1. Chapter Three
Fundamentals of
Organization Structure
A Sample Organization Chart
CEO
Vice President Vice President Director
Fianance Manufacturing Human Resources
Chief Budget Plant Maintenance Training Benefits
Accountant Analyst Superintendent Superintendent Specialist Administrator

2. The Relationship of Organization Design
to Efficiency vs. Learning Outcomes
Horizontal Organization
Designed for Learning
Horizontal structure is dominant
• Shared tasks, empowerment
• Relaxed hierarchy, few rules
• Horizontal, face -to-face communication
Dominant • Many teams and task forces
• Decentralized decision making
Structural Vertical structure is dominant
• Specialized tasks
Approach • Strict hierarchy, many rules
• Vertical communication and reporting systems
• Few teams, task forces or integrators
• Centralized decision making
Vertical Organization
Designed for Efficiency
Ladder of Mechanisms for Horizontal
Linkage and Coordination
H IGH Teams
Coordination Required
Full-time Integrators
Amount of Horizontal
Task Forces
Direct Contact
LOW Information Systems
LOW HIGH
Cost of Coordination in
Time and Human Resources

3. Project Manager Location
in the Structure
President
Finance Engineering Marketing Purchasing
Department Department Department Department
Financial Project Manager
Accountant Product
Market New
Designer
Researcher Product A
Buyer
Budget
Analyst Draftsperson Advertising Project Manager
Specialist New
Buyer Product B
Management
Accountant Electrical Project Manager
Designer Market New
Planner Buyer Product C
Teams Used for Horizontal
Coordination at Rodney Hunt Company
President
Marketing Vice Pres. Engineering Vice Pres Manufacturing Vice Pres
Water Control Equip. Water Control Equip. Foundry General Supervisor
Sales Manager Chief Engineer
Water Control Product Team Machine Shop
General Supervisor
Textile Machinery Textile Machinery Stainless Steel
Domestic Sales Manager Chief Engineer General Supervisor
Textile Machinery Textile Product Team
Export Manager
Customer Service,
Purchasing, Shipping and Yard
Advertising Manager Production Manager Supervisor

4. Structural Design Options for
Grouping Employees into Departments
Functional
Grouping CEO
Engineering Marketing Manufacturing
Divisional
Grouping CEO
Product Product Product
Division 1 Division 2 Division 3
Source: Adapted from David Nadler and Michael Tushman ,
Strategic Organization Design (Glenview, Ill.: Scott Foresman , 1988), 68.
Strengths and Weaknesses of
Functional Organization Structure
b STRENGTHS: b WEAKNESSES:
• Allows economies of • Slow response time to
scale within functional environmental changes
departments • May cause decisions to pile
• Enables in-depth on top, hierarchy overload
knowledge and skill • Leads to poor horizontal
development coordination among
• Enables organization to departments
accomplish functional • Results in less innovation
goals • Involves restricted view of
• Is best with only one or organizational goals
few products
Source: Adapted from Robert Duncan, “What Is the Right
Organization Structure? Decision Tree Analysis Provides the Answer,”
Organizational Dynamics (Winter 1979): 429.

5. Strengths and Weaknesses of
Divisional Organization Structure
b STRENGTHS: b WEAKNESSES:
• Suited to fast change in unstable • Eliminates economies of
environment scale in functional
• Leads to client satisfaction departments
because product responsibility
and contact points are clear • Leads to poor coordination
across product lines
• Involves high coordination across
functions • Eliminates in-depth
• Allows units to adapt to competence and technical
differences in products, regions, specialization
clients • Makes integration and
• Best in large organizations with standardization across
several products product lines difficult
• Decentralizes decision-making
Source: Adapted from Robert Duncan, “What Is the
Right Organization Structure? Decision Tree Analysis
Provides the Answer,” Organizational Dynamics
(Winter 1979): 431.
Reorganization from Functional Structure
to Divisional Structure at Info-Tech
Functional Info-Tech
President
Structure
R&D Manufacturing Accounting Marketing
Divisional Info-Tech
Structure President
Electronic Office Virtual
Publishing Automation Reality
R&D Mfg Acctg Mktg R&D Mfg Acctg Mktg R&D Mfg Acctg Mktg

6. Structural Design Options for
Grouping Employees (Continued)
Multi-focused
Grouping
CEO
Marketing Manufacturing
Product
Division 1
Product
Division 2
Source: Adapted from David Nadler and Michael
Tushman , Strategic Organization Design (Glenview, Ill.:
Scott Foresman , 1988), 68.
Structural Design Options for
Grouping Employees (Continued)
Horizontal
Grouping
CEO
Human Resources Finance
Core
Process 1
Core
Process 2
Source: Adapted from David Nadler and Michael Tushman ,
Strategic Organization Design (Glenview, Ill.: Scott Foresman ,
1988), 68.

7. Geographical Structure
for Apple Computer
CEO
Steve Jobs
Apple Apple Apple Apple
Products Americas Europe Pacific
Canada France Australia
Latin
America/ Japan
Caribbean
Sales Far East
Service and
Marketing
to Regions
Source: www.apple.com
Dual-Authority Structure in a
Matrix Organization
President
Director Design Mfg Marketing Procure-
of Product Vice Vice Vice Controller ment
Operations President President President Manager
Product
Manager A
Product
Manager B
Product
Manager C
Product
Manager D

8. Strengths and Weaknesses of
Matrix Organization Structure
b STRENGTHS: b WEAKNESSES:
• Achieves coordination • Causes participants to experience dual
necessary to meet dual authority, which can be frustrating and
demands from customers confusing
• Flexible sharing of human • Means participants need good
resources across products interpersonal skills and extensive
• Suited to complex decisions training
and frequent changes in • Is time consuming; involves frequent
unstable environment meetings and conflict resolution
• Provides opportunity for both sessions
functional and product skill • Will not work unless participants
development understand it and adopt collegial rather
• Best in medium-sized than vertical-type relationships
organizations with multiple • Requires great effort to maintain power
products balance
Source: Adapted from Robert Duncan, “What Is the Right
Organization Structure? Decision Tree Analysis Provides the
Answer,”Organizational Dynamics (Winter 1979): 429.
Matrix Structure for
Worldwide Steel Company
President
Vertical Functions
Mfg. Industrial
Mfg. Marketing Finance Metallurgy Field Sales
Services Relations
Vice Vice Vice Vice Vice
Vice Vice
President President President President President
President President
Horizontal Functions
Open Die
Business Mgr.
Ring Products
Business Mgr.
Wheels & Axles
Business Mgr.
Steelmaking
Business Mgr.

9. A Horizontal Structure
Top
Management
Team
Process Team Team Team
Owner 1 2 3
Market Product
Analysis
Research
Planning
Testing Customer
New Product Development Process
Process Team Team Team
Owner 1 2 3
Material
Analysis Purchasing
Flow
Distrib. Customer
Sources: Based on Frank Ostroff,
Procurement and Logistics Process
The Horizontal Organization, (New York:
Oxford University Press, 1999); John A. Byrne,
“The Horizontal Corporation,” Business Week,
December 20, 1993, 76-81; and Thomas A. Stewart,
“The Search for the Organization of Tomorrow,”
Fortune, May 19, 1992, 92-9 8 .
Strengths and Weaknesses of
Horizontal Structure
b STRENGTHS: b WEAKNESSES:
• Flexibility and rapid response to • Determining core processed to
changes in customer needs organize around is difficult and
• Directs the attention of everyone time-consuming
toward the production and delivery of • Requires changes in culture, job
value to the customer design, management
• Each employee has a broader view of philosophy, and information and
organizational goals reward systems
• Promotes a focus on teamwork and • Traditional managers may balk
collaboration—common commitment when they have to give up power
to meeting objectives and authority
• Improves quality of life for employees • Requires significant training of
by offering them the opportunity to employees to work effectively in
share responsibility, make decisions, a horizontal team environment
and be accountable for outcomes • Can limit in-depth skill
Sources: Based on Frank Ostroff, The Horizontal Organization: What the
Organization of the Future Looks Like and How It Delivers Value to development
Customers, (New York: Oxford University Press, 1999);
and Richard L. Daft, Organization Theory and Design, 6 t h ed.,
(Cincinnati, Ohio: South -Western College Publishing, 1998) 253.

10. Hybrid Structure
Part 1. Sun Petrochemical Products
President
Functional Chief
Human Technology Financial
Structure Resources Vice Services
Counsel
Director President Vice Pres.
Product Fuels Lubricants Chemicals
Vice Vice Vice
Structure President President President
Sources: Based on Linda S. Ackerman, “Transition Management:
An In-Depth Look at Managing Complex Change,”
Organizational Dynamics (Summer 1982): 46-6 6 ;
and Frank Ostroff, The Horizontal Organization,
(New York: Oxford University Press, 1999), Fig. 2.1, 34.
Hybrid Structure
Part 2. Ford Customer Service Division
Vice President and
General Manager
Functional Strategy and Human
Structure Finance Communication Resources
Director and
Process Owner Teams
Horizontal Structure
Parts Supply / Logistics Group
Director and
Process Owner Teams
Vehicle Service and Programs Group
Director and
Process Owner Teams
Technical Support Group
Sources: Based on Linda S. Ackerman, “Transition Management:
An In-Depth Look at Managing Complex Change,” Organizational Dynamics
(Summer 1982): 46 -66; and FrankOstroff , The Horizontal Organization,
(New York: Oxford University Press, 1999), Fig. 2.1, 34.

11. Organization Contextual Variables
that Influence Structure
Culture Size
Chapter 9 Chapter 8
Structure
(learning vs.
Strategy, efficiency) Technology
Goals Chapters 6,7
Chapter 2
Environment
Chapters 4, 5
Sources: Adapted from Jay R. Galbraith,
Competing with Flexible Lateral Organizations, 2 n d ed.
(Reading, Mass.: Addison-Wesley, 1994), Ch.1;
Jay R. Galbraith, Organization Design (Reading, Mass.:
Addison-Wesley, 1977), Ch. 1.
The Relationship of Structure to
Organization’s Need for Efficiency vs. Learning
Functional with
Functional cross-functional Divisional Matrix Horizontal
Structure teams, integrators Structure Structure Structure
Horizontal:
• Coordination
• Change
Dominant • Learning
Structural Vertical: • Innovation
• Control
Approach • Flexibility
• Efficiency
• Stability
• Reliability

12. Symptoms of
Structural Deficiency
b Decision making is delayed or lacking in
quality
b The organization does not respond
innovatively to a changing environment
b Too much conflict from departments being
at cross purposes is evident