Module 3

Traditional Organizational Structures

Simple or Entrepreneurial Structure

• Definition: The simplest form of organizational structure where the owner-manager controls all activities, and staff directly reports to them.

• Advantages:

  • Highly informal.

  • Direct supervision by the owner-manager.

  • Highly centralized decision-making.

  • Little specialization of tasks, few rules and regulations, and informal evaluation and reward systems.

• Disadvantages:

  • Employees may not clearly understand their responsibilities.

  • Employees may take advantage of the lack of regulations.

  • Limited opportunities for upward mobility.

  • Recruiting and retaining talent may be difficult.

Functional Structure

• Definition: An organizational form where major functions of the firm (production, marketing, research and development, accounting) are grouped internally.

• Advantages:

  • Enhanced coordination and control within each functional area.

  • Centralized decision-making at the top of the organization.

  • More efficient use of managerial and technical talent.

• Disadvantages:

  • Differences in values and orientations among functional areas may impede communication and coordination.

  • May lead to short-term thinking based on what is best for the functional area.

Divisional Structure

• Definition: An organizational form where product lines, projects, or product markets are grouped internally. Each division includes its own functional specialists.

• Advantages:

  • Separation of strategic and operating control.

  • Divisional managers can focus on improving operations in their product markets.

  • Corporate officers can devote time to overall strategic issues.

  • Can respond quickly to important changes.

  • Minimized resource sharing across functional departments.

• Disadvantages:

  • Very expensive due to multiple managers.

  • Dysfunctional competition among divisions.

  • Tendency to focus on short-term performance.

  • Differences in image and quality may occur across divisions.

Strategic Business Unit (SBU)

• Definition: An organizational form where product, project, or product market divisions are grouped into homogeneous units based on similar core competencies.

• Example: A company with 90 divisions for different products (restaurants, grocery stores, agricultural products) can group them into business units (restaurant unit, grocery unit, agricultural product unit) based on their core competencies.

Holding Company Structure (Conglomerate)

• Definition: A variation of the divisional structure where divisions have a high degree of autonomy from other divisions and corporate headquarters.

• Example: A company with unrelated businesses (beer products, food products, gasoline stations, power generation) can use this structure to give each division almost complete autonomy.

Matrix Structure

• Definition: A combination of functional and divisional structures where individuals report to at least two managers.

• Example: A company with product divisions (iPhone, iPad, MacBook) can have employees report to both a product manager and a functional manager (manufacturing, engineering, marketing).

• Advantages:

  • Shared resources.

  • Professionals gain broader experience and develop skills.

• Disadvantages:

  • Dual reporting structures can lead to uncertainty, power struggles, and conflict.

  • May erode timely decision-making.

Modern Organizational Structures: Boundary-less Organization

• Definition: A type of organization that seeks to remove internal and external boundaries, allowing employees to act as a team and focus on achieving organizational goals.

• Types:

  • Barrier-free: Focuses on creating permeable internal boundaries and developing effective relationships with external constituencies.

    • Example: Holacracy, where employees take on self-roles and elect their own leaders.

  • Modular: Emphasizes strategic outsourcing of non-core activities.

    • Example: A car manufacturing company outsourcing the assembly of components while retaining product design as a core activity.

  • Virtual: Centers on the strategic benefits of alliances and forming network organizations.

    • Example: Starbucks forming a strategic alliance with PepsiCo to sell Starbucks products in grocery stores.

The Challenge of Adaptability and Alignment

• Ambidextrous Organization: A company that can balance the conflicting needs of adaptability and alignment.

• Adaptability: The ability to react immediately to changes, take advantage of opportunities, and address threats.

• Alignment: Ensuring that all departments, divisions, and levels in the organizational structure are coordinated and aligned with strategic goals, objectives, and strategies.

Key Takeaways:

• Organizational structures are crucial for linking tasks, technologies, and people.

• The choice of organizational structure should align with the company's goals, objectives, and strategies.

• Traditional structures (simple, functional, divisional) have advantages and disadvantages.

• Modern boundary-less organizations offer greater flexibility and collaboration.

• Finding the right balance between adaptability and alignment is a key challenge for managers.