Organizational Designs Summary

Organizational Designs

Firms must have appropriate organizational designs to implement strategy successfully, coordinating internal operations and integrating them with external parties.

Organizational Structure

Organizational structure formalizes interaction patterns, linking tasks, technologies, and people. It balances task division with the integration of groupings for efficiency and effectiveness. Strategy and structure change with size, diversification, and geographic scope, ensuring effective resource use and influencing information flow and human interactions.

Organizational Structures: Growth Patterns

As corporations grow, their organizational structures evolve to accommodate increased complexity and scope.

Organizational Structures

Simple Structure

  • Small organization, narrow product line.

  • Owner-manager central decision-making.

  • Staff as extension of top executive.

    Advantages: Informal, direct supervision, centralized decisions.

    Disadvantages: Lack of defined responsibilities, limited mobility.

Functional Structure

  • Groups major functions internally.

  • Specialists in functional areas.

  • Chief executive for coordination.

    Advantages: Enhanced coordination, efficient talent use.

    Disadvantages: Impeded communication, short-term thinking.

Divisional Structure

  • Groups products/projects internally.

  • Autonomous divisions with own specialists.

  • Division executives determine objectives.

    Advantages: Strategic and operational control separation, quicker response.

    Disadvantages: Duplication, competition among divisions.

SBU Structure

  • Groups similar products/markets for synergy.

  • Variation on divisional structure.

  • Each SBU operates as profit center.

    Advantages: Planning and control by corporate office, decentralization.

    Disadvantages: Difficulty achieving synergies, corporate office removed from divisions.

Holding Company Structure

  • Businesses from unrelated diversification.

  • Autonomous operating divisions.

  • Small corporate staffs, limited involvement.

    Advantages: Cost savings, divisional autonomy.

    Disadvantages: Little corporate control, difficult turnaround.

Matrix Structure

  • Combines functional and product groups.

  • Individuals have two managers.

  • Shared responsibility.

    Advantages: Collaboration, efficient resource utilization.

    Disadvantages: Dual reporting, power struggles, slow decision-making.

Organizational Structures: International Operations

Firms consider structure based on strategy, product diversity, and foreign sales dependence.

  • Multidomestic: international division, geographic-area division or worldwide matrix structure
  • Global: worldwide functional, product division, or holding company structure.

Global Start-up

A business that seeks to derive advantage from the use of resources and the sale of outputs in multiple countries from inception.

  • Uses inputs from around the world and sells to global customers.
  • Faces communication and coordination challenges.
  • Often chooses a boundaryless organizational design.

Boundaryless Organizational Designs

Organizations in which boundaries—vertical, horizontal, external, and geographical—are permeable.

  • Barrier-free: permeable internal/external boundaries needing trust and shared interests.
  • Modular: outsources non-vital functions, retains strategic control.
  • Virtual: alliances sharing skills and costs.

Boundaryless Designs: Making Them Work

Virtual organizations require coordination, culture, horizontal structures, and communication technologies.

Organizational Structures: Ambidextrous Designs

Aligned and efficient while pursuing incremental innovations, flexible enough to adapt and create breakthrough innovations.

  • Effectively integrate existing operations.
  • Establish independent project teams.
  • Integrate each unit into management hierarchy.
  • Communicate a clear vision.