ORGANIZATION STRUCTURES: A PRIMER

A Brief History

Designing an organization structure has changed greatly over time. At one point in time,
it was enough to let each individual do their own work independently, such as making
shoes or swords. With the Industrial Revolution we had to organize individuals to add
their part to the manufacture of the product moving down the assembly line. Later,
Frederick Taylor's Scientific Management generally had people acting like machines
themselves for greater efficiency. General Motors pioneered a revolutionary organization
design of product structure where each major division made its own cars. Today we may
see a "virtual organization" that exists in one city for a month, disbands as an
organization and reappears later in another city as a new organization. The purpose of
this paper is to look at practical alternatives for structuring organizations today, their
advantages and disadvantages and tips for implementing those structures.

Definition of Organization Structure

"Organization structure" can be defined as the formal interrelating of individuals and

groupings in allocation of tasks, responsibilities and authority to achieve the goals of the
organization. We are examining HOW we bring people together to achieve the
organization goals. What are the main options available to us today?

Organization Structure Alternatives

Functional Organization Structures

This is the form that most organizations start with. The organization forms departments
such as production, sales, R&D, accounting, human resources, etc. Each department has a
separate function and specializes in that and only that area. Management from above
must centrally coordinate the different specialized departments. It is a hierarchical,
usually vertically integrated organizational structure. It emphasizes standardization in
organization and processes for specialized employees in relatively narrow jobs. Value-
added comes from time and cost reductions in mass assembly operations. A 500-
employee manufacturer of luggage might be structured this way.

There are advantages to this specialization. The organization develops experts in their
areas. The luggage designers become very skilled in design, the production people get
flow diagrams down to a science and the accounting department develops a great cost-
tracking program. Individuals are very efficient in that they only perform tasks in which
they are most proficient. This form is logical and easily understood by the employees.

Disadvantages center around coordination … or lack of it. People are in their own
specialized silos and often fail to coordinate with other departments. The luggage is
designed to be beautiful and light but a shortage of the lightweight framing material
negates quick manufacture, the luggage size will not fit under airline seats and the
beautiful luggage covering cuts the profit margin to zero.

Having an appropriate management system to coordinate the departments is essential.

The management system may be a special leader like a vice president, a computer system
or some other format that coordinates the different departments. Decisions are usually
made at the centralized top of the organization.

Product Organization Structures

This form is often used after a functional one ceases to be effective. As the organization
sees a need to develop new products and services, it may change to a product
organization structure. Each product or group of products becomes a separate division or
cost center. For instance, one division might just make Chevrolet cars, another division
might just make Cadillacs. Business decisions are usually made at the top of the
corporate and divisional structures.

The advantages of this product or divisional organization focus on what is needed to

produce those specialized products for that division while still using knowledge gained
from other different, but related, divisions. Design, development, manufacturing and
marketing of similar products fit together and are separate from different products in
different divisions. Products within each division would still usually be standardized.

The disadvantages of this decentralization concern duplication of functions. Each

division often has its own R&D, marketing and other units that could be helping each
other but do not under this structure. In fact, the divisions may be competing against
themselves for the same customers. Also, each division often buys similar supplies in
smaller quantities and therefore pays more per item.

This type of structure is helpful when the product base expands in quantity or complexity.
But when competition among divisions gets significant, the organization is not adapting
fast enough or economies of scale are entirely lacking, it may be time to evolve to a more
sophisticated form—the matrix structure.

Matrix/Project Organization Structures

Matrix organization structures are a combination of the functional and product

organization structures. They have grown out of project structures where employees from
different functions formed teams to work on a project until it was completed; then they
reverted to their own functions again. Think of the matrix structure as the products lining
up on the X axis and the functions lining up on the Y axis. Each of the functions is woven
into each of the products (or product lines). Business decisions are usually made at the
project leader as well as the top corporate and top function levels … but nonetheless
made by leaders and not followers.
Advantages of the matrix structure include a wide range of skills focusing on a specific
project or product and moving quickly for results. Since the manufacturing and marketing
people are also involved with the design people in developing the product, it can be
designed quicker and produced and sold with fewer problems along the way. People from
the different functions can spot problems from their perspective before the design is
finalized. Communications across groups not normally communicating is enhanced to the
organization's betterment.

Disadvantages of matrix organizations include many employees reporting to more than

one boss at a time. This can be confusing and create conflict for employees raised with
the assumption of only one boss. When the function supervisor and the product
supervisor require conflicting demands from the employee, the employee's stress level
increases and performance may decrease.

This type of organization requires greater communication skills and adaptability of

employees. Employees must be assertive, for instance, in dealing with the functional and
product supervisors who each may want some conflicting goals to be achieved. Because
employee teams, as well as products and the environment change, employees must be
willing to be very flexible and adapt quickly to the changes. But there are definite limits
to adaptability within the boxes and lines connecting them even in matrix organizations.

Boundary-less Organization Structures

To deal with change more quickly than even matrix organization structures can,
boundary-less or network organizations have come into existence. This type of structure
did not even exist a decade ago. It is an organization where typical barriers and
organization boxes are eliminated and inside and outside organization units are connected
in effective and changeable ways. Internal company barriers between employees
(departments are replaced by teams) and external barriers (the company and suppliers
work closely together as if all are parts of one company) are eliminated. However, this is
often more of a theoretical and conceptual goal than an actual organization practice.
Although General Electric and other organizations have strived for this team approach
without any formal barriers between employees, it has not entirely been implemented in
practice. Nonetheless, there are some intriguing new organization structures under the
"boundary-less organization structure" umbrella where barriers are minimized.

Modular Organizations/Networks/Clusters

Modular organizations have a core or central hub that coordinates the outside networks of
suppliers or specialists that provide parts of the whole product or service. The network
parts can be owned by the core company or be outsourced companies. The networks are
added or subtracted as the need for their services ebbs and flows or changes. For instance,
Nike's core is relatively stable, but varying subcontractors in other parts of the world
makes its shoes. Gateway Computer buys parts from various computer parts suppliers
and assembles the parts from the outside suppliers at one central core location. Suppliers
at one end and customers at the other end are brought in and made part of the
organization; information and innovations are shared with all. Customization of products
and services is made possible because of flexibility, creativity, teamwork and
responsiveness. Business decisions are made at corporate, divisional, project and also
team levels—made by members of the team itself.

Advantages include minimizing the amount of specialization and specialists needed, as

well as minimizing overhead. The company does not have to be all things to all people to
produce a great product. It can outsource much and coordinate the product's assembly
into a great product.

Disadvantages include concerns about the future actions of suppliers not under the
control of the core management company. The suppliers, or subcontractors, must be able
to have access to most, if not all of the core company's data … and trade secrets; will the
supplier keep the trade secrets? Will the supplier all at once raise prices … or leave the
fold and thus the core company high and dry without those key parts? It may become
difficult to tell where one organization ends and another begins. Coordination and
communication skills are essential here.

Virtual Organizations/Partnerships/Alliances

Where modular organizations were relatively permanent interrelationships among

organizations brought together to build products or provide services, virtual organizations
are much more temporary; they form a temporary liaison to achieve a goal. When the
goal is achieved, they disband. Professional organizations band together to get a law
passed. A rock group like the Rolling Stones goes on tour and uses different employees to
set up the concert in each city. The employees set up the concert as an organization and
then disband after the concert is completed. Virtual organizations have less control over
the parts of their organization. The advantages include having each part of the overall
virtual organization contribute its greatest strength; it can concentrate on providing that
strength. The disadvantages of virtual organizations include an inherent lack of stability
and the continued efforts required to constantly form and reform organizations in optimal
configurations.

Cellular Organizations

Some see an organization structured like living cells—able to live alone but also able to
join other cells to make higher-order entities in synergistic ways. The employees are in a
free-floating cell with minimal rules and constant regeneration (learning) to adapt to the
environment. They are free to attach to other cells or units in mutually advantageous
ways. All individuals and cells are self-organizing, entrepreneurial, continually learning
and improving and seen as being owned by their employees. They spontaneously connect
with others at conferences, electronic mail and via other devices to share new knowledge
and explore new opportunities. New alliances and relationships are constantly formed
both upstream and downstream of the technology, the product and the service. The
innovative products, services and process of inputs and outputs constantly improve as
with living cells.
Since this structure does not really exist in pure form at the present time (except for
maybe an Australian company called Technical and Computer Graphics), it is difficult to
accurately describe advantages and disadvantages. It is important to point out that the
proper (and new) entrepreneurial employee attitude and unique skills will probably be
essential for survival and flourishing in this new type of structure. For instance, new and
high-level technical, governance and collaborative skills will be necessary.

The key to all boundary-less organizations is having employees at all levels being willing
to adapt to new environments. Management must be willing to give up traditional
autocratic control. Management personnel must coach and encourage employees to be
creative and achieve the goals of the organization. Employees must have initiative and
creativity and apply it for the good of the organization. The management
approach/system must allow these things to happen and the reward system must
encourage them to happen.

General Tips For Implementing Organization Structures

Our environment and knowledge are changing at exponential rates. Our organization
structures and we need to adapt to and match those changes. Adaptation places continual
and ever greater stress on employees. Employees need to see the positives of organization
change, to have an attitude (and reinforced positive experiences) welcoming change
rather than resisting it. There is more and more information available about using the
change process to our advantage. The field of compensation is providing more help in
creating a climate valuing change and achievement.

Summary

Since the Industrial Revolution we have gone from stable, vertically integrated,
hierarchical, autocratic organization structures to relatively boundary-less, empowered,
networked organizations that respond quickly with customized products and services.
The future will probably still see some functional, product, matrix and network
organization structures. But by combining concepts like the learning organization, the
knowledge industry, niche marketing, high technology and biotechnology, the
organization of the future may well embody a cellular concept. It may embody free-
forming organization, member ownership and an entrepreneurial approach among all
members of the fluid and ever-learning/changing/improving organization. It may literally
be a living "cell."