HRMN 495-Week 1:Strategic HR
Common Organizational Structures
Organizations can be structured in various ways. The structure of an
organization determines how it operates and performs.
Functional Structure
Key Terms
• silo—in business, a unit or department in which communication
and collaboration occur vertically, with limited cooperation
outside the unit
• departmentalization—organization into groups by function,
geographic location, or other factors
Organizations commonly use a functional structure, which divides people
into smaller groups by areas of specialty such as IT, finance, operations,
and marketing. Some refer to these functional areas as silos because they
are operate vertically and are disconnected from each other. In a
functional organizational structure, the company’s top management team
typically consists of several functional heads, such as the chief financial
officer and the chief operating officer. Communication generally occurs
within each department and is transmitted across departments through
the department heads.
Learning Resource
Common Organizational Structures
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Functional structures appear in a variety of organizations across many
industries. They may be most effective within large corporations that
produce relatively homogeneous goods. Smaller companies that require
more adaptability and creativity may feel confined by the silos that
functional structures tend to produce.
Advantages of a Functional Structure
Functional Structure at FedEx
This organizational chart shows a broad functional structure at FedEx. Each function—
such as HR, finance, and marketing—is managed from the top down via functional
heads (CFO, CIO, vice presidents, etc.).
Functional departments arguably permit greater operational efficiency,
because employees with shared skills and knowledge are grouped
together. Each group of specialists can therefore operate independently.
Management acts as the point of cross‐communication between
functional areas. This arrangement enables specialization.
Disadvantages of a Functional Structure
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A disadvantage of this structure is the tendency for functional groups to
not communicate with one another, potentially decreasing flexibility and
innovation. Functional structures may also be susceptible to tunnel vision,
with each function perceiving the organization only from its group's frame
of reference. Recent trends to mitigate these disadvantages include using
cross‐departmental teams and promoting cross‐functional
communication.
Divisional Structure
Key Terms
• parent company—an entity that owns or controls another entity
• division—a section of a large company
• subsidiary—a company owned by a parent company or holding
company
A divisional structure groups organizational functions into divisions by
product or region. Each division contains all the necessary resources and
functions to support a particular product line or geography (e.g., its own
finance, IT, and marketing departments). Product and geographic
divisional structures may be characterized as follows:
• Product departmentalization. A divisional structure organized by
product departmentalization means that the various activities related
to the product or service are under the authority of one manager. If
the division builds luxury sedans or SUVs, for example, the SUV
division will have its own sales, engineering, and marketing
departments distinct from the departments within the luxury sedan
division.
• Geographic departmentalization. Geographic departmentalization
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involves grouping activities based on geography, such as an
Asia/Pacific or Latin America division. Geographic
departmentalization is particularly important if tastes and brand
responses differ across regions, as it allows for flexibility in product
offerings and marketing strategies (an approach known as
localization).
A common legal structure known as the multidivisional form (M‐form)
also uses the divisional structure. In this form, a parent company owns
subsidiary companies, each of which uses its brand and name. The whole
organization is ultimately controlled by central management; however,
most decisions are left to autonomous divisions. This business structure is
typically found in companies that operate worldwide—for example, Virgin
Group is the parent company of Virgin Mobile and Virgin Records.
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US Department of Energy Organizational Chart
DOE divisions are organized under three undersecretaries. Each DOE division has a
specific responsibility: nuclear security, science, or energy.
Advantages of a Divisional Structure
Generally, divisions work best for companies with wide variance in
product offerings or regions of geographic operation. The divisional
structure can be useful because it affords the company greater
operational flexibility. In addition, the failure of one division does not
directly threaten the others. In the multidivisional structure, subsidiaries
benefit from the use of the brand and capital of the parent company.
Disadvantages of a Divisional Structure
Some disadvantages of this structure include operational inefficiencies
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from separating specialized functions—for example, finance personnel in
one division not communicating with those in other divisions.
Disadvantages of the multidivisional structure can include increased
accounting and tax implications.
Matrix Structure
The matrix structure is a type of organizational structure in which
individuals are grouped by two different operational perspectives
simultaneously. This structure has both advantages and disadvantages but
is generally best employed by companies large enough to justify the
increased complexity.
In matrix management, the organization is grouped by two perspectives
the company deems most appropriate. Common organizational
perspectives include function and product, function and region, or region
and product. In an organization grouped by function and product, for
example, each product line will have management that corresponds to
each function. If the organization has three functions and three products,
the matrix structure will have nine (3 × 3) potential managerial
interactions. Thus, matrix structures are inherently more complex than
other more linear structures.
Advantages of a Matrix Structure
Proponents of matrix management suggest that it allows team members
to share information more readily across task boundaries, countering the
tendency to construct silos within functional management. Matrix
structures also allow for specialization that can both increase depth of
knowledge and assign individuals according to project needs.
Disadvantages of a Matrix Structure
A disadvantage of the matrix structure is the increased complexity in
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chain of command when employees are assigned to both functional and
project managers. The higher manager‐to‐worker ratio that sometimes
results can increase costs or lead to conflicting employee loyalties. It can
also create a gridlock in decision making if a manager on one end of the
matrix disagrees with another manager. Blurred authority in a matrix
structure can reduce agility in decision making and conflict resolution.
A matrix structure should generally only be used when the operational
complexity of the organization demands it. A company that operates in
various regions with various products may require interaction between
product development teams and geographic marketing specialists
—suggesting a matrix may be applicable. Generally, larger companies with
a need for a great deal of cross‐departmental communication benefit
most from this model.
Team‐Based Structure
The team structure is considered a newer structure for large
organizations. It is less hierarchical, less structured, and more fluid than
traditional structures like functional or divisional organization. A team is a
group of employees—ideally with complementary skills and synergistic
efforts—working toward a common goal. Teams are created by grouping
employees in a way that generates a variety of expertise and addresses a
specific operational component of an organization. These teams can
change and adapt to fulfill group and organizational objectives.
Some teams endure over time, while others—such as project teams—are
disbanded when a project ends. Teams that include members from
different functions are known as cross‐functional teams. Although teams
are described as less hierarchical, they typically still include a
management structure.
Critics argue that using the word team to describe modern organizational
structures is a fad, and that some teams are not really teams at all but
rather groups of staff. That said, team‐building is now a frequent practice
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of many organizations and can include activities such as bonding
exercises and even overnight retreats to foster team cohesion. To the
extent that these exercises are meaningful to employees, they can be
effective in improving employee motivation and company productivity.
Integration With Other Structures
One aspect of team‐based structures that will likely persist indefinitely is
the integration of team cultures within a broader structure (e.g., a
functional structure with teams interspersed). Such integration allows for
the authority and organization of a more concrete structure while at the
same time capturing the cross‐functional and projected‐oriented
advantages of teams.
For example, imagine Procter & Gamble brings together a group of
employees from finance, marketing, and research and development—all
representing different geographic regions. This newly created team is
tasked with creating a laundry detergent that is convenient, economical,
and aligned with the company’s manufacturing capabilities. The project
team might be allocated a certain number of hours a month to devote to
team objectives; however, members of the team would still be expected
to continue with their responsibilities within their functional departments.
Network Structure
Key Terms
• synergistic—cooperative, working together, interacting,
mutually stimulating
• hierarchical—classified or arranged according to various criteria
into successive ranks or grades
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In the network structure, managers coordinate and control both internal
and external relationships with their firm. The network structure is a
newer type of organizational structure often viewed as less hierarchical
(i.e., more flat), more decentralized, and more flexible than other
structures. Managers coordinate and control relations that are both
internal and external to the firm.
The concept underlying the network structure is the social network—a
social structure of interactions. At the organizational level, social
networks can include intraorganizational or interorganizational ties
representing either formal or informal relationships. At the industry level,
complex networks may include technological and innovation networks
that may span several geographic areas and organizations. From a
management perspective, the network structure is unique among the
other structures in that it focuses on the internal dynamics within the
firm.
A network organization sounds complex, but it is a simple concept. Take,
for example, a T‐shirt design company. Because the company is mainly
interested in design, it may not want to get too heavily involved in either
manufacturing or retail—both necessary aspects of the business. So,
although the company may rent retail space, it may purchase production
capabilities from partner organizations with manufacturing facilities.
While the core company focuses mainly on designing products and
tracking finances, this network of partnerships enables much more than
just a design operation.
Advantages of a Network Structure
Proponents argue that the network structure is more agile compared to
other structures (functional, division, and even some team structures).
Silos are minimized and communication flows freely, possibly opening up
more opportunities for innovation. Because the network structure is
decentralized, it has fewer tiers in its organizational makeup, a wider span
of control, and a bottom‐up flow of decision making and ideas.
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Disadvantages of a Network Structure
On the other hand, this more fluid structure can lead to more complex
relationships in the organization. For example, lines of accountability may
be less clear, and reliance on external vendors can be quite high. These
potentially unpredictable variables essentially reduce the core company’s
control over operational success.
Modular Structure
Key Terms
• disaggregation—division or breaking up into constituent parts,
particularly categories which have been lumped together
• modular—consisting of separate units, especially where each
unit performs a specified function and can then be mixed and
matched with other units to connect, interact, or exchange
resources
In the modular structure, an organization focuses on developing
specialized and relatively autonomous strategic business units (SBUs). The
modular structure divides a business into small, tightly knit SBUs that
focus on specific elements of the organizational process. Interdependence
among the units is limited because the focus of many SBUs is more
inward than outward, and loyalty within SBUs tends to be very strong.
The term modularity is widely used in studies of technological and
organizational systems. Product systems are deemed modular when they
can be broken down into a number of components that can then be
mixed and matched to connect, interact, or exchange resources.
Modularization leads to disaggregating the traditional form of hierarchical
governance into relatively small, autonomous organizational units, or
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modules. Modules are not generally interdependent, so the modular
organization is extremely flexible.
For example, a firm that employs contract manufacturing rather than in‐
house manufacturing is using an independent organizational component.
The organization can switch between different contract manufacturers
that perform different functions (and the contract manufacturer can
similarly work for different companies). Another modular model, one that
is more internally focused, involves various consumer services catering to
dramatically different needs or demographics. In health care, for example,
the surgery unit may interact with various other hospital departments at
different times for different reasons.
Advantages of a Modular Structure
One advantage of the modular structure is that loosely coupled structures
can enable organizations to be more flexible and restructure more easily.
For example, a company using a modular structure can respond more
quickly to different market needs. An organization can also fill its internal
corporate needs by creating a new modular department that operates
interdependently with the whole.
Disadvantages of a Modular Structure
On the other hand, more internalization and more tightly coupled
structures can produce better communication and intellectual property
gains. As a result, critics of the modular organization argue that a firm's
modularity should be limited to the extent that its flexible nature affords
gains. Various degrees of modularity are possible but not necessarily
useful if the pros do not outweigh the cons. Managers must carefully
consider whether or not a modular structure would be useful, either
entirely or partially, for their own organizations.
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