Organizational forms and design - Appunti

Informal organization - decision-making and coordination taking place outside the formally designed channels as people interact

Rules and norms emerging from the interaction between people and not from the formal rules and blueprint established by managers

CAP 6 07.10 Functional and divisional structure

6.1 Functional structure

● it's a design that groups people based on their common expertise and experience or because they use the same resources

● Functional structure is the bedrock of horizontal differentiation

○ it's the first step that top managers can do to strike a balance because it's the first feature of both mechanistic and organic structure → adopting a functional structure → people grouped in different functions

■ ex. function R&D → difficult tasks → mutual adjustment

● An organization groups tasks into functions to increase the effectiveness with which it achieves its goals

6.1.2 Advantages of functional structures

● provides people

With the opportunity to learn from one another and become more specialized and productive (company's core competencies develop)

People who are grouped by common skills can supervise one another and control each other's behavior

People develop norms and values that allow them to become more effective at what they do

Different functions develop different rules to coordinate their work internally, different goals, time orientations

Control problems

Communication problems

• Hierarchy → if there is a conflict between R&D and s&m → the CEO can "decide" and coordinate → the CEO spends a lot of time to resolve conflicts and doesn't have enough time to manage the company
• Functional structure is appropriate if the organization:
• Limits itself to producing a few similar products
• Produces those products in one of a few locations
• Sells them to only one general type of client or customer

Measurement problems

• All the

functions provide services for the production of ALL the products of the company → the greater the products, the greater the difficulty to understand the share of service to each one of these products

• no functions are specialized in a range of products
• Location problems
• Customer problems
• Strategic problems

6.2 From functional structure to a more complex structure - Divisional structure

The divisional structure is characterized because it uses a more complex structure - also for hierarchy levels

• as organizations grow, they produce more products and serve many types of customers
• A new structure is needed base on

1. increased horizontal differentiation - overlapping functions with some other kind of subunit grouping
• manager of the division and the function - level of vertical differentiation increase because there are more managers involved
2. increased vertical differentiation
3. increased integration

B is more vertical differentiate than the model A - in model B we have

3 levels of hierarchy and the model A only 2 (from top to bottom)

6.2.1 Moving to a divisional structure

Organizations most commonly adopt the divisional structure to solve control problems that arise with too many products, regions or customers.

Divisional structure - in which functions are grouped according to the specific demands of products, markets, or customers:

• Product structure
• Geographic structure
• Market structure

6.2.2 Product Structure

A divisional structure in which products (goods or services) are grouped into separate divisions according to their similarities or differences.

Organizational need to decide how to coordinate its production activities with support functions:

• Products division structure
• Multidivisional structure
• Product team structure

The manufacturing function is divided into several different product lines or divisions headed by a product manager:

• Increased horizontal differentiation
• Increased vertical differentiation
• A centralized set

1. Support functions serve the needs of several different product lines.
2. Each product division uses the services of the central support functions.
3. The support function is divided into product-oriented teams who focus on the needs.
4. Foster integration with direct contact to share collaboration.
5. Multidivisional Structure:
1. When the company produces a wide range of completely different products.
2. A very expensive solution.
3. A structure in which support functions are placed in self-contained divisions.
4. It has two innovations that overcome the control problems:
1. Independence of each division (increase horizontal differentiation).
2. Corporate headquarters staff - Responsible for overseeing the activities of the managers heading each division (increased vertical differentiation, and increased integration as corporate managers may perform an integrating role).

• Increased organizational effectiveness
• Increased control
• Profitable growth
• Internal labour market

• Managing the corporate-divisional relationship
• Coordination problems between divisions
• Transfer pricing
• Bureaucratic costs - a lot of managers to be paid
• Communication problems

Main focus - to speed up the product development process

To reduce cost

To allow companies to stay focused on customer needs

To quickly introduce products in the market

To innovate the production

Vertical flow of function responsibilities

Horizontal flow of products responsibilities

The vertical lines intersect the horizontal ones

• Each point is an employee
• All points of intersection are all employees that belong to the same product team
• Multifunctional team - members coming from different functions involved in the development of a new product
• Each member has 2 bosses

Flat structure - decentralized

• Coordination within each team takes place through mutual adjustment
• Difference between product team structure and matrix structure
• PTS - membership for a given team is permanent
• They can rotate at the end of the new product development process
• Only one boss
• MS -
• 2 bosses
• Roles are loosely defined
• All employees are

jointly involved in developing a new product

also in the middle of the development of a product a member can be transfer in another team

shows a vertical flow of functional responsibility and horizontal flow of product responsibility

the team is building block and principal coordination and integration mechanism

roles are loosely defined and coordination within teams takes place through mutual adjustment

Advantages

• the use of cross-functional teams reduces functional barriers and subunit orientation
• it opens up communication between functional specialists
• the matrix enables an organization to maximize its use of skilled professionals, who move from product to product as needed
• the dual functional and product focus promotes concern for both cost and quality

Disadvantages

• with a flat hierarchy and few rules and SOPs employees cannot develop stable expectations of one another (role conflict and ambiguity)
• the lack of clearly defined hierarchy of authority can lead

7.2 Network structure

A cluster of different organizations whose actions are coordinate by contracts and agreements rather than through a formal hierarchy of authority

• very complex companies from agreements with many suppliers, manufacturers and distributors
• value creation of activity - moved to the outside
• not formal hierarchy or other coordination mechanism but though the market with a legal contract

Advantages

• production costs are reduced
• avoids the high bureaucratic costs of operating a complex organizational structure
• network partners can be replaced if they do not perform up to standards
• allows a company to maintain a flat hierarchy and to react quickly to new opportunities in the environment as they appear, altering the network composition

G.J. dynamics of Nike can't be supported by a network structure because the

engineers that are supposed to coordinate themselves through mutual adjustment, face communication and sharing information - they belong to different companies

Disadvantages

• Problematic in some situations. For example, complex value-creations activities. A considerable level of mutual adjustment is needed to allow the groups to interact so that they can learn from one another and constantly improve the product
• Ability to control a complex value-creation process is difficult because managers lack the means to effectively coordinate and motivate the various network partners