[slide 1 –.Now that we’ve considered our organization’s plans, strategies, and decision-making, it is time to move on to the 2nd main function of management – that of organization, which includes the topic of organization structure and design.

[slide 2 – We can think of the corporate strategy as the overarching roof of the organization. It shapes the specific functional activities and plans and goals that go on inside the organization. But supporting all of this, as you see along the sides here, is the org. structure. And the key point here is that w/o the proper structure in place, the corp.roof – the strategy – is in jeopardy of not being supported. Additionally, as you will learn in this chapter, not only does the org. strategy help determine what the proper structure should be, but organizational size and technology also help determine a firm’s structural choices.

[slide 3 –Recall from our earlier readings, the discussion of Max Weber, the German sociologist.
He certainly had a lot to tell us about what he viewed as proper – rational and efficient – organizational structure. He advocated what we would call today a mechanistic structure - or a strong bureaucratic structure. But as we know, the world is not as black and white as Weber viewed it. These structural features may be fine in some situations but not in others. Taking a contingency view, the proper structural design depends, as we’ve noted, on what strategy the organization is pursuing and also factors such as the environment in which that organization exists, and the size and technology of the organization.

[slide 4 – An important point to remember in your reading on these different structural elements is that they are, in fact, dimensions. Firms can decide to locate high on a particular structural dimension, or low on that dimension or anywhere in between. And where it chooses to locate itself will allow it definite advantages, but at the same time it gives something up, risks some disadvantage. Think about these tradeoffs as you progress through the chapter. Let’s look at one example.

[slide 5- Being highly centralized offers firms definite advantages, as noted on this slide. It is for these reasons Weber argued all firms should be highly centralized. But the firm risks having decisions made either more slowly or more poorly to the degree our top level managers get overwhelmed with information and decisions to make. Certainly this type of hierarchical overload is more likely to occur in industries where the environment is quickly changing and orgs. need to rapidly adapt. But being highly decentralized, while offering definite benefits of its own also has its own risks as noted here. The company of Hewlett-Packard has grappled over the last several years over where on this dimension it should be located. As a firm HP is pursuing a strategy of differentiation – that of being highly innovative w/ high quality products and services. – It recognized that it could not achieve this strategy unless it was highly decentralized. But when CEO Carly Fiorina took over in 2000 she viewed the company as TOO decentralized…too many separate product groups making decisions without a broader, organizational focus. She wanted the firm to present “one voice, one face” to the customer with integrated product solutions, greater coordination between products and services.. This strategy was difficult to attain when each product unit was acting more independently. Accordingly, in 2002 she made HP much more centralized, with product groups reporting directly to her, and she assumed much greater decision making authority over all groups. In 2005 however, HP’s board of directors recognized that this high centralization was slowing decision making and not allowing HP to respond to its environment and its competitors as quickly as it needed, so it has since pushed decision making down to lower level managers and executives. The key point here is that firms are always fine-tuning and tinkering with the proper location on these structural dimensions, balancing the various tradeoffs.

[Slide 6 – A set of structural dimensions can be captured by two prototypical orgs.types introduced in your chapter – that of organic and mechanistic structures. Clearly, each organization encapsulates a clear set of org. features that seem to “hang together”. Suppose you were a firm pursuing a Cost Leadership strategy? Which of these two structures do you think would be most effective? How about if you were pursuing a Differentiation strategy? What if you were in a rapidly changing environment? Or one that was fairly stable and predictable? These are the sorts of contextual factors that help firms determine its appropriate structural features.

[slide 7 – The last structural element we will look at is that of departmentalization, which addresses how the organization will group jobs together. A firm can choose to group jobs by their specific function (e.g. marketing, accounting, etc. ). Or it can choose a divisional structure which groups jobs around a product, or a geographic region or even around a specific client. Lastly, some organizations choose to group jobs around a process.

[slide 8 – Our choice of grouping is an important one. By the way we’ve grouped jobs – and thus the people performing those jobs – we’ve told those individuals THIS is the way you view your world…these are the lenses you put on. If you are grouping by function and are in a marketing department, your world becomes marketing. Our choice of grouping also tells those individuals who is in the in-group and also by definition that is in the out-group. Every time we put a border around a group we have by default identified in-group and out-group status. As we will see, this has implications for how much communication and coordination will naturally occur between these groups.

[slide 9 – The three standard organization structures discussed in your chapter are the functional, divisional, and matrix. Let’s briefly discuss each. Suppose you are the owner of Class VI Rapids, a boat company, a firm that designs and manufacturer premium high-performance kayaks, canoes and racing shells. You have to decide how to departmentalize your operations.

[slide 10 – you could choose the simplest, and most logical structure, that of a Functional Structure. All your design engineers are located in a Design Department, all your marketing folks in a Marketing Dept. etc. For small firms this is the most common type of structure for some good reasons. It allows strong functional focus on functional goals….all the marketing people have to think about it marketing of kayaks, canoes and racing shells. They interact with other marketing people in their department, go to the same marketing meetings, and report to a marketing manager. But while this may be their in-group, so to speak, the department and people they aren’t necessarily talking to are the individuals in design and production. Any conflict between these different departments has to be resolved by you, the president, as neither of the departments have authority or power or another. As long as the firm is small, and not too many problems arise, this is no problem. But as these conditions change, a functional structure can result in hierarchical overload.

[Slide 11 – As owner of Class VI you could also decide to create a Divisional Structure. Each product would be a Division with a Division V.P. to address problems, so it would allow greater decentralization than the previous functional structure. Each division would have its own set of functions, marketers, designer, and production. The in-group becomes the product division, enhancing the communication and coordination across these different functions. This can result in greater product innovation and greater responsiveness to the kayak’s specific environmental demands. However, the tradeoff is that this structure is more expensive, w/ greater redundancies across the three divisions. There is also the risk that each division may become too decentralized – as what happened with Hewlett-Packard - and that there may be poor coordination across our different product lines.

[Slide 12 – A matrix is a structure that tries to combine the best of having a functional focus and a product focus. It does so by creating a matrix….with functional departments that individuals report to and also product managers for each of our products. Individual employees would be assigned to a cross-functional team working on one of these products. For instance, a marketer would be assigned by his marketing manager to work on a cross-functional team on the Kayak product group, joined by fellow employees from Design and Production. Others would be assigned to the Canoe Product group. Each employee then would essentially have two bosses - their functional boss and their product boss. These teams could be re-configured, w/ individuals re-assigned as their particular strengths and knowledge were needed across different products.
As with the other Organizational Structures we just discussed, the Matrix has its benefits and disadvantages as well, as noted on the slide.

[slide 13 – the last two structures we will look at are the team structure and the virtual organization structure, often referred to as the network structure. The latter structure can be considered a type of the “boundary less organization” that is discussed in your chapter. Where one firm stops and another begins is much less clear with virtual organizations, but many firms are adopting more of a network style in today’s environment.

[slide 14 – The biggest advantages to a virtual network approach are flexibility and competitiveness on a global scale. A network organization can draw on resources and expertise worldwide to achieve the best quality and price and can sell its products and services worldwide. Flexibility comes from the ability to hire whatever services are needed, and to change a few months later without constraints from owning plants, equipment or facilities. This structure is perhaps the leanest of all structures as very little in the way of support staff and administrators are needed. However, with these advantages comes disadvantages. It creates greater risk for the company as it has less overall control over the different components of its business. Managers don’t have all the operations under one roof and must rely on contracts, coordination negotiation, and electronic linkages – and trust - to hold things together. This can create more managerial burden than some of the more traditional structures.
However, in today’s increasing turbulent, complex, and fast-changing environment, this type of arrangement is becoming increasingly common among organizations.