STRUCTURAL ARRANGEMENTS

IN
ORGANIZATIONS
1

Session 4
 LEARNING OBJECTIVES
1. Organization structure- evolution from functional structure to more
complex structures
2. Distinguish between three kinds of divisional structures (product,
geographic, and market)
3. Discuss how the matrix and product team structures differ, and why
and when they are chosen to coordinate organizational activities
4. Identify the unique properties of network structures and cluster
structures, the conditions under which they are most likely to be
selected as the design of choice.
 FUNCTIONAL STRUCTURE
It is a design that groups people on the basis of their common skills
and expertise or resources they use.
The key strategy of functionally focused structure is to maximize
margins through leveraging economies of scale and functional
expertise.

 There are stable and undifferentiated markets with well-

understood customer requirements;
 There is a successful, control-focused enterprise culture;
 There is a small, single product line;
 There is scale or expertise within each function;
 There are long product development and life cycles;
 The organization works to common standards.
ADVANTAGES & DISADVANTAGES
 Learn from one another  Communication Problems

 Can supervise and control each  Measurement Problems

other’s behavior
 Location Problems
 Common norms and values.
 Customer Problems

 Strategic Problems
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.
The type of divisional structure depends on the problem to be solved
Divisional structure creates smaller, more manageable subunits and takes
the form of:
A. Product structure
B. Geographic structure
C. Market structure
 A. PRODUCT STRUCTURE
Product structure: a divisional structure in which products (goods or
services) are grouped into separate divisions according to their similarities
or differences.
 Organizations need to decide how to coordinate its product activities with
support functions.
Three kinds of product structure
 Product Division structure
 Multi Division structure
 Product Team structure
1. PRODUCT DIVISION
STRUCTURE
Product division structure: a structure in which a centralized set of
support functions service the needs of a number of different product
lines.
Divided into product-oriented teams of functional specialists who focus
on the needs of one particular product division.
INDIAN HOTELS COMPANY LIMITED
(IHCL) CEO

Vice President Vice President Vice President Vice President

Sales and HR Legal Corp. Finance
Marketing affairs

Luxury Luxury
The Gateway
Division International Air Catering
Hotels &
H,R & P Division Reality Division
Resorts

Centralized support functions

Divisions
2. MULTIDIVISIONAL STRUCTURE
Organizations that produce a wide range of products.
A structure in which support functions are placed in self-contained division.
Each division has its own set of support functions and controls its own value.

 stakeholders perceive low synergies between products;

 there are different purchasing process/distribution channels;
 there are different operating requirements for success;
 there is a different competitive environment;
 there are short product development and life cycles;
 there is a minimum efficiency of scale for functions or outsourcing
ITC LTD Board of Directors

Strategic Management

Executive Management

Corporate Functions

Hotels Paperboard Agri ITC

Divisions FMCG & Specialty Business Infotech
paper

Functional
Managers

Support functions Support functions Support functions Support functions

ADVANTAGES & DISADVANTAGES
1. Increased Organizational 1. Managing the Corporate-
Effectiveness Divisional Relationship
2. Increased Control 2. Coordination & communication
problems between Divisions
3. Profitability
4. Internal Labor Market 3. Transfer Pricing
4. Bureaucratic Costs
3. PRODUCT TEAM STRUCTURE
A divisional structure in which specialists from the support functions are
combined into product development teams.
Typically used by an organization whose products are very
technologically complex or whose characteristics change rapidly to suit
customer needs.
A product team structure is more decentralized than a functional structure
or a product division structure, and specialists in the various product
teams are permitted to make on-the spot decisions.
 M&M-

CEO

Functions

Research and Sales and Manufacturing Materials Finance

Development Marketing Management

PTM PTM Product

Development
Team

IDAM

Functional specialist
Design & Development, Testing & Validation and
PTM Product Team Manager Manufacturing’ to ‘Vendor Development and Marketing.’
B: GEOGRAPHIC STRUCTURE
When the control problems that companies experience are a function of
geography, a geographic divisional structure is appropriate.
Allows the organization to adjust its structure to align its core competences
with the needs of customers in different geographic regions
Allows some functions to be centralized and others decentralized
INDIAN RAILWAYS
FUNCTIONAL BRANCHES
Technical
Delhi
Non technical
(North/ Medical services
Metro)

Mumbai RAILWAY Kolkata

(Western (East/
/Central) BOARD Metro)

68 Chennai 17
Divisions (South)
zones
 C. MARKET STRUCTURE
A market structure aligns functional skills and activities with the needs of
different customer groups.
Each customer group has a different marketing focus, and the job of each group is
to develop products to suit the needs of its specific customers.

 Each customer group makes use of centralized support function.

 where well-defined customer segments have been identified;
 when selling products/services unique to segment;
 when leveraging customer knowledge advantage;
 when requiring rapid customer service and product cycles;
 when perceiving minimum efficiencies of scale in functions or outsourcing;
 when promoting a strong marketing/customer-focused culture.
CITIBANK
CEO

Institutional Global Wealth

Global Cards Consumer Management
Banking Clients Group
Corporate &
Others
 MATRIX STRUCTURE
A matrix structure groups people and resources in two ways simultaneously:
by function and by product; a vertical flow of functional responsibility and
a horizontal flow of product responsibility.
Matrix organization employees are often referred to as two-boss employees
because they report to two superiors: product manager and functional
manager
Matrix structures are most effective in conditions where:
 core work is project-based or the work requires small groups of people;
 projects require highly specialized skills and knowledge;
 project skill requirements vary greatly;
 labour cost is a prime economic driver.
Global Business Units INFOSYS

Consulting & Global Sales PPS Business IT

S.I & Marketing Services

Financial services &

Insurance

Manufacturing

Energy utilities
Comm services

Retail, cpg and Life

sciences

Two-boss employee
ADVANTAGES & DISADVANTAGES
1. Reduce subunit orientation through 1. Lack of a clearly defined hierarchy
the use of cross-functional teams.
can lead to role ambiguity.
2. Increase learning by facilitating
communication across functions. 2. People deal with the lack of defined
authority by creating their own
3. Maximize the use of skilled control structures.
professionals who move from
product to product as needed.
4. Promote concern for both cost and
quality by focusing on both
functional and product issues.
MULTIDIVISIONAL MATRIX
STRUCTURE
A multidivisional matrix structure provides for more integration between
corporate and divisional managers and between divisional managers.

This structure makes it easier for top executives from the divisions and
from corporate headquarters to coordinate organizational activities.
BAYER AG
CEO

Corp HR Group
Regional And Org M&A
Accounting
coordination
Control

Bayer
Healthcare

BAYER
Crop
Business
Sciences
Services

Material
Sciences
NETWORK STRUCTURE
Network structure: a cluster of different organizations whose actions are
coordinated by contracts and agreements rather than through a formal
hierarchy of authority
Very complex as companies form agreements with many suppliers,
manufacturers, and distributors
Such agreements are necessary as the organization outsources many of the
value creation activities involved in production and marketing goods and
services.
Network structures are most effective in conditions
where:
 There is rapid pace of change;

 A market niche must be quickly exploited;

 Subcontractors are required to do specific pieces

of work;
 There is no requirement for direct reporting
relationships;
 Decision-making and accountability are
delegated to those doing the work;
 Networks are linked by contacts among
members.
 ADVANTAGES
1. If a network partner can perform a
specific functional activity reliably,
and at a lower cost, production costs
are reduced
2. Avoids the high bureaucratic costs of
operating a complex organizational
structure
3. Allows an organization to act in an
organic way
4. Network partners can be replaced if
they do not perform up to standards
DISADVANTAGES
1. 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
2. Ability to control a complex
value- creation process is
difficult because managers
lack the means to effectively
coordinate and motivate the
various network partners
The structures described so far all derive from thinking about organizations as an
assemblage of discrete parts that can be taken apart, replaced, reassembled and
re-formed as if they were a collection of Lego bricks.
A different view of organizations comes from Aries de Geus, who talks of large
institutions, particularly global corporations, as a new living species– at best,
thoughtful evolutionary “beings” collectively participating in the evolution of our
universe. From this perspective it is impossible to disassemble the elements just
as it is impossible to disassemble a human being and remodel one.
As Peter Senge says:
Rather than attributing the changes sweeping the world to a handful of all-powerful
individuals or faceless “systems”, we can view them as the consequences of a life-
form, that like any life form, has the potential to grow, learn, and evolve.
In organizations where the structure
is integral to the organizational life
form, characteristics that in other
living species have would be evident.
For example, such organizations
could:
 continuously recreate themselves
(as the cells in a human body do);
 act from perceptions of where they
are in relation to others;
 “conserve features essential to
their existence and seek to evolve”;
 learn to tap into a larger field to
guide them toward what is healthy
for the whole”.
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