Basic Types of Organizational Structures

8/12/2019 Basic Types of Organizational Structures

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BASIC TYPES OF ORGANIZATIONAL

STRUCTURES

major questionHow would one describe the seven organizational structures?THE BIG PICTURESeven types of organizational structures are simple, functional, divisional,

matrix, team-based, network, and modular.

Small firm.What type of organizational structure is best suited to a local musicshop

Culture and structure are often intertwined. Several years ago, the Federal

Railroad Administration (FRA) sent inspectors to Union Pacifics headquarters

in Omaha, Nebraska, to examine why the railroad had had a series of fatalaccidents. There they learned that the company had a top-down, military-style

hierarchy and culture that seemed to discourage teamwork and communication.

The antiquated style of management had its roots in the days when railroads

executive ranks were filled with combat-hardened former Civil War officers.

When something happened, said a railroad vice president explaining the

attitude of leading by fear, you pulled out your gun and shot the guy in chargeof the territory. Said the head of the FRA of Union Pacifics dysfunctional

working arrangements, They were separated from each other in a way thatalmost guaranteed problems.55

We may categorize the arrangements of organizations into seven types of

structures: (1)simple,(2)functional,(3) divisional,(4) matrix,(5) team-

based,(6) network,and (7) modular.

1. The Simple Structure: For the Small Firm

Figure 8.6Simple Structure: An ExampleThere is only one hierarchical level

of

The first organizational form is the simple structure. This is the form often

found in a firms very early, entrepreneurial stages, when the organization is aptto reflect the desires and personality of the owner or founder. An organization

with asimple structurehas authority centralized in a single person, a flat

hierarchy, few rules, and low work specialization.(SeeFigure 8.6.)

Hundreds of thousands of organizations are arranged according to a simple

structurefor instance, small mom-and-pop firms running landscaping,construction, insurance sales, and similar businesses. Examples: Both Hewlett-
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Packard and Apple Computer began as two-man garage start-ups that later

became large.

2. The Functional Structure: Grouping by Similar

Work SpecialtiesThe second organizational form is the functional structure. In a functional

structure,people with similar occupational specialties are put together in

formal groups.This is a quite commonplace structure, seen in all kinds of

organizations, for-profit and nonprofit. (SeeFigure 8.7.)Figure 8.7Functional Structure: Two ExamplesThis shows the

Examples: A manufacturing firm will often group people with similar work

skills in a Marketing Department, others in a Production Department, others in

Finance, and so on. A nonprofit educational institution might group employees

according to work specialty under Faculty, Admissions, Maintenance, and soforth.

3. The Divisional Structure: Grouping bySimilarity of Purpose

The third organizational form is the divisional structure. In a divisional

structure,people with diverse occupational specialties are put together in

formal groups by similar products or services, customers or clients, or

geographic regions.(SeeFigure 8.8.)

Figure 8.8Divisional Structure: Three ExamplesThis shows

Product Divisions: Grouping by Similar Products or Services

Product divisionsgroup activities around similar products or

services.Examples: The media giant Time Warner has different divisions for

magazines, movies, recordings, cable television, and so on. The Warner Bros.

part of the empire alone has divisions spanning movies and television, a

broadcast network, retail stores, theaters, amusement parks, and music.

Customer Divisions: Grouping by Common Customers orClients

Customer divisionstend to group activities around common customers orclients.Examples: Ford Motor Co. has separate divisions for passenger-cardealers, for large trucking customers, and for farm products customers. A
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savings and loan might be structured with divisions for making consumer loans,

mortgage loans, business loans, and agricultural loans.

Geographic Divisions: Grouping by Regional Location

Geographic divisionsgroup activities around defined regionallocations.Example: This arrangement is frequently used by government

agencies. The Federal Reserve Bank, for instance, has 12 separate districts

around the United States. The Internal Revenue Service also has several

districts.

4. The Matrix Structure: A Grid of Functional &Divisional for Two Chains of Command

The fourth organizational form is the matrix structure. In a matrix structure,an

organization combines functional and divisional chains of command in agrid so that there are two command structuresvertical and

horizontal.The functional structure usually doesnt changeit is the

organizations normal departments or divisions, such as Finance, Marketing,

Production, and Research & Development. The divisional structure may vary

as by product, brand, customer, or geographic region.(SeeFigure 8.9.)

Figure 8.9Matrix StructureAn example of an arrangement that

A hypothetical example, using Ford Motor Co.: The functional structuremight be the departments of Engineering, Finance, Production, and Marketing,

each headed by a vice president. Thus, the reporting arrangement is vertical.The divisional structure might be by product (the new models of Taurus,

Mustang, Explorer, and Expedition, for example), each headed by a projectmanager. This reporting arrangement is horizontal. Thus, a marketing person,

say, would report to boththe Vice President of Marketing andto the Project

Manager for the Ford Mustang. Indeed, Ford Motor Co. used the matrix

approach to create the Taurus and a newer version of the Mustang.

5. The Team-Based Structure: Eliminating

Functional Barriers to Solve ProblemsThe fifth organizational form is the team-based structure. In a team-based

structure, teams or workgroups, either temporary or permanent, are used

to improve horizontal relations and solve problems throughout the

organization.56When managers from different functional divisions are brought

together in teamsknown as cross-functional teamsto solve particular


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problems, the barriers between the divisions break down. The focus on narrow

divisional interests yields to a common interest in solving the problems that

brought them together. Yet team members still have their full-time functional

work responsibilities and still formally report to their own managers above them

in the functional-division hierarchy. (SeeFigure 8.10.)Figure 8.10Team-Based StructureThis shows a mix of functional

Example

Use of a Team-Based Structure: Motorola Designs a Cell Phone

The mood was grim at Motorola, which had watched rival cell-phone maker

Nokia leap to No. 1 worldwide in market share on the basis of its candy bar

phone designs. But engineers in Motorolas concept-phone unit had a vision for

something different, having produced a mock-up of what was described as animpossibly thin phoneat ten millimeters half the girth of a typical flip-

flop cell phone.57Engineer Roger Jellicoe was told to pull a team together andproduce the thinnest phone ever releasedand to do it within a year in order to

make a splash by handing it out as a high-end niche product to celebrities at the

February Academy Awards.The Skunkworks.Eventually the team grew to as many as 20 engineers, who

met daily in a conference room in Motorolas Libertyville, Illinois office, to

deliberate over how to cram a checklist of componentsantenna, speaker,

keypad, camera, display, light source, and so oninto minimal space.

Operating as a skunkworksa project team whose members are separated

from normal company operationsthat kept the project secret even from theircolleagues, the team members used materials and techniques that Motorola had

never tried before. They also threw out accepted models of what a cell phone

was supposed to look and feel like. In short, says aFortuneaccount, the

team that created the RAZR broke the mold, and in the process rejuvenated the

company.

As engineers worked on the components, industrial designer Chris Arnholt

worked on the look, rendering designs onto a page and then letting another

designer translate them into three-dimensional computer graphics, which model

makers could use to craft plastic mock-ups. Nearly every activity came down toa trade-off of functionality versus thinness, which eventually led to two

compromises: the phone exceeded the original targeted size by about an eighth

of an inch and the team missed the original February deadline.The RAZR Unveiled.When the RAZR was finally unveiled in a splashy

presentation in July, it became an instant hit. And the company realized that the


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product it had designed to be a high-priced, high-end jewel had mass market

appeal.

Your Call

The team approach, known as concurrent engineeringor integrated productdevelopment,has been found to speed up the design of new products because all

the specialists meet at once, instead of separately doing their own thing, then

handing off the result to the next group of specialists. Can you think of

circumstances in which the old-fashioned nonteam approach would probably

work better?

6. The Network Structure: Connecting a CentralCore to Outside Firms by Computer Connections

In the sixth organizational form, network structure,the organization has acentral core that is linked to outside independent firms by computer

connections, which are used to operate as if all were a single

organization.(SeeFigure 8.11.)Corporations using this structure are

sometimes called virtual corporationsor virtual organizations,as we mentioned

inChapter 2.58Another term used is the hollow corporationorhollow

organization,in which the company retains important core processes critical to

its performance (such as design or marketing) and outsources most otherprocesses (such as human resources, warehousing, or distribution), thereby

seeming to hollow out the organization.59Figure 8.11Network StructureThis is an example of a personal

With a network structure, an organization can become a boundaryless

organization,as we described inChapter 2,operating with extensive, even

worldwide operations, yet its basic core can remain small, thus keeping payrolls

and overhead down. The glue that holds everything together is information

technology, along with strategic alliances and contractual arrangements with

supplier companies.

Example

Network Structure: EndoStim, a Medical Device Start-up, Operates

Virtually

Nowadays a firm can be completely international. An example is the medical

device start-up EndoStim, nominally based in St. Louis but operating

everywhere.
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The Internationalists.Cuban immigrant Raul Perez, MD, came to St. Louis,

where he met Dan Burkhardt, a local investor, with whom he began making

medical investments. Perez also suffered from acid reflux, reportsNew York

Timescolumnist Thomas Friedman, and went to Arizona for treatment to an

Indian-American physician, V. K. Sharma, who proposed an idea for apacemaker-like device to control the muscle that would choke off acid reflux.

Perez, Burkhardt, and Sharma joined South Africaborn Bevil Hogg, a founder

of Trek Bicycle Corporation, who became the CEO of the company named

EndoStim and helped to raise initial development funds. Two Israelis, a medical

engineer and a gastroenterologist, joined a Seattle engineering team to help withthe design, and a company in Uruguay specializing in pacemakers was lined up

to build the prototype. The clinical trials for the device are being conducted in

India and Chile.

Continues Friedman, This kind of very lean start-up, where the principals arerarely in the same office at the same time, and which takes advantage of all the

[technological communication tools]teleconferencing, e-mail, the Internet,

and faxesto access the best expertise and low-cost, high-quality

manufacturing anywhere, is the latest in venture investing.60

Operating Differently.A virtual, boundaryless company like EndoStim

operates differently from a traditional company. For instance, at MySQL, a

virtual software maker employing 320 workers in 25 countries, managers have

had to learn to evaluate people and give feedback differently. Productivity is

measured strictly by output; mushy factors like charisma dont pertain in

cyberspace, says one observer. As might be expected, MySQL hires strictly for

skill, not the ability to play nicely with others.61

Your Call

Many people like the social interaction that comes with working in a physical

office with other people. Others, however, are turned off by the office politics

and time-wasting activities that seem to be a necessary concomitant and

welcome the opportunity to do task-oriented work in a makeshift home office,occasionally having to cope with loneliness and restlessness. Which would you

favor?

7. The Modular Structure: Outsourcing Pieces of

a Product to Outside Firms

The seventh organizational form differs from the sixth in that it is oriented

around outsourcing certainpieces of a productrather than outsourcing


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Basic Types of Organizational Structures

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