Fundamentals of Organization Structure

Fundamentals of Organization Structure

Organization Contextual Variables that Influence Structure

Sources: Adapted from Jay R. Galbraith,
Competing with Flexible Lateral Organizations, 2nd ed.
(Reading, Mass.: Addison-Wesley, 1994), Ch.1;
Jay R. Galbraith, Organization Design (Reading, Mass.: Addison-Wesley, 1977), Ch. 1.

STRUCTURE
Process by which an organization allocates people and resources to tasks “How things are divided up.” Process by which the divided tasks are recombined and coordinated “How pieces are reconnected”

Principles of Structure
• Prevent overload of members
• Load changes with time

Ladder of Mechanisms for Horizontal Linkage and Coordination

Project Manager Location in the Structure

 
Teams Used for Horizontal Coordination

 
Options for Grouping tasks

 
Structural Design Options for Grouping Employees into Departments

FUNCTIONAL STRUCTURE
A functional structure is the bedrock of horizontal differentiation. It is the first “structure” that organizations adapt as they grow.

Strengths and Weaknesses of Functional Organization Structure
• STRENGTHS:
– Allows economies of scale within functional departments
– Enables in-depth knowledge and skill development
– Enables organization to accomplish functional goals
– Is best with only one or few products

• WEAKNESSES:
– Slow response time to environmental changes
– May cause decisions to pile on top, hierarchy overload
– Leads to poor horizontal coordination among departments
– Results in less innovation
– Involves restricted view of organizational goals

Source: Adapted from Robert Duncan, “What Is the Right Organization Structure? Decision Tree Analysis Provides the Answer,” Organizational Dynamics (Winter 1979): 429.


Reorganization from Functional Structure to Divisional Structure

Strengths and Weaknesses of Divisional Organization Structure
• STRENGTHS:
– Suited to fast change in unstable environment
– Leads to client satisfaction because product responsibility and contact points are clear
– Involves high coordination across functions
– Allows units to adapt to differences in products, regions, clients
– Best in large organizations with several products
– Decentralizes decision-making


• WEAKNESSES:
– Eliminates economies of scale in functional departments
– Leads to poor coordination across product lines
– Eliminates in-depth competence and technical specialization
– Makes integration and standardization across product lines difficult


Source: Adapted from Robert Duncan, “What Is the Right Organization Structure? Decision Tree Analysis
Provides the Answer,” Organizational Dynamics
(Winter 1979): 431.

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