1. Chapter 6 Designing Organizational Structure: Specialization and Coordination Functional Structure From Functional to Divisional Structure Divisional Structure I: Product Structures Divisional Structure II: Geographic Structure Divisional Structure III: Market Structure Matrix Structure Network Structure and the boundary-less organization

2. Organizational Theory A functional structure is the bedrock of horizontal differentiation. It is the first “structure” that organizations adapt as they grow. Functional Structure Research and Development Sales and Marketing Manufacturing Materials Management Finance CEO

3. Organizational Theory Reengineering Functional Structures Reengineering is the process of redesigning how tasks are bundled into roles and functions to improve organizational effectiveness.

4. Organizational Theory Before and After Example of Reengineering A. Before Improving Integration in a Functional Structure by Creating a Materials Management Function Manufacturing Purchasing Production Control Distribution Marketing CEO

5. Organizational Theory Before and After Example of Reengineering B. After (continued) Manufacturing Materials Management Marketing CEO Purchasing Production Control Distribution

6. Organizational Theory Moving to a Divisional Structure The structure adopted to solve the control problems of functional structures (many kinds of products, many different locations, many types of clients) is the divisional structure.

7. Organizational Theory Divisional structure — a structure in which functions are grouped together according to the specific demands of products, markets, or customers. The type of divisional structure selected is driven by the specific type of control problem experienced.

8. Organizational Theory Divisional Structure I : Three Kinds of Product Structure A product structure is a divisional structure in which products are grouped into separate divisions, according to their similarities or differences. There are three different types of product structures seen in organizations.

9. Organizational Theory Product Division Structure —a structure in which centralized support functions service the needs of a number of different product lines. Typically used by organizations whose products are broadly similar and aimed at the same market.

10. Product Division Structure 4-19 Vice President Sales and Marketing Vice President Research and Development Vice President Materials Management CEO Vice President Finance Canned Soups Division PDM Frozen Vegetable Division PDM Frozen Entrees Division PDM Baked Goods Division PDM Centralized support functions Divisions

11. Organizational Theory Multidivisional Structure —a structure in which support functions are placed in self-contained divisions. Typically used by an organization whose products are very different and that operates in several different industries.

12. Multidivisional Structure. Corporate Managers CEO Divisional Managers Senior VP Marketing Senior VP Finance Senior VP Materials Management Senior VP Research and Development Functional Managers Corporate Headquarters Staff Division B Support functions Division D Support functions Division A Support functions Support functions Division C 4-21

13. Organizational Theory Product Team Structure —a divisional structure in which specialists from the support functions are combined into product development teams. Typically used by an organization whose products are very technologically complex or whose characteristics change rapidly to suit customer needs.

14. Product Team Structure. 4-29 Product Division Product Division CEO Functions Product Development Teams Product Division V ice President Research and Development V ice President Sales and Marketing V ice President Manufacturing V ice President Finance Functional specialist V ice President Materials Management PTM Product Team Manager PTM PTM PTM

15. Organizational Theory Divisional Structure II: Geographic Structure When an organization experiences control problems that are a function of geography, a geographic divisional structure is used. Such a structure organizes divisions according to the requirements of different locations.

16. Geographic Structure 4-31 Regional Operations Regional Operations Regional Operations Regional Operations CEO Central Support Functions Individual stores

17. Organizational Theory Divisional Structure III: Market Structure When an organization experiences control problems that are a function of the differences in the various customer groups being served, a market structure is used. Such a structure aligns functional skills and activities with different customer needs.

18. Market Structure Commercial Division Consumer Division Government Division Corporate Division CEO Central Support Functions

19. Organizational Theory Matrix Structure The search for better and faster ways to develop products and meet customer needs led to the matrix structure. A matrix structure groups people and resources in two ways simultaneously: -by function and -by product

20. Matrix Structure CEO V ice President Engineering V ice President Finance V ice President Purchasing V ice President Sales and Marketing V ice President Research and Development Product A Manager Product B Manager Product C Manager Product D Manager Product Team Two-boss employee

21. Organizational Theory A multidivisional matrix structure provides for more integration between corporate and divisional managers and between divisional managers. This structure makes it easier for top executives from the divisions and from corporate headquarters to coordinate organizational activities.

22. Multidivisional Matrix Structure CEO Senior Vice President Marketing Senior Vice President Finance Senior Vice President Research and Development Senior Vice President Materials Management Automobile Products Division Personal Computer Division Consumer Electronics Division

23. Organizational Theory A recent innovation in organizational architecture is the use of network structures. A network structure is a cluster of different organizations whose actions are coordinated by contracts and agreements rather than through a formal hierarchy.

24. Organizational Theory Network structures often result from outsourcing. Outsourcing is the process of moving activities that were previously performed inside the organization to the outside (where they are done by other companies).