Organizing The Business Enterprise

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					Organizational Structure

A guide to understanding organizational structure - what
it is, how it works, and what the best structure is for your
organization to operate efficiently and to accomplish its
goals.
       What is Organizational
       Structure?
Organizational structure is:

   The framework that defines formal reporting relationships
    between different positions.

   A system that defines the roles and responsibilities of
    individuals in the decision-making process.

   A methodology used to identify the jobs that need to be
    done within an organization and how those jobs relate to
    one another.
Types of Organizational Structures
Organizations are set up in specific ways to accomplish
different goals. The structure of an organization plays a key
role in how efficiently it runs and its ability to meet its goals
and objectives.

There are three main organization structures:

   Functional

   Divisional

   Matrix
Functional Organization
   A functional organizational structure is grouped according
    to its purpose or function.

   Each area works independently and there are distinct
    boundary lines.

   There is typically an expert, such as a director or manager,
    in charge of each area or function.

   Decision-making is decentralized within functions.
Functional Organization Chart

                                                                         President/CEO




        Accounting &                                                       Research &                                                        Sales &
                                          Engineering                                                      Purchasing
          Finance                                                         Development                                                       Marketing
                                            Director                                                        Director
          Director                                                          Director                                                         Director




                   Financial                                     Research         Development   Contract                        Marketing               Sales Rep
Accountant                     Engineer             Technician                                                          Buyer
                    Analyst                                      Specialist        Specialist   Manager                         Manager




                                                                 Research         Development
Bookkeeper                     Engineer             Technician                                                          Buyer                           Sales Rep
                                                                 Specialist        Specialist
Divisional Organization Structure
   A divisional structure is commonly used by larger
    organizations and is concentrated on one of the following:

    ◦ Geographic Location
    ◦ Product
    ◦ Specific Market Segment


   This structure is self-managed and focuses on a limited
    aspect of the company's offerings.


   Each division has its own functional support, such as a
    finance, engineering, and sales department.
Divisional Organization Chart
                                       President/CEO




            VP              VP              VP              VP              VP
       Product 1         Product 2       Product 3       Product 4       Product 5




          Finance         Finance         Finance         Finance         Finance




       Engineering      Engineering     Engineering     Engineering     Engineering




           Sales           Sales           Sales           Sales           Sales




       Manufacturing   Manufacturing   Manufacturing   Manufacturing   Manufacturing
Matrix Organization Structure
   A matrix organization structure groups employees based
    on product AND function.

   Upper-level management appear at the top of the
    organization chart.

   There is a vertical hierarchy as well as a horizontal
    structure that create dual reporting and shared
    responsibility of tasks.
Matrix Organization Chart

                                   President/CEO




            VP           VP             VP            VP            VP
        Finance      Engineering     Research      Purchasing      Sales




                                     Research
      Accountant 1   Engineer 1                     Buyer 1     Sales Rep 1
                                    Specialist 1




                                     Research
      Accountant 2   Engineer 2                     Buyer 2     Sales Rep 2
                                    Specialist 2




                                     Research
      Accountant 3   Engineer 3                     Buyer 3     Sales Rep 3
                                    Specialist 3
Organizing the Business
The process for organizing the business is based on six key
elements:

   Work Specialization

   Departmentalization

   Span of Control

   Centralization and Decentralization

   Formalization
What is Departmentalization?
   Departmentalization is a process used to establish
    departments and work groups based on specific activities.

   There are five types of departmentalization:

    ◦Customer Departmentalization


    ◦Product Departmentalization


    ◦Process Departmentalization


    ◦Geographic Departmentalization

    ◦Functional Departmentalization
What is Work Specialization?
Work specialization is a method used to divide and assign the
tasks of a specific job to a number of employees.

Work specialization allows for:

  ◦ Efficient use of employees skills

  ◦ Increased productivity

  ◦ Effective training
What is Span of Control?
Span of Control refers to the number of employees for which
a manager, supervisor or leader has responsibility.

   Optimal span of control is based on the size and structure
    of the organization, the skill sets of the employees, and the
    type of job or tasks being performed.

   Broad span of control is common for areas that perform
    routine work, stable business situations, highly skilled staff,
    and managers that are able to delegate effectively.

   Narrow span of control works best in a dynamic or complex
    work environment.
Decentralization vs. Centralization
Decentralization
◦ Decision-making authority is delegated to lower levels
  throughout an organization.

◦   Decisions are often made faster.

Centralization
◦ Decision-making authority is held by upper-level
  managers.
◦ Centralized decision-making allows for efficiencies, control,
  and coordination throughout the organization.
What is Formalization?
Formalization is the manner in which rules, policies,
procedures, and guidelines are followed in an organization.

   Formalization allows an organization to better regulate and
    control behavior and practices.

   The degree of formalization is primarily influenced by the
    size of the organization. Large organizations require a
    higher degree of formalization than small organizations.

   Formalization can create cohesiveness across divisions,
    departments and work groups.
rs of management and relatively wide spans of control

                               Typical Law Firm

 Chief Partner


 Partners


 Associates

                                 Relatively wide span of control
                                                                   5 - 21
 TALL                                      United States Army
 ORGANIZATIONAL              General
 STRUCTURE -
 VERTICAL                    Colonels
Characteristic of
                             Majors
centralized companies with
multiple layers of           Captains &
management and relatively    Lieutenants
narrow spans of control      Warrant
                             Officers
Relatively narrow span of
control.
                             Sergeants
At lower levels, where
tasks are similar and        Corporals
simpler, span of control
widens.                      Privates
                                                                5 - 22
LINE AND STAFF ORGANIZATION—LINE DO THE
MAINLINE FUNCTIONS/STAFF ASSIST
                         Clark Equipment Corp.


                Human
  Staff                                             Engineering
              Resources
Managers      Department
                                                    Department



  Line       Trucks             Forks & Small                 Tools
Managers     Division       Earthmovers Division             Division



             Materials
Purchasing               Fabrication   Painting   Assembly    Sales     Distribution
             Handling

                                                                                6 - 23
COMMITTEE & TEAM AUTHORITY—
HORIZONTAL ORGANIZATION—ALSO
BECOMING MORE POPULAR.




    Authority granted to committees or work
    teams involved in a firm’s daily operations
    BASIC FORMS OF
    ORGANIZATIONAL STRUCTURE
   Organizations can structure themselves in almost an
    infinite number of ways based on the specialization,
    departmentalization, or decision-making hierarchies.

   The four basic forms of organizational structure that
    reflect the general trends followed by most firms are:

     • Functional
                    • Divisional
                                   • Matrix
                                              • International
FUNCTIONAL ORGANIZATION

    Form of business organization in which authority
    is determined by the relationships between
    group functions and activities

     Company Structured Around Basic Business Functions

          Marketing      Operations      Finance
         Department      Department     Department
DIVISIONAL ORGANIZATION
 Organizational structure in which corporate
 divisions operate as autonomous businesses
 under the larger corporate umbrella



            Food Service     Infant Foods     Condiments
              Division          Division       Division

  Star-Kist Tuna      Pet Foods      Frozen-Foods    Misc. Products
     Division          Division         Division        Division

 Division: Department that resembles a separate business in
 producing and marketing its own products
MATRIX ORGANIZATION
Organizational structure in which teams are formed
and team members report to two or more managers

    A matrix is a highly flexible form that is
     readily adaptable to changing circumstances.
    Matrix structures rely heavily on committee
     and team authority.
    Some companies use the matrix organization
     as a temporary measure to complete a specific
     project. The end of the project usually means
     the end of the matrix.
             Matrix Organization at Martha Stewart

  Area                                 Media Group                              Merchandising Group
Specialists




                                                                                                   Sears Paint
                                                                           K-mart Line
                                                    Newspaper
                   Magazines




                                                                                                                 Specialty/
                                                                Cable TV
                                                                Network/




                                                                                                                 Retailing
                                                                                         Catalog
                                         Internet


                                                      Radio/
                               Books




                                                                                          Line
  Cooking

Entertainment

 Weddings

   Crafts

 Gardening

   Home

  Holidays

  Children
                                                                                                                        6 - 29
INTERNATIONAL ORGANIZATION
Approaches to organizational structure developed
in response to the need to manufacture,
purchase, and sell in global markets

                 CEO


     Retail       Retail     International
   Division A   Division B      Division



                 Latin
                               Europe        Asia
                America
ORGANIZATIONAL DESIGN FOR THE
21ST CENTURY
   Boundaryless Organizations minimize or eliminate
    traditional boundaries and structures.
   Team Organizations having little or no underlying
    functional hierarchy and rely almost exclusively on project-
    type teams.
   Virtual Organizations have little or no formal structure.
    They typically have only a handful of permanent
    employees, a very small staff, and a modest
    administrative facility.
VIRTUAL ORGANIZATION
   Contracted                     Contracted
  Manufacturing                  Administrative
     in Asia                       Services

                                 • Accounting
                     Core
                                 • Human
                  Organization     Resources
                  • Finance
                  • Operations
                  • Management


   Contracted                     Contracted
    Sales &                      Distribution &
   Marketing                       Logistics

                                                  6 - 32
INFORMAL ORGANIZATION
     The formal organization of a business is the part
      that can be seen and represented in chart form.
     The informal organization within which people
      do their jobs in different ways and interact with
      other people in ways that do not follow formal
      lines of communication.


      The informal organization is sometimes just as
      powerful, if not more powerful, than the formal
      structure.
FORMAL VERSUS INFORMAL
ORGANIZATIONAL SYSTEMS

Informal Groups
  Groups of people who decide to interact
  among themselves

Grapevine
  Informal communication network that runs
  through an organization
				
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