Daft (1998) Chapter 6

chapter six
Fundamentals of
Organization Structure
op executives of the North American agrochemicals business of
T Britain's Imperial Chemical Industries met to consider the com-

pany's future. Profits were lousy and inventories were out of con-
trol. Matching a competitor's price cut had just cost $25 million. Things
couldn't get any worse- but then, they did. Executives learned that the
company would be part of a huge deconglomeration, when ICI spun off
its pharmaceutical, agrochemical, and specialty chemical lines. They knew that, unless
things turned around fast, their business might not survive the whirlwind.
Bob Woods presided over a traditional functional organization where managers were
fiercely loyal to their own departments. Coordination between functional departments
had to be improved, but Woods knew an immediate full -scale reorganization would
arouse opposition and take time and money Zeneca didn't have. Everyone, however,
agreed that the cash problem had to be solved, and that's where Woods found his opening.
He first reached below the department heads, creating cross-functional teams of mid level
managers charged with getting working capital under control. Those teams later became
the model for a larger transformation, as Zeneca Ag examined every business process-
from product development to order fulfillment- and reorganized into teams designed to
serve specific customers, for example, corn and soybean farmers. Again, Woods created
teams from the middle, who soon became heroes in the organization as profits and cus-
tomer satisfaction increased. Although some top managers squawked, most supported the
improved departmental cooperation and eventually wanted to join the teams.
Horizontal teams have helped turn things around at Zeneca. The company entered
1995 with profits up 68 percent, head count down just 10 percent, and a leadership team
poised for rapid response to further environmental changes. 1
While Zeneca Ag retains elements of a functional structure, emphasis is on hori-

zontal coordination to promote better and faster communication within the com-
pany and with customers.
Nearly every firm undergoes reorganization at some point, and today, many
companies are almost continuously changing and reorganizing to meet new chal-
lenges. Structural changes are needed as the environment, technology, size or
competitive strategy changes. The challenge for managers is to understand how
to design organization structure to achieve their company's goals.
Purpose of This Chapter

The general concept of organization structure has been discussed in previous
chapters. Structure includes such things as the number of departments in an or-
ganization, the span of control, and the extent to which the organization is for-
malized or centralized. The purpose of this chapter is to bring together these
ideas to show how to design structure as it appears on the organization chart.
201
202 part three • Organization Structure and Design
The material on structure is presented in the following sequence. First, struc-

ture is defined. Second, an information-processing perspective on structure ex-
plains how vertical and horizontal linkages are designed to provide needed
information capacity. Third, basic organization design options are presented.
Fourth, strategies for grouping organizational activities into functional, divi-
sional, hybrid, or matrix structures are discussed. By the end of this chapter, you
will understand how organization structure can help companies like Zeneca
achieve their goals.
STRUCTURE AND STRATEGY
Organization structure is reflected in the organization chart. The organization

chart is the visible representation for a whole set of underlying activities and
processes in an organization. The three key components in the definition of or-
ganization structure are:
1. Organization structure designates formal reporting relationships, including

the number of levels in the hierarchy and the span of control of managers
and supervisors.
2. Organization structure identifies the grouping together of individuals into
departments and of departments into the total organization.
3. Organization structure includes the design of systems to ensure effective
communication, coordination, and integration of effort across departments. 2
These three elements of structure pertain to both vertical and horizontal as-
pects of organizing. For example, the first two elements are the structural frame -
work, which is the vertical hierarchy drawn on the organization chart. 3 The third
element pertains to the pattern of interactions among organizational employees.
An ideal structure encourages employees to provide horizontal information and
coordination where and when it is needed.
Exhibit 6.1 illustrates that structural design is influenced by the environment,
goals, technology, and size. Each of these key contextual variables was discussed
at length in previous chapters. Recall that an environment can be stable or
unstable; management's goals and strategies may stress internal efficiency or
adaptation to external markets; production technologies can be routine or non-
routine; and an organization's size may be large or small. Each variable influ-
ences the correct structural design. Moreover, environment, technology, goals,
and size may also influence one another, as illustrated by the connecting lines
among these contextual variables in Exhibit 6.1. Human processes (such as lead-
ership and culture) within the organization also influence structure as indicated
in the center of Exhibit 6.1. These processes will be discussed in later chapters.
Of these contextual variables, the connection between competitive strategy
and structure is of particular interest and has been widely studied. Structure typ-
ically reflects organizational strategy, and a change in product or market strategy
frequently leads to a change in structure.4 Once a company formulates a strategy
by which it plans to achieve an advantage in the marketplace, leaders design or
redesign the structure to coordinate organizational activities to best achieve that
advantage. For example, an organization that adopts a strategy to produce a sin-
gle or only a few products or services for a limited market generally operates
chapter six • Fundamentals of Organization Structure 203
Exhibit 6.1
Organization Contex-
tual Variables That
Influence Structure
Structure SIJe
Chapter 6 Chapter 6
Strategy, Goals Technology

Chapter 2 Chapter 4
Environment
Chapter3
Source: 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.
well with a centralized, functional structure. Organizational goals stress internal

efficiency and technical quality. Apple Computer in the 1980s provides an exam-
ple: the company essentially produced a single product, the Macintosh, that was
sold to a single type of customer, computer dealers. 5
Often, a company's strategy will evolve to the greater complexity of produc-
ing multiple products or services and expanding to new markets. When organiza-
tions diversify, structure may evolve into a decentralized, divisional form to
promote flexibility and speed decision making. Goals stress adaptation to the
external environment. In the late 1980s, under John Sculley's leadership, Apple
Computer shifted to a structure based on geographic divisions to facilitate man-
ufacture and sales of a variety of computers to a larger customer base worldwide.
Exhibit 6.2 illustrates the difference between the functional and the divisional
structure as reflected in the organization chart.
Sometimes, an organization faces a simultaneous need for internal efficiency
(a strength of the functional strudture) and for external adaptation (a strength of
the divisional structure). Strategy in this case may require that the organization
evolve to the matrix structure, the most well-known dual-reporting structure
used by organizations, also illustrated in Exhibit 6.2. The matrix and other basic
organization designs will be discussed in detail later in this chapter.
Exhibit 6 .2
Three Fun-
1. Functional Structure 2. Divisional Structure
damental
Approaches to
Structural Design
3. Matrix Structure
INFORMATION-PROCESSING PERSPECTIVE ON STRUCTURE
The concepts in previous chapters- technology, goals, environment, size-

impose different information-processing requirements on organizations. A
nonroutine technology or an uncertain environment, for example, requires em-
ployees to process more information to understand and respond to unexpected
events. Reciprocal interdependence between departments requires substantially
more communication and coordination than is needed for pooled interdepen-
dence. Thus, the organization must be designed to encourage information flow in
both vertical and horizontal directions necessary to achieve the organization's
Exhibit 6.3
Information-processing Information-
0rg~nizatlonal
capC~city of structural
information-processing Processing
desjgn choices -
requirements of goals,
vertical and horizontal
Approach to
environment, technology, Strudural
linkages, departmental
and size
grouping Design
Organizational
effectiveness
Source: Based on Richard L. Daft and Robert H. Lengel, "Organizational Information Requirements,
Media Richness and Structural Design," Management Science 32 (1986): 554-71; and David Nadler
and Michael Tushman, Strategic Organization Design (Glenview, Ill.: Scott Foresman, 1988).
overall task. 6 Exhibit 6.3 illustrates how structure should fit the information re-
quirements of the organization. If it does not, people will either have too little in-
formation or will spend time processing information not vital to their tasks, thus
reducing effectiveness. 7
Vertical Information Linkages

Organization design should facilitate the communication among employees and
departments that is necessary to accomplish the organization's overall task.
Linkage is defined as the extent of communication and coordination among or-
ganizational elements. Vertical linkages are used to coordinate activities between
the top and bottom of an organization. Employees at lower levels should carry
out activities consistent with top-level goals, and top executives must be in-
formed of activities and accomplishments at the lower levels. Organizations may
use any of a variety of structural devices to achieve vertical linkage, including hi-
erarchical referral, rules and procedures, plans and schedules, positions or levels
added to the hierarchy, and formal management information systems.8
Hierarchical Referral. The first vertical device is the hierarchy, or chain of

command, which is illustrated by the vertical lines in Exhibit 6.2. If a problem
arises that employees don't know how to solve, it can be referred up to the next
level in the hierarchy. When the problem is solved, the answer is passed back
down to lower levels. The lines of the organization chart act as communication
channels.
Rules and Plans. The next linkage device is the use of rules and plans. To the
extent that problems and decisions are repetitious, a rule or procedure can be es-
tablished so employees know how to respond without communicating directly
with their manager. Rules provide a standard information source enabling em-
ployees to be coordinated without actually communicating about every job. A
plan also provides standing information for employees. The most widely used
plan is the budget. With carefully designed budget plans, employees at lower lev-
els can be left on their own to perform activities within their resource allotment.
Exhibit 6.4
Ladder of Mechanisms
fo r Vertical Linkage
and Control c
0
·;;c,
0 Vertical information
systems
·-'E! ·-e Add positions to hierarchy

0 ::1
o cr
~&
=-e
.!:!
't1:
Rules and plans
~ 0
...0,
u
Hierarchical referral
e cca
Ql
en
Ql
C Low
~L-o-w------------------------------------"~
Information Capacity of Linkage Mechanism
Add Positions to Hierarchy. When many problems occur, planning and hierar-
chical referral may overload managers. In growing or changing organizations, ad-
ditional vertical linkages may be required. One technique is to add positions to
the vertical hierarchy. In some cases, an assistant will be assigned to help an over-
loaded manager. In other cases, positions in the direct line of authority may be
added. Such positions reduce the span of control and allow closer communica-
tion and control.
Vertical Information Systems. Vertical information systems are another strat-

egy for increasing vertical information capacity. Vertical information systems
include the periodic reports, written information, and computer-based communi-
cations distributed to managers. Information systems make communication up
and down the hierarchy more efficient. For example, Chairman Bill Gates of Mi-
crosoft communicates regularly with employees through his company's elec-
tronic mail system. He responds to a dozen individual messages each day. At
Xerox, some forty thousand customers are polled each month, and this data is
aggregated, summarized, and transferred up the hierarchy to managers.
Summary. Structural mechanisms that can be used to achieve vertical linkage

and coordination are summarized in Exhibit 6.4. These structural mechanisms
represent alternatives managers can use in designing an organization. Depend-
ing upon the amount of coordination needed in the organization, several of the
linkage mechanisms in Exhibit 6.4 may be used.
Horizontal Information Linkages

Horizontal communication overcomes barriers between departments and pro-
vides opportunities for coordination among employees to achieve unity of
effort and organizational objectives. Horizontal linkage refers to the amount

of communication and coordination horizontally across organizational de-
partments. Its importance was discovered by Lee Iacocca when he took over
Chrysler Corporation.
What I found at Chrysler were thirty-five vice presidents, each with his own turf.... I
couldn't believe, for example, that the guy running engineering departments wasn't in
constant touch with his counterpart in manufacturing. But that's how it was. Everybody
worked independently. I took one look at that system and I almost threw up. That's
when I knew I was in really deep trouble .
. . . Nobody at Chrysler seemed to understand that interaction among the different
functions in a company is absolutely critical. People in engineering and manufacturing
almost have to be sleeping together. These guys weren't even flirting! 9
Today, horizontal communication has evolved to a high level at Chrysler and

has had a significant positive impact. Chrysler puts everyone who's working on
a specific vehicle project- designers, engineers, and manufacturers, along with
representatives from marketing, finance, purchasing, and even outside suppli-
ers-together on a single floor. The team concept has significantly improved
horizontal coordination to help Chrysler become the world's most successful
automaker. 10
The need for horizontal coordination increases as the amount of uncertainty
increases, such as when the environment is changing, the technology is nonrou-
tine and interdependent, and goals stress innovation and flexibility. Horizontal
linkage mechanisms often are not drawn on the organization chart, but neverthe-
less are part of organization structure. The following devices are structural alter-
natives that can improve horizontal coordination and information flow. 11 Each
device enables people to exchange information.
Information Systems. A significant method of providing horizontal link-

age in today 's organizations is the use of cross-functional information sys-
tems. Computerized information systems can enable managers or front-line
workers throughout the organization to routinely exchange information
about problems, opportunities, activities, or decisions. Bow Valley Energy, a
$264 million exploration and production company, redesigned its computer
information system to improve cross-functional information flow among
its geologists, geophysicists, production engineers, and contract managers
worldwide.12
Direct Contact. A somewhat higher level of horizontal linkage is direct con-

tact between managers or employees affected by a problem. To revive customer
loyalty by improving service and quality, CEO Louis Morris began encourag-
ing communication across department lines at Simplicity Pattern Company, so
that creative design managers were talking with managers in sales and financ-
ing.13 One way to promote direct contact is to create a special liaison role. A
liaison person is located in one department but has the responsibility for com-
municating and achieving coordination with another department. Liaison roles
often exist between engineering and manufacturing departments because engi-
neering has to develop and test products to fit the limitations of manufacturing
facilities.
Task Forces. Direct contact and liaison roles usually link only two depart-
ments. When linkage involves several departments, a more complex device such
as a task force is required. A task force is a temporary committee composed of
representatives from each department affected by a problem. 14 Each member
represents the interest of a department and can carry information from the
meeting back to that department.
Task forces are an effective horizontal linkage device for temporary issues.
They solve problems by direct horizontal coordination and reduce the informa-
tion load on the vertical hierarchy. Typically, they are disbanded after their tasks
are accomplished.
Xerox used a task force of twenty hand-picked members to develop its appli-
cation for the Malcolm Baldrige National Quality Award. Book publishers coor-
dinate the editing, production, advertising, and distribution of a special book
with a temporary task force.
Full-time Integrator. A stronger horizontal linkage device is to create a full-

time position or department solely for the purpose of coordination. A full-time
integrator frequently has a title, such as product manager, project manager, pro-
gram manager, or brand manager. Unlike the liaison person described earlier,
the integrator does not report to one of the functional departments being coor-
dinated. He or she is located outside the departments and has the responsibility
for coordinating several departments.
The brand manager for Planters Peanuts, for example, coordinates the sales,
distribution, and advertising for that product. Gillette Company created prod-
uct line managers for multinational coordination. A product line manager coor-
dinates marketing and sales strategies for Trac II across fifteen countries,
achieving savings by using similar advertising and marketing techniques in each
country. As part of its recent restructuring, General Motors is setting up brand
managers who will be responsible for marketing and sales strategies for each of
GM's new models.15
The integrator can also be responsible for an innovation or change project,
such as developing the design, financing, and marketing of a new product. An or-
ganization chart that illustrates the location of project managers for new product
development is shown in Exhibit 6.5. The project managers are drawn to the
side to indicate their separation from other departments. The arrows indicate
project members assigned to the new product development. New Product A,
for example, has a financial accountant assigned to keep track of costs and
budgets. The engineering member provides design advice, and purchasing and
manufacturing members represent their areas. The project manager is respon-
sible for the entire project. He or she sees that the new product is completed
on time, is introduced to the market, and achieves other project goals. The hor-
izontal lines in Exhibit 6.5 indicate that project managers do not have formal
authority over team members with respect to giving pay raises, hiring, or fir-
ing. Formal authority rests with the managers of the functional departments,
who have formal authority over subordinates.
Integrators need excellent people skills. Integrators in most companies
have a lot of responsibility but little authority. The integrator has to use exper-
tise and persuasion to achieve coordination. He or she spans the boundary be-
tween departments and must be able to get people together, maintain their
trust, confront problems, and resolve conflicts and disputes in the interest
of the organization. 16 The integrator must be forceful in order to achieve co-
Exhibit 6.5
Project Manager President
Location in the
Structure
I I I I
Finance Engineering Purchasing Marketing
Department Department Department Department
Anancl!ll Project
Accountant Product
Designer Buyer
Market
Manager-
New
Product A
-
Researcher
Budget Project
Analyst Draftsperson Manager-
Buyer
Advertising ~
Specialist
.... New
Product B
~
Management Project
Accountant Electrical Manager-
Designer Buyer New
-
Market Planner ~ ProductC
ordination, but must stop short of alienating people in the line departments.
Some organizations, such as General Mills, have several integrators working
simultaneously.
General Mills In Practice 6.1

"When General Mills completed a ten-story tower at its suburban Minneapolis headquar-
ters last summer, the company discovered that not all the telephones could be installed at
once. 'Hook up the product managers' first,' the senior executive ordered. 'The business
can't run without them.' " 17
General Mills assigns a product manager to each of the more than twenty-five prod -
ucts in its line, including Cheerios, Wheaties, Bisquick, Softasilk Cake Mix, Stir-n-Frost
Icing, Hamburger Helper, and Gold Medal Flour. Brand managers are also assigned to
develop new products, name them, and test them in the marketplace.
Product managers at General Mills act as if they are running their own businesses.
They set marketing goals and plot strategies to achieve those goals. They are responsible
for product success, but they have no authority. Product management is management by
persuasion. A good product manager is vibrant, challenging, and a little abrasive. He or
she has to be to get things done without the aid of formal authority.
If the product manager for Cocoa Puffs needs special support from the sales force and ad-
ditional output from the plant for a big advertising campaign, she has to sell the idea to peo-
ple who report to managers in charge of sales and manufacturing. Product managers work
laterally across the organization rather than within the vertical structure. When the product
manager for Crispy Wheats 'n Raisins decides the product needs different packaging, a new
recipe, a more focused commercial, or new ingredients, he must convince the departments to
210 part three • Organization Stru cture and Design
pay attention to his brand. The product manager can also expect to work with the procure-
I ment department, a controller, and the research lab at some point during the year. 18
The product managers at General Mills are full-time integrators. They coordi-
nate marketing, manufacturing, purchasing, research, and other functions rele-
vant to their product lines. They provide horizontal linkages by persuading
diverse departments to focus on the needs of their products. General Mills has
been very profitable in a highly competitive industry, and one reason is the role
played by product managers.
Teams. Project teams tend to be the strongest horizontal linkage mechanism.

Teams are permanent task forces and are often used in conjunction with a full-
time integrator. When activities between departments require strong coordina-
tion over a long period of time, a cross-functional team is often the solution.
Special project teams may be used when organizations have a large-scale project,
a major innovation, or a new product line, such as Chrysler's Neon.
Boeing used around 250 teams to design and manufacture the new 777 air-
craft. Some teams were created around sections of the plane, such as the wing,
cockpit, or engines, while others were developed to serve specific customers, such
as United Airlines or British Airways. Boeing's teams had to be tightly integrated
and coordinated to accomplish this massive project. Even the U.S. Department
of the Navy has discovered the power of cross-functional teams to improve hori-
zontal coordination and increase productivity. 19
The Rodney Hunt Company develops, manufactures, and markets heavy in-
dustrial equipment and uses teams to coordinate each product line across the
manufacturing, engineering, and marketing departments. These teams are illus-
trated by the dashed lines and shaded areas in Exhibit 6.6. Members from each
team meet the first thing each day as needed to resolve problems concerning cus-
tomer needs, backlogs, engineering changes, scheduling conflicts, and any other
problem with the product line.
A more intense use of teams was adopted by Hewlett-Packard's Terminals
Division when the division found itself unable to compete in the fast-changing
electronics industry. Permanent teams were combined with other linkage mecha-
nisms to achieve remarkable coordination.
In Practice 6.2 Hewlett-Packard Terminals Division

The Terminals Division was created in 1983 to design and produce terminals for Hewlett-
Packard systems, low-end personal computers, and video display systems. Although its ter-
minals were ranked high in quality, they were quite expensive, and the division began rapidly
losing market share to low-cost producers by 1985. Rather than sourcing terminals from the
Far East, managers decided to radically alter the way the division did business to become a
world-class, low-cost manufacturer and serve new customers on a global scale.
Close coordination and communication among all functions was needed to achieve the
goal of becoming the highest quality, lowest cost producer, and even greater coordination
was required to reduce the design and manufacturing time for development of a new
global product. Cross-functional teams provided the solution. A cross-functional program
team was created to serve as the integrating mechanism for a number of other teams, in-
cluding a hardware design team, a software development team, and a team for the local-
ization of hardware and software to meet various requirements in different countries. The
hardware team was further subdivided into manufacturing teams around several assembly
Exhibit 6 .6
Teams Us edfor President
Horizonta l Coordi-
nation at Rodney
Hunt Com pany I
I I I
Marketing Engineering Manufacturing
Vice President Vice President Vice President
I J 1
I
--- r- - Water Control Water Control r--- --- Foundry
f 1-----, Equipment Equipment - General
-l
~
f
I
w ater Sales Manager Chief Engineer Supervisor
I Co ntrol
I
iI
Pro duct
Te am Machine Shop
II
I - General I
I
L--- --- - ----------------- ----------------- -- Supervisor 1- _J
r:
I
I
xtile
Pro duct
Te am
f---.'
Textile Machinery
Domestic
Sales Manager
'---
Textile Machinery
Chief Engineer
,...---
Stainless Steel
General
Supervisor
l
I I
I Textile
I
I
[ __ _----1---
---
Machinery
Export Manager - - ----------------- --------------- _J
I
Customer Service, Shipping and Yard

Advertising
'--
Manager
- Purchasing, - Supervisor
Production Manager
processes. In addition, there was a team for each major component that was to be pur-
chased and a negotiating team to negotiate contracts for components to be shared across
the division. Team members were carefully selected based on the goal of integrating prod-
ucts across functions, products across geographies, and components across products.
The program team responsible for coordinating all other teams was led by a program
manager, who served as a full-time integrator and was chosen for his leadership abilities and
his good relationships with all functional departments. Sharing leadership responsibilities
with the program manager were two "architects," generalists who knew a great deal about
hardware, software, and systems integration. Several engineers also served as liaisons between
the hardware and software teams and between the localization teams and the design teams.
This complex, multidimensional team structure served its purpose. The division achieved
the development of a new global product, dramatically reduced the cost of design and manu-
facture, and compressed development time to only eighteen months. The success of the effort
led to refinements of the process to be used in developing future Hewlett-Packard products. 20
Exhibit 6.7
Ladder of Mechanisms
for Horizontal Linkage
0 jTeams j
and Coordination
_,
111 I!!
Q I Full-time integrators
=·-g
0 ::1
.!:!
"IIC
0 c
0 I Task forces I
:z:
... ·-
0~
0
!·5
a~"E!
Direct contact
cGl u00
Information systems
Low
~~-w----------------~
Information Capacity of Linkage Mechanism
Summary. The mechanisms for achieving horizontal linkages in organizations

are summarized in Exhibit 6.7. These devices represent alternatives that man-
agers can select to achieve horizontal coordination in any organization. The
higher level devices provide more horizontal information capacity. If communi-
cation is insufficient, departments will find themselves out of synchronization,
and they will not contribute to the overall goals of the organization.
ORGANIZATION DESIGN ALTERNATIVES
The overall design of organization structure indicates three things- needed

work activities, reporting relationships, and departmental groupings.
Define Work Activities

Departments are created to perform tasks considered strategically important to
the company. For example, when moving huge quantities of supplies in the Per-
sian Gulf, the U.S. Army's logistics commander created a squad of fifteen soldiers
called Ghostbusters who were charged with getting out among the troops, identi-
fying logistics problems, and seeing that the problems got fixed. The fiberglass
group at Manville set a priority on growth and, hence, created a department that
was simply called Growth Department. Defining a specific department is a way
to accomplish tasks deemed valuable by the organization to accomplish its goals.
Reporting Relationships
Reporting relationships, often called the chain of command, are represented by
vertical lines on an organization chart. The chain of command should be an un-
broken line of authority that links all persons in an organization and shows who
reports to whom. In a large organization like Standard Oil Company, one hun-
dred or more charts are required to identify reporting relationships among thou-
sands of employees. The definition of departments and the drawing of reporting
relationships defines how employees are to be grouped into departments.
Departmental Grouping Options

Options for departmental grouping, including functional grouping, divisional
grouping, geographic grouping, and multifocused grouping, are illustrated in Ex-
hibit 6.8. Departmental grouping has impact on employees because they share a
common supervisor and common resources, are jointly responsible for perform-
ance, and tend to identify and collaborate with one another. 21 For example, at
Exhibit 6 .8
Structural Design
Options for Grouping
Employees into
Manufacturing Departments
Source: Adapted from David Nadler and Michael Tush man, Strategic Organization Design
(Glenview, Ill.: Scott Foresman, 1988), 68.
Albany Ladder Company, the credit manager was shifted from the finance de-
partment to the marketing department. By being grouped with marketing, the
credit manager started working with sales people to increase sales, thus becom-
ing more liberal with credit than when he was located in the finance department.
Functional grouping places employees together who perform similar func-
tions or work processes or who bring similar knowledge and skills to bear. For
example, all marketing people would work together under the same supervisor,
as would manufacturing and engineering people. All people associated with the
assembly process for generators would be grouped together in one department.
All chemists may be grouped in a department different from biologists because
they represent different disciplines.
Divisional Grouping means people are organized according to what the or-
ganization produces. All people required to produce toothpaste- including the
marketing, manufacturing, and salespeople- are grouped together under one ex-
ecutive. In huge corporations such as PepsiCo, the product lines may represent
independent businesses, such as Taco Bell, Frito Lay, and Pepsi Cola.
Geographic grouping means resources are organized to serve customers or
clients in a particular geographical area. For example, all the activities required
to serve the eastern United States or Canada or Latin America might be grouped
together. This grouping focuses employees on meeting the specific needs of cus-
tomers in a particular country or region.
Multifocused grouping means an organization embraces two structural group-
ing alternatives simultaneously. These structural forms are often called matrix or
hybrid and will be discussed in more detail later in this chapter. An organization
may need to group by function and product division simultaneously or perhaps
by product division and geography.
The organizational forms described in Exhibit 6.8 provide the overall options
within which the organization chart is drawn and the detailed structure is de -
signed. Each structural design alternative has significant strengths and weak-
nesses, to which we now turn.
FUNCTIONAL, DIVISIONAL, AND GEOGRAPHICAL DESIGNS
Functional grouping and divisional grouping are the two most common ap-
proaches to structural design.
Functional Structure
In a functional structure, activities are grouped together by common function
from the bottom to the top of the organization. All engineers are located in the
engineering department, and the vice president of engineering is responsible for
all engineering activities. The same is true in marketing, research and develop-
ment, and manufacturing. An example of the functional organization structure is
shown in part 1 of Exhibit 6.2 earlier in this chapter.
Exhibit 6.9 summarizes the organizational characteristics typically associated
with the functional structure. This structure is most effective when the environment
is stable and the technology is relatively routine with low interdependence across
functional departments. Organizational goals pertain to internal efficiency and
technical specialization. Size is small to medium. Each of these characteristics is as-
sociated with a low need for horizontal coordination. The stable environment, rou-
Exhibit 6.9
, Context
Summary of Func·
Structure: Functional tiona! Organization
Environment: Low uncertainty, stable Characten'stics
Technology: Routine, low interdependence
Size: Small to medium
Strategy, goals: Internal efficiency, technical quality
Internal Systems
Operative goals: Functional goal emphasis

Planning and budgeting: Cost basis-budget, statistical reports
Formal authority: Functional managers
Strengths
1. Allows economies of scale within functional departments

2. Enables in-depth s~ill development
3. Enables organization to accomplish functional goals
4. Is best in small to medium-sized organizations
5. Is best with only one or a few products
Weaknesses
1. Stow response time to environmental changes

2. May cause decisions to pile on top, hierarchy overload
3. Leads to poor horizontal coordination among departments
4. Results in less innovation
5. 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.
tine technology, internal efficiency, and small size mean the organization can be
controlled and coordinated primarily through the vertical hierarchy. Within the or-
ganization, employees are committed to achieving the operative goals of their re-
spective functional departments. Planning and budgeting is by function and reflects
the cost of resources used in each department. Formal authority and influence
within the organization rests with upper managers in the functional departments.
One strength of the functional structure is that it promotes economy of scale
within functions. Economy of scale means all employees are located in the same
place and can share facilities. Producing all products in a single plant, for exam-
ple, enables the plant to acquire the latest machinery. Constructing only one fa-
cility instead of separate facilities for each product line reduces duplication and
waste. The functional structure also promotes in-depth skill development of em-
ployees. Employees are exposed to a range of functional activities within their
own department. The functional form of structure is best for small to medium-
sized organizations when only one or a few products are produced. 22
The main weakness of the functional structure is a slow response to environ-
mental changes that require coordination across departments. If the environ-
ment is changing or the technology is nonroutine and interdependent, the
vertical hierarchy becomes overloaded. Decisions pile up, and top managers do
not respond fast enough. Other disadvantages of the functional structure are that
innovation is slow because of poor coordination, and each employee has a re-
stricted view of overall goals.
Consider how the functional structure provides the coordination Blue Bell
Creameries needs.
In Practice 6.3 Blue Bell Creameries, Inc.

Within seconds, the old-timer on the radio had taken listeners out of their bumper-to-
bumper Houston world and placed them gently in Brenham, Texas, with its rolling hills
and country air, in the era when the town got its first traffic light.
"You know," he said, "that's how Blue Bell Ice Cream is. Old-fashioned, uncompli-
cated, homemade good." He paused. "It's all made in that little creamery in Brenham."
That little creamery isn't little anymore, but the desire for first-quality homemade ice
cream is stronger than when Blue Bell started in 1907. Today, Blue Bell has more than
eight hundred employees and will sell over $160 million in ice cream. The company has an
unbelievable 60 percent share of the ice cream market in Houston, Dallas, and San Anto-
nio-Texas's three largest cities.
The company cannot meet the demand for Blue Bell Ice Cream. It doesn't even try.
Top managers recently decided to expand slowly into Louisiana and Oklahoma. Manage-
ment refuses to compromise quality by expanding into regions that cannot be adequately
serviced or by growing so fast that it can't adequately train employees in the art of mak-
ing ice cream.
Blue Bell's major departments are sales, quality control, production, maintenance, and
distribution. There is also an accounting department and a small research and develop -
ment group. Product changes are infrequent because the orientation is toward tried-and-
true products. The environment is stable. The customer base is well established. The only
change has been the increase in demand for Blue Bell Ice Cream.
Blue Bell's quality control department tests all incoming ingredients and ensures that
only the best products go into its ice cream. Quality control also tests outgoing ice cream
products. After years of experience, quality inspectors can taste the slightest deviation
from expected quality. It's no wonder Blue Bell has successfully maintained the image of
a small-town creamery making homemade ice cream. 23
The functional structure is just right for Blue Bell Creameries. The or-
ganization has chosen to stay medium-sized and focus on making a single
product-quality ice cream. However, as Blue Bell expands, it may have prob-
lems coordinating across departments, requiring stronger horizontal linkage
mechanisms.
Functional Structure with Horizontal Linkages

Today, there is a shift toward flatter , more horizontal structures because of the
uncertain environment. Very few of today's successful companies can maintain a
strictly functional structure. Organizations compensate for the vertical functional
hierarchy by installing horizontal linkages, as described earlier in this chapter.
Managers improve horizontal coordination by using information systems, direct
contact between departments, full-time integrators or project managers (illus-
trated in Exhibit 6.5), task forces, or teams (illustrated in 6.6). Not-for-profit
organizations are also recognizing the importance of horizontal linkages. An in-
teresting example occurred at Karolinska Hospital in Stockholm, Sweden, where
horizontal linkage mechanisms have dramatically improved productivity as well
as patient care.
Karolinska Hospital In Practice 6.4

When Karolinska faced a 20 percent cut in state funding in the early 1990s, the hospital's
then chief executive Jan Lindsten knew dramatic action was needed to maintain the qual-
ity of patient care. The hospital had only recently been through a major reorganization,
which had created forty-seven separate functional departments, each marching to their
own beat. Lindsten cut that number down to eleven, but coordination was still woefully
inadequate. Patients had to scale the high walls between departments, often making mul-
tiple ali-day visits to Karolinska for tests and procedures- in general, only 2 percent of
the time a patient spent at the hospital involved actual treatment. So Lindsten and a con-
sulting group set about to reorganize workflow at the hospital around patient care- in-
stead of bouncing a patient from department to department, Karolinska now envisions
the illness to recovery period as a process with pit stops in admissions, X ray, surgery, etc.
For example, a patient now meets a surgeon and a doctor of internal medicine together
rather than separately.
The most interesting aspect of Karolinska's approach was the creation of the new posi-
tion of "nurse coordinator." Nurse coordinators serve as full-time integrators, looking for
situations where the baton is dropped in the hand off between or within departments. This
has created new career opportunities for nurses, but it's a difficult position and nurse co -
ordinators need strong people skills to handle the inevitable conflicts. In effect, doctors at
Karolinska are now reporting to nurses, a shift in thinking that has not always been easy
for either side.
However, nurse coordinators free doctors from administrative and scheduling matters
and allow them to concentrate on clinical work and research. Horizontal linkages have
dramatically improved performance at Karolinska. Even though three out of fifteen oper-
ating theaters have been closed due to funding cuts, the high coordination has enabled the
hospital to perform three thousand more operations annually, a 25 percent increase. On
the patient side, things look better too. Waiting times for surgery have been reduced from
eight months to only three weeks. 24
Karolinska Hospital is using horizontal linkages to overcome some of the dis-

advantages of the functional structure. Full-time integrators span the boundaries
between departments and coordinate activities to serve the needs of patients as
well as the interests of the organization. We will talk more about this trend to-
ward horizontal organizing in the next chapter.
Divisional Structure
The term divisional structure is used here as the generic term for what is some-
times called a product structure or strategic business units. With this structure,
divisions can be organized according to individual products, services, product
groups, major projects or programs, divisions, businesses, or profit centers. The
distinctive feature of a divisional structure is that grouping is based on organiza-
tional outputs.
The difference between a divisional structure and a functional structure is il-
lustrated in Exhibit 6.10. The functional structure can be redesigned into sepa-
rate product groups, and each group contains the functional departments of
R&D, manufacturing, accounting, and marketing. Coordination across functional
departments within each product group is maximized. The divisional structure
promotes flexibility and change because each unit is smaller and can adapt to the
Exhibit 6 .10
Reorganization from Functional Structure to Divisional Structure at Info· Tech
Functional
Structure
Info-Tech
President
I
I I I I
R&D Manufacturing Accounting Marketing
Divisional
St~cture
Info-Tech
President
Electronic Office Virtual

Publishing Automation Reality
needs of its environment. Moreover, the divisional structure decentralizes deci -

sion making, because the lines of authority converge at a lower level in the hier-
archy. The functional structure, by contrast, forces decisions all the way to the top
before a problem affecting several functions can be resolved.
The divisional structure fits the context summarized in Exhibit 6.1P5 This
form of structure is excellent for achieving coordination across functional de-
partments. When the environment is uncertain, the technology is nonroutine and
interdependent across departments, and goals are external effectiveness and
adaptation, then a divisional structure is appropriate.
Large size is also associated with divisional structure. Giant, complex organi-
zations such as General Electric, PepsiCo, and Johnson & Johnson are subdi-
vided into a series of smaller, self-contained organizations for better control and
coordination. In these large companies, the units are sometimes called divisions,
businesses, or strategic business units. The structure at Johnson & Johnson in-
cludes 168 separate operating units, including McNeil Consumer Products, mak-
ers of'JYlenol; Ortho Pharmaceuticals, which makes Retin-A and birth control
pills; and J & J Consumer Products, the company that brings us Johnson's
I
Context
Exhibit 6.11
Summary of
Structure: Divisional Divisional
Environment: Moderate to high uncertainty, changing
Organization
Technology: Nonroutine, high interdependence among departments
Size: Large Characteristics
Strategy, goals: External effectiveness, adaptation, client satisfaction
Internal Sy~.tem!;
Operative goals: Product line emphasis

Planning and budgetiflg: Profit center basis-cost and income
Formal authority: Product managers
1. Suited to fast change in unstable environment

2. Leads to client satisfaction because product responsibility and contact
points are clear
3. Involves high coordination across functions
4. Allows units to adapt to differences in products, regions, clients
5. Best in large organizations with several products
6. Decentralizes decision making
1. Eliminates economies of scale in functional departments

2. Leads to poor coordination across product lines
3. Eliminates in-depth competence and technical specialization
4. Makes integration and standardization across product lines difficult
Baby Shampoo and Band-Aids. Each division is a separately chartered, au-

tonomous company operating under the guidance of Johnson & Johnson's cor-
porate headquarters. 26
Another example of a divisional structure is Time Warner, Inc. Principal op-
erating divisions include Warner Music, the world's largest record company,
including the labels Warner Brothers, Elektra, and Atlantic; HBO, the leading
pay cable television channel; Warner Brothers, maker of movies such as Bat-
man Forever and television series such as Friends; and Time, Inc., which in-
cludes magazine publishers for Time, Fortune, and People as well as book
publishers such as Little, Brown & Company.2 7
The divisional structure has several strengths. It is suited to fast change in an
unstable environment and provides high product visibility. Since each product is
a separate division, clients are able to contact the correct division and achieve
satisfaction. Coordination across functions is excellent. Each product can adapt
to requirements of individual customers or regions. The divisional structure typi-
cally works best in organizations that have multiple products or services and
enough personnel to staff separate functional units. At corporations like Johnson
& Johnson and PepsiCo, decision making is pushed down to the lowest levels.
Each division is small enough to be quick on its feet, responding rapidly to
changes in the market.
One disadvantage of using divisional structuring is that the organization loses

economies of scale. Instead of fifty research engineers sharing a common facility
in a functional structure, ten engineers may be assigned to each of five product
divisions. The critical mass required for in-depth research is lost, and physical fa-
cilities have to be duplicated for each product line. Another problem is that
product lines become separate from each other, and coordination across product
lines can be difficult. As one Johnson & Johnson executive said, "We have to
keep reminding ourselves that we work for the same corporation"28
Companies such as Hewlett-Packard, Xerox, and Digital Equipment have a
large number of divisions and have had real problems with horizontal coordi-
nation. The software division may produce programs that are incompatible
with business computers sold by another division. Customers are frustrated
when a sales representative from one division is unaware of developments in
other divisions. Task forces and other linkage devices are needed to coordinate
across divisions. A lack of technical specialization is also a problem in a divi-
sional structure. Employees identify with the product line rather than with a
functional specialty. R&D personnel, for example, tend to do applied research
to benefit the product line rather than basic research to benefit the entire
organization.
Geographical Structure
Another basis for structural grouping is the organization's users or customers.
The most common structure in this category is geography. Each region of the
country may have distinct tastes and needs. Each geographic unit includes all
functions required to produce and market products in that region. For multina-
tional corporations, self-contained units are created for different countries and
parts of the world.
As discussed earlier in the chapter, Apple Computer reorganized from a func-
tional to a geographical structure to facilitate manufacture and delivery of Apple
computers to customers around the world. Exhibit 6.12 contains a partial organi-
zation structure illustrating the geographical thrust. Apple used this structure to
focus managers and employees on specific geographical customers and sales tar-
gets. In Canada, department stores frequently use a geographical structure with a
separate entity for Quebec because customers there are physically smaller, use a
different language, and have different tastes than those in Ontario or the Mari-
time Provinces. The regional structure allows Apple or a Canadian department
store chain to focus on the needs of customers in a geographical area.
The strengths and weaknesses of a geographic divisional structure are similar
to the divisional organization characteristics listed in Exhibit 6.11. The organiza-
tion can adapt to specific needs of its own region, and employees identify with
regional goals rather than with national goals. Horizontal coordination within a
region is emphasized rather than linkages across regions or to the national office.
HYBRID STRUCTURE
As a practical matter, many structures in the real world do not exist in the pure
form of functional, divisional, or geographic. An organization's structure may be
multifocused in that both product and function, or product and geography, are
Exh ibit 6 . 12
Geographical Structure CEO
for Apple Computer .lolln Sculley
I I
.. } "''Ap'ft.[ ';,.~ Apple Apple Apple
Products USA Europe Pacific
~ ,---J
Europe
- West r--- Canada
Sales
Europe
Service and - North
r--- AuStralia
Maiketlng
to Regions
~ France 1-- Ja ~n
Europe Latin
-
South r--- America
Far
'--
East
Source: Based on John Markoff, "John Sculley's Biggest Test," New York Times, 26 February 1989, sec. 3, pp. 1,26.
emphasized at the same time. One type of structure that combines characteris-
tics of both is called the hybrid structure.
Characteristics
When a corporation grows large and has several products or markets, it typically
is organized into self-contained units of some type. Functions that are important
to each product or market are decentralized to the self-contained units. How-
ever, some functions are also centralized and located at headquarters. Headquar-
ters functions are relatively stable and require economies of scale and in-depth
specialization. By combining characteristics of the functional and divisional
structures, corporations can take advantage of the strengths of each and avoid
some of the weaknesses. Xerox Corporation recently reorganized into a hybrid
structure, with nine nearly independent product divisions and three geographical
sales divisions. CEO Paul Allaire thinks the hybrid structure can provide the co-
ordination and flexibility needed to help Xerox get products to market faster
and thrive in a competitive environment. 29
Sun Petroleum Products restructured from a functional to a hybrid structure

by combining three product divisions with several functional departments.
In Practice 6.5 Sun Petroleum Products Company

Sun Petroleum Products Company (SPPC) had sales of approximately $7 billion in the
early 1980s and a workforce of 5,400 people. Its refineries produced about 500,000 barrels
of products per day. The six refineries manufactured fuels, lubricants, and chemicals that
were marketed by Sun's sales force.
SPPC was traditionally organized by function with each functional head reporting di-
rectly to the president or to the vice president of operations. Then a study revealed that
Sun should be more responsive to changing markets. It recommended a reorganization
into three major product lines of fuels, lubricants, and chemicals. Each product line served
a different market and required a different strategy and management style.
The new hybrid organization structure adopted by SPPC is illustrated in Exhibit 6.13.
Each product line vice president is now in charge of both marketing and manufacturing
for that product, so coordination is easy to achieve. Each product line vice president also
has planning, supply, and manufacturing departments reporting to him or her. The vice
president in charge of refinery facilities is in charge of a functional department because
there are major economies of scale by having all refineries work together. The output of
these refineries becomes the input to the fuels, lubricants, and chemicals divisions. Other
departments centralized as functional departments to achieve economies of scale are hu-
man resources, technology, financial services, and resources and strategy. Each of these
departments provides services for the entire organization. The new structure is just right
for SPPC because of the company's large size, moderate environmental change, interde-
pendence, and goal of adapting to the environment.30
Strengths and Weaknesses

The hybrid structure typically appears in a context similar to that of the divi-
sional structure. Hybrid structures tend to be used in an uncertain environment
because product divisions are designed for innovation and external effectiveness.
Technologies may be both routine and nonroutine, and interdependencies exist
across the functions in product groupings. Size is typically large to provide suffi-
cient resources for duplication of resources across product divisions. The organi-
zation has goals of client satisfaction and innovation, as well as goals of efficiency
with respect to functional departments.
As summarized in Exhibit 6.14, a major strength of the hybrid structure is that
it enables the organization to pursue adaptability and effectiveness within the
product divisions simultaneously with efficiency in the functional departments.
Thus, the organization can attain the best of both worlds. This structure also pro-
vides alignment between product division and corporate goals. The product
groupings provide effective coordination within divisions, and the central func-
tional departments provide coordination across divisions.
One weakness of the hybrid structure is administrative overhead. Some organ-
izations experience a buildup of corporate staffs to oversee divisions. Some cor-
porate functions duplicate activities undertaken within product divisions. If
uncontrolled, administrative overhead can increase as the headquarters staff
grows large. Decisions then become more centralized, and the product divisions
Exhibit 6.13
Sun Petroleum Products Company's Hybrid Organization
President
I I I
Resources
Human Financial
Chief Technology and Strategy
Resources Services
Counsel Vice President Senior
Director Vice President
Vice President
Public
- Affairs
Director
Raw
I - Materials
Lubricants/ Vice President
Fuels Chemicals Facilities
Waxes
Vice President
I Planning and
Environment
Six - Assessment
Refineries Director
Marketing Marketing Marketing
Planning and Planning and Planning and

Economics Economics Economics
Supply and Supply and Supply and

Distribution Distribution Distribution
Manufacturing Manufacturing Manufacturing
Source: Linda S. Ackerman, "Transition Management: An In-depth Look at Managing Complex Change, " Organiza-
tional Dynamics (Summer 1982): 46-66. Reprinted with permission of the publisher, C 1982, American Management
Association, New York. All rights reserved.
Exhibit 6.14
Context
Summary of Hybrid
Organization Structure: Hybrid
Characteristics Environment: Moderate to high uncertainty, changing customer demands
Technology: Routine or non routine, with some interdependencies between
functions
Size: Large
Strategy, goals: External effectiveness and adaptation plus efficiency within some
functions
Internal Systems
Operative goals: Product line emphasis, some functional emphasis

Planning and budgeting: Profit center basis for divisions; cost basis for
central functions
Formal authority: Product managers; coordination responsibility resting
with functional managers
Strengths
1. Allows organization to achieve adaptability and coordination in product

divisions and efficiency in centralized functional departments
2. Results in better alignment between corporate and division-level goals
3. Achieves coordination both within and between product lines
Wealmesses
1. Has potential for excessive administrative overhead

2. Leads to conflict between division and corporate departments
lose the ability to respond quickly to market changes. As described in Chapter 5

on size, companies such as Nucor, Hanson Industries, and Burlington Northern
have resisted administrative overhead by keeping headquarters staffs at fewer
than one hundred people despite having as many as thirty-three thousand
employees in product divisions. Managers in these companies minimize head-
quarters staffs to reduce bureaucracy and encourage division flexibility. 31
An associated weakness is the conflict between corporate and divisional per-
sonnel. Headquarters functions typically do not have line authority over divi-
sional activities. Division managers may resent headquarters intrusions, and
headquarters managers may resent the desire of divisions to go their own way.
Headquarters executives often do not understand the unique needs of the indi-
vidual divisions that are trying to satisfy different markets.
The hybrid structure is often preferred to either the pure functional or pure
divisional structure. It overcomes many of the weaknesses of these other struc-
tures and provides some advantages of both.
MATRIX STRUCTURE
Another way to achieve focus on multiple outcomes is with the matrix structure.
The matrix can be used when one sector of the environment requires technologi-
cal expertise, for example, and another sector requires rapid change within each
product line. The matrix structure often is the answer when organizations find
that neither the functional, divisional, geographical, nor hybrid structures com-
bined with horizontal linkage mechanisms will work.
The matrix is a strong form of horizontal linkage. The unique characteristic of
the matrix organization is that both product division and functional structures (hor-
izontal and vertical) are implemented simultaneously, as shown in Exhibit 6.15.
Rather than divide the organization into separate parts as in the hybrid structure,
the product managers and functional managers have equal authority within the or-
ganization, and employees report to both of them. The matrix structure is similar to
the use of full-time integrators or product managers described earlier in this chap-
ter (Exhibit 6.5), except that in the matrix structure the product managers (horizon-
tal) are given formal authority equal to that of the functional managers (vertical).
Conditions for the Matrix

A dual hierarchy may seem an unusual way to design an organization, but the
matrix is the correct structure when the following conditions are met. 32
• Condition 1. Pressure exists to share scarce resources across product lines. The
organization is typically medium-sized and has a moderate number of product
Exhibit 6.15
President Dual-Authority
Structure in a Matrix
Organization
l
I
Ditectot
Design Manufacturing Marketing Procurement
~ of Product
Controller
Manager
Operations
• Product
Manager A
!.
,
• Product
Manager B
i.
,1
• Product
ManagerC
i
,
• Product
ManagerD
L
,
:t
1 1 1 1 1
lines. It feels pressure for the shared and flexible use of people and equipment
across those products. For example, the organization is not large enough to as-
sign engineers full-time to each product line, so engineers are assigned part-
time to several products or projects.
• Condition 2. Environmental pressure exists for two or more critical outputs,
such as for technical quality (functional structure) and frequent new products
(divisional structure). This dual pressure means a balance of power is needed
between the functional and product sides of the organization, and a dual-
authority structure is needed to maintain that balance.
• Condition 3. The environmental domain of the organization is both complex
and uncertain. Frequent external changes and high interdependence between
departments require a large amount of coordination and information process-
ing in both vertical and horizontal directions.
Under these three conditions, the vertical and horizontal lines of authority
must be given equal recognition. A dual-authority structure is thereby created so
the balance of power between them is equal.
Referring again to Exhibit 6.15, assume the matrix structure is for a clothing
manufacturer. Product A is footwear, product B is outerwear, product Cis sleep-
wear, and so on. Each product line serves a different market and customers. As a
medium-size organization, the company must effectively use people from manu-
facturing, design, and marketing to work on each product line. There are not
enough designers to warrant a separate design department for each product line,
so the designers are shared across product lines. Moreover, by keeping the man-
ufacturing, design, and marketing functions intact, employees can develop the in-
depth expertise to serve all product lines efficiently.
Key Matrix Roles

The unique aspect of matrix structure as reflected in Exhibit 6.15 is that some
employees have two bosses. Working within a matrix structure is difficult for
most managers because it requires a new set of skills compared with those re-
quired for a single-authority structure. For the matrix to succeed, managers in
key roles have specific responsibilities. The key roles are top leaders, matrix
bosses, and two-boss employees. These roles are illustrated in the College of
Business matrix in Exhibit 6.16. In this matrix, the functional departments are
the academic departments of management, marketing, finance, and accounting,
which represent the vertical hierarchy. The horizontal reporting relationships are
to the program directors for the undergraduate, MBA, and doctoral programs.
Top Leader. The dean is the top leader, who is the head of both command
structures. The primary responsibility for this person is to maintain a power bal-
ance between the functional managers (department heads) and product man-
agers (program directors). The top leader must also be willing to delegate
decisions and encourage direct contact and group problem solving between
department heads and program directors, which will encourage information
sharing and coordination.
Matrix Boss. The problem for matrix bosses-department heads and program
directors in Exhibit 6.16- is that they do not have complete control over their
subordinates. Matrix bosses must work with each other to delineate activities
Exhibit 6.16
Key Positions in a College of Business Matrix Structure
Dean of
College of Business
(Top Leader)
l
Head of
l
Head of Head of
I
Headlof
9-
-§
;:;;-
I Management Marketing Finance Accounting ....
I Department
I
Department Department Department "'><·

(Matrix Boss) (Matrix Boss) {Matrix Boss) {Matrix Boss) •
.... ... 'T1
~
::J
0.
Ill
s
(!)
Undergraduate g
Program Director - Ill
Vi
(Matrix Boss) 0_,
0
~
Ill
2.
N
....
Ill
Finance MBA Program a·
Professor
(Two-Boss ,.
~ Director
{Matrix Boss)
- ::J
~
..,
Employee) ~
~
..,
~
,..,
Doctoral Program
Director -
{Matrix Boss)
-
N
...,
N
over which they are responsible. The department head's responsibilities pertain
to functional expertise, rules, and teaching standards. The program director
is responsible for coordinating the whole program. This person has authority
over subordinates for such activities as class scheduling, exams, and preventing
overlapping of course content. Matrix bosses must be willing to confront one
another on disagreements and conflicts. They must also collaborate on such
things as performance reviews, promotions, and salary increases, since profes-
sors report to both of them. These activities require a great deal of time, com-
munication, patience, and skill at working with people, which are all part of
matrix management.
Two-Boss Employees. The two-boss employee often experiences anxiety and

stress. Conflicting demands are imposed by the matrix bosses. The finance pro-
fessor in Exhibit 6.16, for example, must cope with conflicting demands imposed
by the finance department head and the MBA program director. The department
head's demand to do research is in direct conflict with the MBA program direc-
tor's demand that time be spent reading and developing teaching materials for
use in the MBA program. The two-boss employee must confront both the de-
partment head and the MBA program director on these demands and reach a
joint decision about how to spend his or her time. Two-boss employees must
maintain an effective relationship with both managers, and they should display a
dual loyalty toward both their departments and their programs.
Strengths and Weaknesses

The matrix structure is best when environmental uncertainty is high and when
goals reflect a dual requirement, such as for both product and functional goals.
The dual-authority structure facilitates communication and coordination to cope
with rapid environmental change and enables an equal balance between product
and functional bosses. The matrix is also good for nonroutine technologies that
have interdependencies both within and across functions. The matrix is an or-
ganic structure that facilitates discussion and adaptation to unexpected prob-
lems. It tends to work best in organizations of moderate size with a few product
lines. The matrix is not needed for only a single-product line, and too many prod-
uct lines make it difficult to coordinate both directions at once.
The matrix structure has been used in organizations for more than thirty
years. Although horizontal linkages are increasingly popular, empirical evidence
of specific advantages is still relatively sparse. Exhibit 6.17 summarizes the
strengths and weaknesses of the matrix structure based on what we know of or-
ganizations that use it. 33
Internal systems reflect the dual organization structure. Two-boss employees
are aware of and adopt subgoals for both their functions and their products. Dual
planning and budgeting systems should be designed, one for the functional hier-
archy and one for the product line hierarchy. Power and influence are shared
equally by functional and product heads.
The strength of the matrix is that it enables an organization to meet dual de-
mands from the environment. Resources (people, equipment) can be flexibly al-
located across different products, and the organization can adapt to changing
external requirements. 34 This structure also provides an opportunity for employ-
ees to acquire either functional or general management skills, depending on their
interests.
Exhibit 6.17
Context
Summary of Matrix
Structure: Matrix Organization
Environment: High uncertainty Characteristics
Technology: Nonroutine, many interdependencies
Size: Moderate, a few product lines
Strategy, goals: Dual-product innovation and technical specialization
Internal Systems
Operative goals: Equal product and functional emphasis

Planning and budgeting: Dual systems-by function and by product line
Formal authority: Joint between functional and product heads
Strengths
1. Achieves coordination necessary to meet dual demands from environment

2. Flexible sharing of human resources across products
3. Suited to complex decisions and frequent changes in unstable environment
4. Provides opportunity for functional and product skill development
5. Best in medium-sized organizations with multiple products
Wealmesses
1. Causes participants to experience dual authority, which can be frustrating

and confusing
2. Means participants need good interpersonal skills and extensive training
3. Is time-consuming; involves frequent meetings and conflict resolution sessions
4. Will not work unless participants understand it and adopt collegial rather
than vertical-type relationships.
5. Requires dual pressure from environment to maintain power balance
One disadvantage of the matrix is that some employees experience dual au-
thority, which is frustrating and confusing. They need excellent interpersonal and
conflict-resolution skills, which may require special training in human relations.
The matrix also forces managers to spend a great deal of time in meetings. 35 If
managers do not adapt to the information and power sharing required by the
matrix, the system will not work. Managers must collaborate with one another
rather than rely on vertical authority in decision making. The successful imple-
mentation of one matrix structure occurred at a steel company in Pittsburgh.
Pittsburgh Steel Company In Practice 6.6

As far back as anyone can remember, the steel industry in the United States was stable and
certain. If steel manufacturers could produce quality steel at a reasonable price, that steel
would be sold. No more. Inflation, a national economic downturn, reduced consumption of
autos, and competition from steelmakers in Germany and Japan forever changed the steel
industry. Today, steelmakers have shifted to specialized steel products. They must market
aggressively, make efficient use of internal resources, and adapt to rapid-fire changes.
Pittsburgh Steel employs 2,500 people, makes 300,000 tons of steel a year, and is 170
years old. For 160 of those years, functional structure worked fine. As the environment
became more turbulent and competitive, however, Pittsburgh Steel managers realized
they were not keeping up. Fifty percent of Pittsburgh's orders were behind schedule. Prof-
its were eroded by labor, material, and energy cost increases. Market share declined.
In consultation with outside experts, the president of Pittsburgh Steel saw that the
company had to walk a tightrope. Pittsburgh Steel had to specialize in a few high-value-
added products tailored for separate markets, while maintaining economies of scale and
sophisticated technology within functional departments. The dual pressure led to an un-
usual solution for a steel company: a matrix structure.
Pittsburgh Steel had four product lines: open-die forgings, ring-mill products, wheels and
axles, and steelmaking. A business manager was given responsibility and authority of each
line, which included preparing a business plan for each product line and developing targets
for production costs, product inventory, shipping dates, and gross profit. They were given au-
thority to meet those targets and to make their lines profitable. Functional vice presidents
were responsible for technical decisions relating to their function. Functional managers were
expected to stay abreast of the latest techniques in their areas and to keep personnel trained
in new technologies that could apply to product lines. With twenty thousand recipes for spe-
cialty steels and several hundred new recipes ordered each month, functional personnel had
to stay current. Two functional departments-field sales and industrial relations- were not
included in the matrix because they worked independently. The final design was a hybrid
matrix structure with both matrix and functional relationships, as illustrated in Exhibit 6.18.
Implementation of the matrix was slow. Middle managers were confused. Meetings to
coordinate across functional departments seemed to be held every day. After about a year
of training by external consultants, Pittsburgh Steel is on track. Ninety percent of the or-
ders are now delivered on time. Market share has recovered. Both productivity and prof-
itability are increasing steadily. The managers thrive on matrix involvement. Meetings to
coordinate product and functional decisions have provided a growth experience. Middle
managers now want to include younger managers in the matrix discussions as training for
future management responsibility. 36
Pittsburgh Steel Company illustrates the correct use of a matrix structure. The
dual pressure to maintain economies of scale and to market four product lines
gave equal emphasis to the functional and product hierarchies. Through continu-
ous meetings for coordination, Pittsburgh Steel achieved both economies of scale
and flexibility.
All kinds of organizations have experimented with the matrix, including
consulting firms, hospitals, banks, insurance companies, government, and many
types of industrial firms. 37 This structure has been used successfully by compa-
nies such as IBM, Unilever, and Ford Motor Company, which have fine-tuned
the matrix to suit their particular goals and cultures. The matrix can be highly
effective in a complex, rapidly changing environment where the organization
needs to be flexible and adaptable. 38 However, the matrix is not a cure-all for
structural problems. Many organizations have found the matrix described
here, sometimes called a balanced matrix, difficult to install and maintain be-
cause one side of the authority structure often dominates. Recognizing this
tendency, two variations of matrix structure have evolved- the functional ma-
trix and the project matrix. In a functional matrix, the functional bosses have
primary authority, and project or product managers simply coordinate product
activities. In a project matrix, by contrast, the project or product manager has
primary responsibility, and functional managers simply assign technical per-
sonnel to projects and provide advisory expertise as needed. For many organi-
zations, one of these approaches works better than the balanced matrix and
dual lines of authority. 39
Exhibit 6.18
Matrix Stntcture for Pittsburgh Steel Company
President
Vertical Functions
Manufacturing Marketing Metallurgy Field Sales Industrial

Vice President Vice President Vice President Vice President Relations
Open Die
9-
-§
.,Gl Business ~
c
:J
n Manager
....
~·
ti:I •
'"I1
. H
Ring Products
-=.0 Business
s::
::l
Q.
a. Manager Ql
'ii ,9
c g
0
N
·;:
0
::1:
H Wheels & Axles
Business
~
V>
0
......
Manager 0
o'Ql<l
- ::l
- N.
Steelmaking ~
c;·
Business ::l
Manager ~
.....
s::
n
,2
.....
N
...w
SYMPTOMS OF STRUCTURAL DEFICIENCY
Each form of structure- functional , divisional, hybrid, matrix- represents a tool

that can help managers make an organization more effective depending on the
demands of its situation. Senior managers periodically evaluate organization
structure to determine whether it is appropriate to changing organization needs.
Many organizations try one organization structure, then reorganize to another
structure in an effort to find the right fit between internal reporting relationships
and the needs of the external environment. Compaq Computer Corporation, for
example, switched from a functional structure to a divisional structure for about
a year to develop new products and then switched back to a functional structure
to reduce competition among its product lines. 40
As a general rule, when organization structure is out of alignment with organiza-
tion needs, one or more of the following symptoms of structural deficiency appear. 41
• Decision making is delayed or lacking in quality. Decision makers may be

overloaded because the hierarchy funnels too many problems and decisions
to them. Delegation to lower levels may be insufficient. Another cause of poor
quality decisions is that information may not reach the correct people. Infor-
mation linkages in either the vertical or horizontal direction may be inade-
quate to ensure decision quality.
• The organization does not respond innovatively to a changing environment.
One reason for lack of innovation is that departments are not coordinated hor-
izontally. The identification of customer needs by the marketing department
and the identification of technological developments in the research depart-
ment must be coordinated. Organization structure also has to specify depart-
mental responsibilities that include environmental scanning and innovation.
• Too much conflict is evident. Organization structure should allow conflicting
departmental goals to combine into a single set of goals for the entire organ-
ization. When departments act at cross purposes or are under pressure to
achieve departmental goals at the expense of organizational goals, the struc-
ture is often at fault. Horizontal linkage mechanisms are not adequate.
SUMMARY AND INTERPRETATION
Organization structure must accomplish two things for the organization. It must
provide a framework of responsibilities, reporting relationships, and groupings,
and it must provide mechanisms for linking and coordinating organizational ele-
ments into a coherent whole. The structure is reflected on the organization chart.
Linking the organization into a coherent whole requires the use of information
systems and linkage devices in addition to the organization chart.
It is important to understand the information-processing perspective on
structure. Organization structure can be designed to provide vertical and hori-
zontal information linkages based upon the information processing required be-
cause of an uncertain environment, technology, size, or strategy and goals. Early
organization theorists stressed vertical design and relied on vertical linkages,
such as the hierarchy, planning, and new positions, to provide coordination. Ver-
ticallinkages are not sufficient for most organizations in today's complex and
rapidly changing world.
The trend is toward flatter, more horizontal structures. Many organizations

are breaking down the vertical hierarchy in favor of cross-functional teams.
Other ways organizations provide horizontal linkages are through temporary
task forces; regular, direct contact between managers across department lines;
and through full-time integrators, such as product managers.
Alternatives for grouping employees and departments into overall structural
design include functional grouping, divisional grouping, geographic group-
ing, and multifocused (hybrid, matrix) grouping. The best organization design
achieves the correct balance between vertical and horizontal coordination. The
choice among functional, divisional, and hybrid structures determines vertical
priority and, hence, where coordination and integration will be greatest. Hori-
zontal linkage mechanisms complement the vertical dimension to achieve the in-
tegration of departments and levels into an organizational whole. The matrix
organization implements an equal balance between the vertical and horizontal
dimensions of structure.
Finally, an organization chart is only so many lines and boxes on a piece of pa-
per. A new organization structure will not necessarily solve an organization's
problems. The organization chart simply reflects what people should do and what
their responsibilities are. The purpose of the organization chart is to encourage
and direct employees into activities and communications that enable the organi-
zation to achieve its goals. The organization chart provides the structure, but em-
ployees provide the behavior. The chart is a guideline to encourage people to
work together, but management must implement the structure and carry it out.
Key Concepts
departmental grouping matrix structure
divisional grouping multifocused grouping
divisional structure project matrix
functional grouping structure
functional matrix symptoms of structural deficiency
functional structure task force
geographic grouping teams
horizontal linkage top leader
hybrid structure two-boss employee
integrator vertical information system
liaison role vertical linkages
matrix bosses
Briefcase
As an organization manager, keep these guides in mind:
1. Develop organization charts that describe task responsibilities, vertical report-

ing relationships, and the grouping of individuals into departments. Provide
sufficient documentation so that all people within the organization know to
whom they report and how they fit into the total organization picture.
2. Provide vertical and horizontal information linkages to integrate diverse de-
partments into a coherent whole. Achieve vertical linkage through hierarchy
referral, rules ahd plans, new positions, and vertical information systems.
Achieve horizontal linkage through cross-functional information systems, di-
rect contact, task forces, full-time integrators, and teams.
3. Choose between functional or divisional structures when designing overall or-
ganization structure. Use a functional structure in a small or medium-sized
organization that has a stable environment. Use a divisi6nal structure in a
large organization that has multiple product lines and when you wish to give
priority to product goals and to coordination across functions.
4. Implement hybrid structures, when needed, in large corporations by dividing
the organization into self-contained product divisions and assigning to the
product division each function needed for the product line. If a function
serves the entire organization rather than a specific product line, structure
that function as a central functional department. Use a hybrid structure to
gain the advantages of both functional and divisional design while eliminat-
ing some of the disadvantages.
5. Consider a matrix structure in certain organization settings if neither the di-
visional nor the functional structure meets coordination needs. For best re-
sults with a matrix structure, use it in a medium-sized organization with a
small number of products that has a changing environment and needs to
give equal priority to both products and functions because of dual pressures
from the environment. Do not use the matrix structure unless there is truly
a need for a dual hierarchy and employees are well trained in its purpose
and operation.
6. Consider a structural reorganization whenever the symptoms of structural de-
ficiency are observed. Use organization structure to solve the problems of
poor quality decision making, slow response to the external environment, and
too much conflict between departments.
Discussion Questions
1. What is the definition of organization structure? Does organization struc-
ture appear on the organization chart? Explain.
2. How do rules and plans help an organization achieve vertical integration?
3. When is a functional structure preferable to a divisional structure?
4. Large corporations tend to use hybrid structures. Why?
5. How does organizational context influence the choice of structure? Are
some contextual variables more important than others? Discuss.
6. What is the difference between a task force and a team? Between liaison
role and integrating role? Which of these provides the greatest amount of
horizontal coordination?
7. What conditions usually have to be present before an organization should
adopt a matrix structure?
8. The manager of a consumer products firm said, "We use the brand manager
position to train future executives." Do you think the brand manager posi-
tion is a good training ground? Discuss.
9. In a matrix organization, how do the role requirements of the top leader dif-
fer from the role requirements of the matrix bosses?
10. In your opinion, what is the value of an information-processing perspective
on structure?
Chapter Six Workbook loull!zd Ot!JL711i::clfitll! .\'/it/(/11/L':
To better understand the importance of organization Planning Your Organization

structure in your life, do the following assignment.
Select one of the following situations to organize: 1. Write down the mission or purpose of the organ-
ization in a few sentences.
1. The registration process at your university or 2. What are the specific things to be done to accom-
college plish the mission?
2. A new fast-food franchise 3. Based on the specifics in No.2, develop an organi-
3. A sports rental in an ocean resort area, such as jet zational chart. Each position in the chart will per-
skis form a specific task or is responsible for a certain
4. A bakery outcome.
4. Add duties to each job position in the chart. These
will be the job descriptions.
Background 5. How can you make sure people in each position
Organization is a way of gaining some power against an will work together?
unreliable environment. The environment provides the 6. What level of skill and abilities is required at each
organization with inputs, which include raw materials, position and level in order to hire the right persons?
human resources, and financial resources. There is a 7. Make a list of the decisions that would have to be
service or product to produce that involves technology. made as you developed your organization.
The output goes to clients, a group that must be nur- 8. Who is responsible for customer satisfaction?
tured. The complexities of the environment and the tech- How will you know if customers' needs are met?
nology determine the complexity of the organization. 9. How will information flow within the organization?
• Adapted by Dorothy Marcie from "Organizing," in Donald D. White and H. William Vroman, A ction in Organizations, 2nd ed.
(Boston: Allyn and Bacon, 1982) 154.
The first C & C grocery store was started in 1947 by a winning personality. Store employees adopted Doug's
Doug Cummins and his brother Bob. Both were veter- informal style and "serve the customer" attitude.
ans who wanted to run their own business, so they used
their savings to start the small grocery store in Char- •Prepared by Richard L. Daft, from Richard L. Daft and
lotte, North Carolina. The store was immediately suc- Richard Steers, Organizations: a Micro!Mac_ro Approach (Glen-
cessful. The location was good, and Doug Cummins had view, Ill.: Scott, Foresman, 1986). Reprinted with permission.
Exhibit 6 .19
Organization Strudure for C & C Grocery Stores, Inc.
President Cummins
Distribution
(Same as Southeast) (Same as Southeast)
Store Meat Grocery Store Produce

Department Department Department
Manager Manager M anager
C & C's increasing circle of customers enjoyed an abun- Each district was divided into four lines of authority
dance of good meats and produce. based upon functional specialty. Three of these lines
By 1984, C & C had over 200 stores. A standard reached into the stores. The produce department man-
physical layout was used for new stores. Company ager within each store reported directly to the produce
headquarters moved from Charlotte to Atlanta in 1975. specialist for the division, and the same was true for the
The organization chart for C & C is shown in Exhibit meat department manager, who reported directly to the
6.19. The central offices in Atlanta handled personnel, district meat specialist. The meat and produce managers
merchandising, financial, purchasing, real estate, and le- were responsible for all activities associated with the ac-
gal affairs for the entire chain. For management of indi- quisition and sale of perishable products. The store man-
vidual stores, the organization was divided by regions. ager's responsibility included the grocery line, front-end
The southern, southeastern, and northeastern regions departments, and store operations. The store manager
each had about seventy stores. Each region was divided was responsible for appearance of personnel, cleanliness,
into five districts of ten to fifteen stores each. A district adequate check-out service, and price accuracy. A gro-
director was responsible for supervision and coordina- cery manager reported to the store manger and main-
tion of activities for the ten to fifteen district stores. tained inventories and restocked shelves for grocery
items. The district merchandising office was responsible suiting team from a major university was hired to inves-
for promotional campaigns, advertising circulars, district tigate store structure and operations.
advertising, and for attracting customers into the stores. The consultants visited several stores in each region,
The grocery merchandisers were expected to coordinate talking to about fifty managers and employees. The
their activities with each store in the district. consultants wrote a report that pinpointed four prob-
During the recession in 1980- 81, business for the lem areas to be addressed by store executives.
C & C chain dropped off in all regions and did not in-
crease with the improved economic times in 1983- 84. 1. The chain is slow to adapt to change. Store layout
This caused concern among senior executives. They also and structure were the same as had been designed
were aware that other supermarket chains were adopt- fifteen years ago. Each store did things the same
ing a trend toward one-stop shopping, which meant the way, even though some stores were in low-income
emergence of super stores that included a pharmacy, areas and other stores in suburban areas. A new
dry goods, and groceries- almost like a department grocery management system for ordering and
store. Executives wondered whether C & C should stocking had been developed, but after two years
move in this direction and how such changes could be was only partially implemented in the stores.
assimilated into the current store organization. How- 2. Roles of the district store supervisor and the store
ever, the most pressing problem was how to improve manager were causing dissatisfaction. The store
business with the grocery stores they now had. A con- managers wanted to learn general management
Exhibit 6.20
Proposed Reorganization of C & C Grocery Stores. Inc.
District Director
I
I I I
Operations Grocery Meat Produce
Manager Merchandiser Merchandiser Manager
I I
I
I
I
I
I
!District I I [
Coordinator I I I
I I I
I I
I
I I I'
I Grocery Meat Produce
I Specialist Specialist Specialist
I
I
I
Store
Manager
I I I
Meat Grocery Proc:fuee
Department Department Department
Manager Manager Manager
skills for potential promotion into district or re- keting techniques should take advantage of the
gional management positions. However, their jobs grocery emphasis.
restricted them to operational activities and they
learned little about merchandising, meat, and pro- To solve the first three problems, the consultants
duce. Moreover, district store supervisors used recommended reorganizing the district and the store
store visits to inspect for cleanliness and adher- structure as illustrated in Exhibit 6.20. Under this reor-
ence to operating standards rather than to train ganization, the meat, grocery, and produce department
the store manager and help coordinate operations managers would all report to the store manager. The
with perishable departments. Close supervision on store manager would have complete store control and
the operational details had become the focus of would be responsible for coordination of all store ac-
operations management rather than development, tivities. The district supervisor's role would be changed
training, and coordination. from supervision to training and development. The
3. Cooperation within stores was low and morale was district supervisor would head a team that included
poor. The informal, friendly atmosphere originally himself and several meat, produce, and merchandise
created by Doug Cummins was gone. One example specialists who would visit area stores as a team to pro-
of this problem occurred when the grocery mer- vide advice and help for the store managers and other
chandiser and store manager in a Louisiana store employees. The team would act in a liaison capacity be-
decided to promote Coke and Diet Coke as a loss tween district specialists and the stores.
leader. Thousands of cartons of Coke were brought The consultants were enthusiastic about the pro-
in for the sale, but the stockroom was not prepared posed structure. By removing one level of district oper-
and did not have room. The store manager wanted ational supervision, store managers would have more
to use floor area in the meat and produce sections freedom and responsibility. The district liaison team
to display Coke cartons, but those managers re- would establish a cooperative team approach to man-
fused. The produce department manager said that agement that could be adopted within stores. The focus
Diet Coke did not help his sales and it was okay of store responsibility on a single manager would en-
with him if there was no promotion at all. courage coordination within stores, adaptation to local
4. Long-term growth and development of the store conditions, and provide a focus of responsibility for
chain would probably require reevaluation of store-wide administrative changes.
long-term strategy. The percent of market share The consultants also believed that the proposed
going to traditional grocery stores was declining structure could be expanded to accommodate non-
nationwide due to competition from large super grocery lines if enlarged stores were to be developed in
stores and convenience stores. In the future, C & the future. Within each store, a new department man-
C might need to introduce non-food items into the ager could be added for pharmacy, dry goods, or other
stores for one-stop shopping, and add specialty major departments. The district team could be ex-
sections within stores. Some stores could be lim- panded to include specialists in these departments who
ited to grocery items, but store location and mar- would act as liaison for stores in the district.
The Aquarius Advertising Agency is a middle-sized Its activities were organized in a traditional manner.
firm that offered two basic services to its clients: (1) cus- The formal organization is shown in Exhibit 6.21. Each
tomized plans for the content of an advertising cam- department included similar functions.
paign (for example, slogans, layouts) and (2) complete
plans for media (such as radio, TV, newspapers, bill-
boards, and magazines). Additional services included *Adapted from John F. Veiga and John N. Yanouzas, "Aquarius
aid in marketing and distribution of products and mar- Advertising Agency," The Dynamics of Organization Th eory
keting research to test advertising effectiveness. (St. Paul, Minn.: West, 1984), 212- 17, with permission.
Exhibit 6 .21
Aquarius Advertising Agency Organization Chart
Board of DireCtors
President
I I
Executive
legal COUJ'lSE!I Policy Committee
VIce President
I I
Personnel
Rnancial Manager
Manager
I I
Accounts Operations Marketing
VIce President VIce President VIce President
I I I
I I I I
Accounts Newspapers/ Research Media
TV/Radio
Manager Magazine Department Department
Production
Production
Department
I Department
I
Account Copy
r- Executive Dr;1partment Merchandising
Department
Account Art
1-- '---
Executive Department
Account
f-
Executive
...__ Account
Executive
Each client account was coordinated by an account and Aquarius specialists, clients and account execu-
executive who acted as a liaison between the client tives, and Aquarius specialists and account executives
and the various specialists on the professional staff of is indicated in Exhibit 6.22. These sociometric data
the operations and marketing divisions. The number of were gathered by a consultant who conducted a study
direct communications and contacts between clients of the patterns of formal and informal communication.
Exhibit 6.22
Sociometric Index of Contacts of Aquarius Personnel and Clients
CD
c
-~
(I)
... (I)
·;::;
Q)
-~
CD -~ iii "'Cl -~ l2
Cl
'5 ·u -~
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Cl
"'c lilc.
-~iii
c iii
lil CD
c. iii
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"'
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...c ~
...c en
0 C.ti
Ill
[ ·u :Otj c.
en
.r:
1!1 '5 "' ·-
C. iii en [ ~:: en ~
::l ::l
"' ~CDe,
-~ "' "'
r~
c 0 0
~ en '5
~ zen
CD
.!!! CJ CJ
t CD (I)
u ~
CJ
<t:
0
u <t: ~en :E
CD
a:
l;
Clients X F F N N 0 0 0 0 0
.~
·'
Account
X F N N N N N N N
Manager
Account
X F F F F F F F
Executives
TV/Radio
X N 0 0 N N 0
Specialists
Newspaper/Magazine
Specialists
X 0 0 N 0 0 .
l
Copy
X N 0 0 0
Specialists
Art
X 0 0 0
Specialists
Merchandising
X F F
Specialists
Media
X F -~
Specialists
Research
X
Specialists
F = Frequent- daily
0 = Occasional - once or twice per project
N = None
Each intersecting cell of Aquarius personnel and the count executive. These direct contacts involved a wide
clients contains an index of the direct contacts be- range of interactions, such as meetings, telephone calls,
tween them. letters, and so on. A large number of direct communica-
Although an account executive was designated to be tions occurred between agency specialists and their
the liaison between the client and specialists within the counterparts in the client organization. For example, an
agency, communications frequently occurred directly art specialist working as one member of a team on a
between clients and specialists and bypassed the ac- particular client account would often be contacted di-
rectly by the client's in-house art specialist, and agency of them tries to sell his or her idea to the client, and
research personnel had direct communication with re- most of the time I don't know what has happened un-
search people of the client firm. Also, some of the un- til a week later. If I were a despot, I would make all of
structured contacts often led to more formal meetings them check with me first to get approval. Things
with clients in which agency personnel made presenta- would sure change around here.
tions, interpreted and defended agency policy, and com-
The need for reorganization was made more acute
mitted the agency to certain courses of action.
by changes in the environment. Within a short period of
Both hierarchical and professional systems operated
time, there was a rapid turnover in the major accounts
within the departments of the operations and market-
handled by the agency. It was typical for advertising
ing divisions. Each department was organized hierarchi-
agencies to gain or lose clients quickly, often with no
cally with a director, an assistant director, and several
advance warning as consumer behavior and life-style
levels of authority. Professional communications were
changes emerged and product innovations occurred.
widespread and mainly concerned with sharing knowl-
An agency reorganization was one solution pro-
edge and techniques, technical evaluation of work, and
posed by top management to increase flexibility in this
development of professional interests. Control in each
unpredictable environment. The reorganization was
department was exercised mainly through control of
aimed at reducing the agency's response time to envi-
promotions and supervision of work done by subordi-
ronmental changes and at increasing cooperation and
nates. Many account executives, however, felt the need
communication among specialists from different de-
for more influence, and one commented:
partments. The top managers are not sure what type of
Creativity and art. That's all I hear around here. It is reorganization is appropriate. They would like your
hard as hell to effectively manage six or seven hot- help analyzing their context and current structure and
shots who claim they have to do their own thing. Each welcome your advice on proposing a new structure.
Notes
1. Thomas A Stewart, "How To Lead a Revolution," tive and Analytical Review," Research in Organi-
Fortune, 28 November 1994, 48-61. zational Behavior 17 (1995): 333-72.
2. John Child, Organization (New York: Harper & 5. Galbraith, Competing with Flexible Lateral Organ -
Row, 1984). izations.
3. Stuart Ranson, Bob Hinings, and Royston Green- 6. David Nadler and Michael Tushman, Strategic Or-
wood, "The Structuring of Organizational Struc- ganization Design (Glenview, Ill.: Scott Foresman,
tures," Administrative Science Quarterly 25 {1980): 1988).
1- 17; Hugh Willmott, "The Structuring of Organi- 7. Ibid.
zational Structure: A Note," Administrative Sci- 8. Based on Jay R. Galbraith, Designing Complex
ence Quarterly 26 {1981): 470-74. Organizations (Reading, Mass.: Addison-Wesley,
4. This discussion is based on Jay R. Galbraith, Com- 1973) and Organization Design (Reading, Mass.:
peting with Flexible Lateral Organizations, 2nd ed. Addison-Wesley, 1977), 81- 127.
(Reading, Mass.: Addison-Wesley, 1994), ch. 2; 9. Lee lacocca with William Novak, Jacocca: An Au-
Terry L. Amburgey and Tina Dacin, "As The Left tobiography (New York: Phantom Books, 1984),
Foot Follows The Right? The Dynamics of Strate- 152- 53.
gic and Structural Change," Academy of Manage- 10. Alex Taylor III, "Will Success Spoil Chrysler?"
ment Journal37, no. 6 (1994): 427-52; Raymond E. Fortune, 10 January 1994, 88- 92.
Miles and W. E. Douglas Creed, "Organizational 11. Based on Galbraith, Designing Complex Organ-
Forms and Managerial Philosophies: A Descrip- izations.
12. Bob Lindgren, "Going Horizontal," Enterprise, 26. Joseph Weber, "A Big Company That Works,"
April1994, 20-25. Business Week, 4 May 1992, 124-132; and Elyse
13. Barbara Ettorre, "Simplicity Cuts a New Pattern," Tanouye, "Johnson & Johnson Stays Fit by Shuf-
Management Review (December 1993): 25-29. fling Its Mix of Businesses," Wall Street Journal, 22
14. Walter Kiechel III, "The Art of the Corporate December 1992,Al,A4.
Task Force," FortLtne, 28 January 1991, 104-5; 27. Mark Landler, "Shake-Up at Warner Music
William J. Altier, "Task Forces: An Effective Man- Group Results in Ouster of Its Chairman," New
agement Tool," Management Review (February York Times, 4 May 1995, C1, C7.
1987): 52- 57. 28. Weber, "A Big Company That yv'orks."
15. Keith Naughton and Kathleen Kerwin, "At GM, 29. Lisa Driscoll, "The New, New Thinking at Xerox,"
Two Heads May Be Worse Than One," Business Business Week, 22 June 1992, 120-21.
Week, 14 August 1995,46. 30. Adapted from Linda S. Ackerman, "Transition
16. Paul R. Lawrence and Jay W. Lorsch, "New Man- Management: An In-depth Look at Managing
agerial Job: The Integrator," Harvard Business Re- Complex Change," Organizational Dynamics
view (November-December 1967): 142-51. (Summer 1982): 46-66.
17. Ann M. Morrison, "The General Mills Brand of 31. Terrence P. Pare, "How to Cut the Cost of Head-
Managers," Forlllne, 12 January 1982,99- 107. quarters," Fortune, 11 September 1989, 189- 96;
18. Ibid.; Daniel Rosenheim, "The Metamorphosis of Thomas Moore, "Goodbye, Corporate Staff," For-
General Mills," Houston Chronicle, 1 April1982, tune, 21 December 1987,65-76.
sec. 3, p. 4. 32. Stanley M. Davis and Paul R. Lawrence, Matrix
19. Jay R. Galbraith, Competing with Flexible Lateral (Reading, Mass.: Addison-Wesley, 1977), 11- 24.
Organizations, 2nd ed. (Reading, Mass.: Addison- 33. Robert C. Ford and W. Alan Randolph, "Cross-
Wesley, 1994), 17-18; Laurie P. O'Leary, "Curing Functional Structures: A Review and Integration
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chapter six

T Britain's Imperial Chemical Industries met to consider the com-

While Zeneca Ag retains elements of a functional structure, emphasis is on hori-

Purpose of This Chapter

The material on structure is presented in the following sequence. First, struc-

STRUCTURE AND STRATEGY

Organization structure is reflected in the organization chart. The organization

1. Organization structure designates formal reporting relationships, including

Strategy, Goals Technology

well with a centralized, functional structure. Organizational goals stress internal

INFORMATION-PROCESSING PERSPECTIVE ON STRUCTURE

The concepts in previous chapters- technology, goals, environment, size-

Vertical Information Linkages

Hierarchical Referral. The first vertical device is the hierarchy, or chain of

·-'E! ·-e Add positions to hierarchy

Vertical Information Systems. Vertical information systems are another strat-

Summary. Structural mechanisms that can be used to achieve vertical linkage

Horizontal Information Linkages

effort and organizational objectives. Horizontal linkage refers to the amount

Today, horizontal communication has evolved to a high level at Chrysler and

Information Systems. A significant method of providing horizontal link-

Direct Contact. A somewhat higher level of horizontal linkage is direct con-

Full-time Integrator. A stronger horizontal linkage device is to create a full-

General Mills In Practice 6.1

Teams. Project teams tend to be the strongest horizontal linkage mechanism.

In Practice 6.2 Hewlett-Packard Terminals Division

Customer Service, Shipping and Yard

Summary. The mechanisms for achieving horizontal linkages in organizations

ORGANIZATION DESIGN ALTERNATIVES

The overall design of organization structure indicates three things- needed

Define Work Activities

Departmental Grouping Options

FUNCTIONAL, DIVISIONAL, AND GEOGRAPHICAL DESIGNS

Operative goals: Functional goal emphasis

1. Allows economies of scale within functional departments

1. Stow response time to environmental changes

In Practice 6.3 Blue Bell Creameries, Inc.

Functional Structure with Horizontal Linkages

Karolinska Hospital In Practice 6.4

Karolinska Hospital is using horizontal linkages to overcome some of the dis-

Electronic Office Virtual

needs of its environment. Moreover, the divisional structure decentralizes deci -

Operative goals: Product line emphasis

1. Suited to fast change in unstable environment

1. Eliminates economies of scale in functional departments

Baby Shampoo and Band-Aids. Each division is a separately chartered, au-

One disadvantage of using divisional structuring is that the organization loses

Sun Petroleum Products restructured from a functional to a hybrid structure

In Practice 6.5 Sun Petroleum Products Company

Strengths and Weaknesses

Planning and Planning and Planning and

Supply and Supply and Supply and

Manufacturing Manufacturing Manufacturing

Operative goals: Product line emphasis, some functional emphasis

1. Allows organization to achieve adaptability and coordination in product

1. Has potential for excessive administrative overhead

lose the ability to respond quickly to market changes. As described in Chapter 5

Conditions for the Matrix

Key Matrix Roles

Department Department Department "'><·