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Module 1: Organizational Structure Change

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Contemporary Forms of Organizational Structure

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Organizational Structure
Contemporary Forms of Organizational Structure

Contemporary Forms of Organizational Structure

Introduction

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.

This unit will examine the following organizational structures:

Matrix Organizations

Boundaryless Organizations

Learning Organizations

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.

Note

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. [1]

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.

Matrix Organizations (Continued)

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

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. [3]


Note

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. [2]

Boundaryless Organizations

Boundaryless organizations are organizations that eliminates traditional barriers between departments as well as barriers between the organization and the external environment. [4]

Many different types of boundaryless organizations exist, including the modular organization and the strategic alliance.

Modular Organization

In a modular organization, 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 Alliance

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.

Boundaryless Organizations (Continued)

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.” [5]

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.

Example

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. [6]

Learning Organizations (Continued)

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.

Example

For example, Xerox uses anthropologists to understand and gain insights to how
customers are actually using their office products. [7]

By using these techniques, learning organizations facilitate innovation and make it easier to achieve organizational change.

Bibliography

[1] Joyce, W. F. (1986). Matrix organization: A social experiment. Academy of Management Journal, 29, 536-561.

[2] 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.

[3] Anand, N., & Daft, R. L. (2007). What is the right organization design? Organizational Dynamics, 36(4), 329-344.

[4] Ashkenas, R., Ulrich, D., Jick, T., & Kerr, S. (1995). The Boundaryless organization: Breaking the chains of organizational structure. San Francisco: Jossey-Bass.

[5] Dess, G. G., Rasheed, A. M. A., McLaughlin, K. J., & Priem, R. L. (1995). The new corporate archhitecture. Academy of Management Executive, 9(3), 7-18; Rosenbloom, B. (2003). Multi-channel marketing and the retail value chain. Thexis, 3, 23-26.

[6] Deutschman, A. (2005, March). Building a better skunk works. Fast Company, 92, 68-73.

[7] Garvin, D. A. (1993, July/August). Building a learning organization. Harvard Business Review, 71(4), 78-91.

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