with its pros and cons
6. Describe boundaryless organizations and why they
are important
7. Explain why organizations of the future need to be
ambidextrous learning organizations
11-4
Organizational Structure

Organizational structure refers to the
formalized arrangement of interaction
between and responsibility for the tasks,
people, and resources in an organization
11-5
Simple Organizational Structure



A simple organizational structure is one where
there is an owner and a few employees and where
the arrangement of tasks, responsibilities, and
communication is highly informal and accomplished
through direct supervision
This type of structure can be very demanding on the
owner-manager
Most businesses in this country and around the
world are of this type
11-6
Functional Organizational Structure

A functional organizational structure is one on
which the tasks, people, and technologies
necessary to do the work of the business are
divided into separate “functional” groups (such as
marketing, operations, and finance) with
increasingly formal procedures for coordinating
and integrating their activities to provide the
business’s products and services.
11-7
Ex. 11.3
Functional Organization Structures
11-8
Divisional Structure
 A divisional organizational structure is one in which a
set of relatively autonomous units, or divisions, are
governed by a central corporate office but where each
operating division has its own functional specialists
who provide products or services different from those
of other divisions
11-9
Divisional Structure (contd.)
 This structure expedites decision making in
response to varied competitive environments
 The division usually is given profit
responsibility
11-10
Ex. 11.4
Divisional Organization Structure
11-11
Strategic Business Unit

The strategic business unit (SBU) is an adaptation
of the divisional structure whereby various
divisions or parts of divisions are grouped
together based on some common strategic
elements, usually linked to distinct
product/market differences

The advantages and disadvantages of the SBU
form are very similar to those identified for
divisional structures
11-12
Holding Company Structure

A final form of the divisional organization is the
holding company structure, where the corporate
entity is a broad collection of often unrelated
businesses and divisions such that it (the
corporate entity) acts as financial overseer
“holding” the ownership interest in the various
parts of the company but has little direct
managerial involvement
11-13
Matrix Organizational Structure

The matrix organizational structure is one in
which functional and staff personnel are
assigned to both a basic functional area and
to a project or product manager

The matrix form is intended to make the
best use of talented people within a firm by
combining the advantages of functional
specialization and product-project
specialization
11-14
Ex. 11.6 Matrix
Organizational Structure
11-15
Ex. 11.6 (adapted)
Matrix Organizational Structure
11-16
Product-Team Structure

The product-team structure seeks to simplify and
amplify the focus of resources on a narrow but
strategically important product, project, market,
customer, or innovation

The product-team structure assigns functional
managers and specialists to a new product,
project, or process team that is empowered to
make major decisions about their product
11-17
Ex. 11.7
The Product-Team Structure
11-18
Trends Affecting Organizations in the 21st Century
 Globalization
 The Internet
 Speed
11-19
Ex. 11.9
What a Difference a Century can Make
11-20
Efforts to Improve Traditional Structures

Redefine the role of corporate headquarters from
control to support and coordination

Balance the demands for control/differentiation
with the need for coordination/integration

Restructure to emphasize and support
strategically critical activities

Reengineer strategic business processes

Downsize and self-manage
11-21
Creating Agile, Virtual Organizations


Virtual organization: a temporary network of
independent companies—suppliers, customers,
subcontractors, even competitors—linked
primarily by information technology to share
skills, access to markets, and costs
An agile organization is one that identifies
a set of business capabilities central to highprofitability operations and then builds a virtual
organization around those capabilities
11-22
Outsourcing—Creating a Modular Organization



Outsourcing is simply obtaining work previously
done by employees inside the companies from
sources outside the company
A modular organization provides products or
services using different, self-contained specialists
or companies brought together—outsourced—to
contribute their primary or support activity to
result in a successful outcome
Business process outsourcing (BPO) is the most
rapidly growing segment of the outsourcing
services industry worldwide
11-23
Types of Boundaries




Horizontal boundaries—between different
departments or functions in a firm.
Vertical boundaries—between operations and
management, and levels of management,
between “corporate” and “division”
Geographic boundaries—between different
physical locations; between different countries or
regions of the world and between cultures
External interface boundaries—between a
company and its customers, suppliers, partners,
regulators, and competitors
11-24
Becoming Boundary-less

Jack Welch coined the term “boundary-less” to
illustrate his vision for GE

Outsourcing, strategic alliances, product-team
structures, reengineering, restructuring—all are
ways to move toward boundary-less organization

Technology, particularly driven by the Internet,
has and will be a major driver of the boundaryless organization
11-25
Ex. 11.14 From Traditional Structure to B-Web Structure
11-26
Ambidextrous Learning Organization



The evolution of the virtual organizational
structure as an integral mechanism managers use
has brought with it recognition of the central role
knowledge plays in implementation
The shift from exploitation to exploration
(Rangan) indicates the growing importance of
organizational structures that enable a learning
organization to allow global companies the
chance to build competitive advantage
An ambidextrous organization emphasizes
coordination over control as well as flexibility
11-27
Key Terms
 Agile organization
 Divisional organizational structure
 Ambidextrous organization
 Downsizing
 Boundaryless organization
 External interface boundaries
 Business process outsourcing
 Functional organizational structure
 Business process reengineering
 Geographic boundaries
 Corporate lattice
 Holding company structure
11-28
Key Terms (contd.)
 Horizontal boundaries
 Organizational structure
 Lattice
 Outsourcing
 Learning organization
 Product-team structure
 Matrix organizational structure
 Restructuring
 Modular organization
 Self-management
11-29
Key Terms (contd.)
 Simple organizational structure
 Vertical boundaries
 Strategic alliances
 Virtual organization
 Strategic business unit
11-30