DISCUSSION 5

5.3 - Contemporary Forms of Organizational Structures

L E A R N I N G O B J E C T I V E S

1. Explain what a matrix structure is and the challenges of working in a structure such as

this.

2. Define boundaryless organizations.

3. Define learning organizations, and list the steps organizations can take to become

learning organizations.

For centuries, technological advancements that affected business came in slow waves.

Over 100 years passed between the invention of the first reliable steam engine and the

first practical internal combustion engine. During these early days of advancement,

communication would often go hand in hand with transportation. Instead of delivering

mail hundreds of miles by horse, messages could be transported more quickly by train

and then later by plane. Beginning in the 1900s, the tides of change began to rise much

more quickly. From the telegraph to the telephone to the computer to the Internet, each

advancement brought about a need for an organization’s structure to adapt and change.

Business has become global, moving into new economies and cultures. Previously

nonexistent industries, such as those related to high technology, have demanded

flexibility by organizations in ways never before seen. The diverse and complex nature of

the current business environment has led to the emergence of several types of

organizational structures. Beginning in the 1970s, management experts began to

propose organizational designs that they believed were better adapted to the needs of

the emerging business environment. Each structure has unique qualities to help

businesses handle their particular environment.

Matrix Organizations

Matrix organizations have a design that combines a traditional functional structure with

a product structure. Instead of completely switching from a product-based structure, a

company may use a matrix structure to balance the benefits of product-based and

traditional functional structures. Specifically, employees reporting to department

managers are also pooled together to form project or product teams. As a result, each

person reports to a department manager as well as a project or product manager. In a

matrix structure, product managers have control and say over product-related matters,

while department managers have authority over matters related to company policy.

Matrix structures are created in response to uncertainty and dynamism of the

environment and the need to give particular attention to specific products or projects.

Using the matrix structure as opposed to product departments may increase

communication and cooperation among departments because project managers will

need to coordinate their actions with those of department managers. In fact, research

shows that matrix structure increases the frequency of informal and formal

communication within the organization. Joyce, W. F. (1986). Matrix organization: A

social experiment. Academy of Management Journal, 29, 536–561. Matrix structures

also have the benefit of providing quick responses to technical problems and customer

demands. The existence of a project manager keeps the focus on the product or service

provided.

Figure 5.8

An example of a matrix structure at a software development company. Business analysts, developers, and testers each report to a functional department manager and to a project manager simultaneously.

Despite these potential benefits, matrix structures are not without costs. In a matrix,

each employee reports to two or more managers. This situation is ripe for conflict.

Because multiple managers are in charge of guiding the behaviors of each employee,

there may be power struggles or turf wars among managers. As managers are more

interdependent compared to a traditional or product-based structure, they will need to

spend more effort coordinating their work. From the employee’s perspective, there is

potential for interpersonal conflict with team members as well as with leaders. The

presence of multiple leaders may create role ambiguity or, worse, role conflict—being

given instructions or objectives that cannot all be met because they are mutually

exclusive. The necessity to work with a team consisting of employees with different

functional backgrounds increases the potential for task conflict at work. Ford, R. C., & Randolph,

W. A. (1992). Cross-functional structures: A review and integration of matrix organization and project management. Journal of

Management, 18, 267–294. Solving these problems requires a great level of patience and

proactivity on the part of the employee.

The matrix structure is used in many information technology companies engaged in

software development. Sportswear manufacturer Nike is another company that uses the

matrix organization successfully. New product introduction is a task shared by regional

managers and product managers. While product managers are in charge of deciding

how to launch a product, regional managers are allowed to make modifications based on

the region. Anand, N., & Daft, R. L. (2007). What is the right organization design? Organizational Dynamics, 36(4), 329–

344.

Boundaryless Organizations

Boundaryless organization is a term coined by Jack Welch during his tenure as CEO of

GE; it refers to an organization that eliminates traditional barriers between departments

as well as barriers between the organization and the external environment. Ashkenas, R.,

Ulrich, D., Jick, T., & Kerr, S. (1995). The Boundaryless organization: Breaking the chains of organizational structure. San

Francisco: Jossey-Bass. Many different types of boundaryless organizations exist. One form is

the modular organization, in which all nonessential functions are outsourced. The idea

behind this format is to retain only the value-generating and strategic functions in-

house, while the rest of the operations are outsourced to many suppliers. An example of

a company that does this is Toyota. By managing relationships with hundreds of

suppliers, Toyota achieves efficiency and quality in its operations. Strategic

alliances constitute another form of boundaryless design. In this form, similar to a joint

venture, two or more companies find an area of collaboration and combine their efforts

to create a partnership that is beneficial for both parties. In the process, the traditional

boundaries between two competitors may be broken. As an example, Starbucks formed

a highly successful partnership with PepsiCo to market its Frappuccino cold drinks.

Starbucks has immediate brand-name recognition in this cold coffee drink, but its desire

to capture shelf space in supermarkets required marketing savvy and experience that

Starbucks did not possess at the time. By partnering with PepsiCo, Starbucks gained an

important head start in the marketing and distribution of this product. Finally,

boundaryless organizations may involve eliminating the barriers separating employees;

these may be intangible barriers, such as traditional management layers, or actual

physical barriers, such as walls between different departments. Structures such as self-

managing teams create an environment where employees coordinate their efforts and

change their own roles to suit the demands of the situation, as opposed to insisting that

something is “not my job.” Dess, G. G., Rasheed, A. M. A., McLaughlin, K. J., & Priem, R. L. (1995). The new corporate

architecture. Academy of Management Executive, 9(3), 7–18; Rosenbloom, B. (2003). Multi-channel marketing and the retail value

chain. Thexis, 3, 23–26.

Learning Organizations

A learning organization is one whose design actively seeks to acquire knowledge and

change behavior as a result of the newly acquired knowledge. In learning organizations,

experimenting, learning new things, and reflecting on new knowledge are the norms. At

the same time, there are many procedures and systems in place that facilitate learning at

all organization levels.

In learning organizations, experimentation and testing potentially better operational

methods are encouraged. This is true not only in response to environmental threats but

also as a way of identifying future opportunities. 3M is one company that

institutionalized experimenting with new ideas in the form of allowing each engineer to

spend one day a week working on a personal project. At IBM, learning is encouraged by

taking highly successful business managers and putting them in charge of emerging

business opportunities (EBOs). IBM is a company that has no difficulty coming up with

new ideas, as evidenced by the number of patents it holds. Yet commercializing these

ideas has been a problem in the past because of an emphasis on short-term results. To

change this situation, the company began experimenting with the idea of EBOs. By

setting up a structure where failure is tolerated and risk taking is encouraged, the

company took a big step toward becoming a learning organization. Deutschman, A. (2005, March).

Building a better skunk works. Fast Company, 92, 68–73.

Learning organizations are also good at learning from experience—their own or a

competitor’s. To learn from past mistakes, companies conduct a thorough analysis of

them. Some companies choose to conduct formal retrospective meetings to analyze the

challenges encountered and areas for improvement. To learn from others, these

companies vigorously study competitors, market leaders in different industries, clients,

and customers. By benchmarking against industry best practices, they constantly look

for ways of improving their own operations. Learning organizations are also good at

studying customer habits to generate ideas. For example, Xerox uses anthropologists to

understand and gain insights to how customers are actually using their office products.

Garvin, D. A. (1993, July/August). Building a learning organization. Harvard Business Review, 71(4), 78–91. By using these

techniques, learning organizations facilitate innovation and make it easier to achieve

organizational change.

K E Y T A K E A W A Y

The changing environment of organizations creates the need for newer forms of

organizing. Matrix structures are a cross between functional and product-based

divisional structures. They facilitate information flow and reduce response time to

customers but have challenges because each employee reports to multiple managers.

Boundaryless organizations blur the boundaries between departments or the boundaries

between the focal organization and others in the environment. These organizations may

take the form of a modular organization, strategic alliance, or self-managing teams.

Learning organizations institutionalize experimentation and benchmarking.

E X E R C I S E S

1. Have you ever reported to more than one manager? What were the challenges of such a

situation? As a manager, what could you do to help your subordinates who have other

bosses besides yourself?

2. What do you think are the advantages and disadvantages of being employed by a

boundaryless organization?

3. What can organizations do to institutionalize organizational learning? What practices

and policies would aid in knowledge acquisition and retention?

Licensing Information: This text, “Principles of Management,” was adapted by Saylor Academy under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License without attribution as requested by the work's original creator or licensor. Some header and font editing has been done by BC Online. Saylor Academy would like to thank Andy Schmitz for his work in maintaining and improving the HTML versions of these textbooks. This textbook is adapted from his HTML version, and his project can be found here.