Page 200 - Fundamentals of Management Myths Debunked (2017)_Flat

CHAPTER 6 • Organizational Structure and Design 199
and its high centralization result in information overload at the top. As size increases, decision functional structure
making becomes slower and can eventually come to a standstill as the single executive tries to An organizational design that groups similar
continue making all the decisions. If the structure is not changed and adapted to its size, the firm or related occupational specialties together
can lose momentum and is likely to eventually fail. The simple structure’s other weakness is that divisional structure
it’s risky: Everything depends on one person. If anything happens to the owner-manager, the An organizational structure made up of separate
organization’s information and decision-making center is lost. As employees are added, however, business units or divisions
most small businesses don’t remain as simple structures. The structure tends to become more
specialized and formalized. Rules and regulations are introduced, work becomes specialized,
departments are created, levels of management are added, and the organization becomes increas-
ingly bureaucratic. Two of the most popular bureaucratic design options grew out of functional
and product departmentalizations and are called the functional and divisional structures.

whaT is The FunCTional sTruCTure? A functional structure is an organizational
design that groups similar or related occupational specialties together. You can think of this
structure as functional departmentalization applied to the entire organization. For example,
Revlon, Inc., is organized around the functions of operations, finance, human resources,
and product research and development.
The strength of the functional structure lies in the advantages that accrue from work
specialization. Putting like specialties together results in economies of scale, minimizes
duplication of personnel and equipment, and makes employees comfortable and satisfied
because it gives them the opportunity to talk the same language as their peers. The most obvi-
ous weakness of the functional structure, however, is that the organization frequently loses
sight of its best interests in the pursuit of functional goals. No one function is totally respon-
sible for results, so members within individual functions become insulated and have little
understanding of what people in other functions are doing.

whaT is The diVisional sTruCTure? The divisional structure is an organizational
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structure made up of separate business units or divisions. In this structure, each division
has limited autonomy, with a division manager who has authority over his or her unit and is
responsible for performance. In divisional structures, however, the parent corporation typi-
cally acts as an external overseer to coordinate and control the various divisions, and often
provides support services such as financial and legal. Health care giant Johnson & Johnson,
for example, has three divisions: pharmaceuticals, medical devices and diagnostics, and
consumer products. In addition, it has several subsidiaries that also manufacture and market
diverse health care products. A team-based structure at W. L. Gore & As-
The chief advantage of the divisional structure is that it focuses on results. Division man- sociates is key to the company’s success as
agers have full responsibility for a product or service. The divisional structure also frees the a technology-driven firm and contributes to
its high associate satisfaction and retention.
headquarters staff from being concerned with day-to-day operating details so that they can Bill Gore created work teams when he started
pay attention to long-term and strategic planning. The major disadvantage of the divisional the company in 1958, and today all 9,000 Gore
structure is duplication of activities and resources. Each division, for instance, may have a associates located in 30 countries work in
cross-functional and self-managed teams.
marketing research department. If there weren’t any
divisions, all of an organization’s marketing research
might be centralized and done for a fraction of the
cost that divisionalization requires. Thus, the divi-
sional form’s duplication of functions increases the
organization’s costs and reduces efficiency.

What Contemporary Organizational

Designs Can Managers Use?

Lean. Flexible. Innovative.

Managers are finding that the traditional designs often
aren’t appropriate for today’s increasingly dynamic
and complex environment. Instead, organizations
need to be lean, flexible, and innovative; that is, more
organic. So managers are finding creative ways to
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