Lesson 2: Organizational Structure

Basic Definition

• Formal system of 1) Tasks & 2) Forming Relationships

• A pillar of Organizational Architecture

• 3 Tasks:

  • Grouping Tasks into Individual Jobs

  • Grouping Jobs to specific functions

  • Allocating authority over functions and divisions

• Extremely resource intensive to change

6 Key Elements

1. Work Specialization

2. Departmentalization

3. Span of Control

4. Chain of command

5. Centralization and Decentralization

6. Formalization

Work Specialization

• Division of Labor

  • Degree to which tasks are subdivided into specialized jobs

• High Specialization = Efficiency that can lead to boredom

Formalization

• Degree of Standardization for Tasks & Roles

• Higher = Stronger Bureaucracy

Departmentalization Definition

• How the different Units of a company are structured

Functional Structure Definition (Departmentalization)

• All Activities grouped by function/department (Marketing)

• Best Environment:

  • Stable, Few Competitors, Simple Product/Services, Non Innovative

Pro’s Functional Structure

• Pros:

  • Economies of scale + Specialization

  • Strong communication, coordination, control inside the function

  • Managers can monitor, evaluate and teach effectively

Cons Functional Structure

• Cons:

  • Cross Function communication is difficult (Sometimes they don’t even work together and compete for resources)!

  • Workers more focused on function than their Organizational Goals

  • Adaptation takes a long time

Divisional Structure

• Company has Separate Business Units (Divisions based on region, product etc.) → Each contain functions (Marketing/HR etc.)

• Works for: Innovative, Large or International Organizations

Divisional Structure Pro’s and Cons

Pros:

• Flexibility: Quick reactions to external changes

• Easy resource sharing across functions

Cons:

• Expensive

• Difficult to communicate across Divisions

  • Causes: Duplication of Labor

• Divisions may follow own interests

Matrix Structure

• People grouped by Function and Product (Work in Marketing Function and Product A)

• Pro’s: Flexible Structure, Efficient Resource Use, Responds well to change

• Cons: Complex Working Relationships (Two Bosses), Tough/Expensive Coordination

Matrix Apple + Microsoft Restructure

Apple:

• Organized like a startup (Centralized CEO surrounded by positions)

• Structured after Products Functions (Matrix)

  • Fosters Innovation

Microsoft:

• Complete Restructuring 2000-11 (One Microsoft)

  • Divisional → Functional

  • Before: Divisions in Conflict and Compete for resources: Lack Collaboration, Innovation (Silo Thinking: Every Department focuses on own goals)

    • (Products aren’t cross compatible)

  • After: Centralized Functions (HR, Marketing) + 4 Decentralized Engineering groups (Cloud, OS etc.)

    • Decentralization better for innovative tech

  • Opportunity for Integrated Product Offering but risk of Resistance to change, Lack of accountability

Span of Control

• How many workers does a manager Manage

• Every additional worker managed causes exponentially more relationships

• Small Span:

  • Costly but good for complex/unique tasks (Innovation)

  • Lots of Subordinate/Manager Interactions

• Large Span:

  • Routine/Similar tasks → No Guidance Needed

Chain of Command

• How many level of hierarchy’s are there

• Flat Structure: Few levels, Wide span of Control

  • Quick Communication (Easy to talk to the top levels), Managers overworked

• Tall Structure: Clear Responsibilities and Hierarchies

  • Specialization Advantages (High Division of Labor)

  • Time consuming communication (Can’t reach top)+ Too much Bureaucracy+ Managers don’t take responsibility

Decentralization, when is it good + Pros and Cons

• Subunits make decisions (Often in Flat Organizations)

• Good in Dynamic Environments/International Corporations, Easy Inter-Unit Communication, Autonomy Motivates

• Subunits Pursue own Goals, Don’t communicate with other Subunits/HQ

Centralization, what are the pitfalls, where does it work well?

• Concentrated Decision Making at top

  • Managers get strong control and can make uniform decisions

  • However this can lead to power abuse, Inflexibility, Management Bottlenecks and Slow responses

• Works Well: Resource Intensive, Stable, Consistent Environments

The Best Corporations have Both!

• Autonomy Motivates, Flexibility → Decentralized

• Control, Profit, Learning, Profit from Synergy Effects → Centralized

• Example (Subsidiaries report to HQ)

John Deeres Reorganization: Old vs New and Smart Industrial

Old Matrix:

• Based off of Regions/Products, Small Span, Many Levels

New Matrix:

• Production Systems/Functions, Larger Span, Few Levels

  • Faster Decisions, Flatter Hierarchy, Better Alignment across functions

  • Risk: Resistance, Overworked Managers, Lack of regional expertise

Smart Industrial:

• Initiative: How can machines help with every step of farming → Tech Stack (Apps, Software Integration) → Standardized chain of vehicles and software for entire farming cycle

Volkswagen Decentralization

• Post Dieselgate, Brands take responsibility for each region (Audi→ Asia/Pac)

• Decisions are made efficiently, More quality in the markets, Limits centralized power abuse