Once it has been decided what factors it is important for the restructure to meet, it is important to demonstrate that these are better achieved through this structure rather than any other one.
Design options are the different ways in which the particular organization can be structured. It is not within the scope of this article to discuss in depth the different types of organizational structure – readers are encouraged to read an overview in Organization Theory edited by D S Pugh (1990). However we are interested not only in the general impact of restructuring but also in any specifics relating to a move from one type of structure to another. Miles and Snow (1984) detailed the evolution of organizational structure and its relationship to business strategy:
- An entrepreneurial structure when there is a single product or service, or local/regional markets.
- A functional structure when there is a limited, standardized product or service line, or regional/national markets.
- A divisional structure when there is a diversified, changing product or service line, or national/international markets.
- A matrix structure when there are standard and innovative products or services, or stable and changing markets.
- A dynamic network when there is the need for product or service design or global changing markets.
The majority of organizations are structured according to an entrepreneurial, functional, divisional or matrix structure. All have their advantages and their limitations.
Advantages and limitations of different types of organization structure Structure
Entrepreneurial
Functional
Divisional by product, geography or both
Matrix
Main features
Organized around one central figure.
Totally centralized; no division of responsibility
Organized around tasks to be carried out.
Centralized.
Divisions likely to be profit centres and may be seen as strategic business units for planning and control purposes.
Divisions/ business units headed by general managers who have responsibility for their own resources.
Decentralized.
Double definition of profit centres.
Permanent and full dual control of operating units – though one will be generally more powerful than the other.
Authority and accountability defined in terms of particular decisions.
Situations where appropriate
Simple companies in early stages of their development
Small companies, few plants, limited product or service diversity.
Relatively stable situations.
Growing in size and complexity.
Appropriate divisional/ business splits exist.
Organizations growing through mergers and acquisition.
Turbulent environments.
When producing a number of different products or services.
Geographic splits with cultural distinctions in company’s markets.
Large multi- product, multinational companies with significant interrelationships and interdependencies.
Small sophisticated service companies.
Advantages
Enables the founder, who has a logical or intuitive grasp of the business, to control its early growth and development
Controlled by strategic leaders/ chief executive. Relatively low overheads.
Efficient.
Clearly delineated external relationships.
Specialist managers develop expertise.
Relatively simple lines of control.
Can promote competitive advantage through the func
Spreads profit responsibility.
Enables evaluation of contributions of various activities.
Motivates managers and facilitates development of both specialists and generalists.
Enables adaptive change.
CEO concentrates on corporate strategy.
Growth through a
Can be entrepreneurial.
Divestment can be managed more easily.
Decisions can be taken locally, decentralized within a large corporation, which might otherwise be bureaucratic.
Optimum use of skills and resources – and high- quality informed decisions, reconciling conflicts within the organization.
Enables control of growth and increasing complexity.
Opportunities for management development.
Limitations
Founder may have insufficient knowledge in certain areas.
Only appropriate up to a certain size.
Succession problems – specialists not generalists are created.
Unlikely to be entrepreneurial or adaptive.
Profit responsibility exclusively with CEO.
Becomes stretched by growth and product diversification.
Functional managers may concentrate on short-te strategic developments.
Problems of ensuring coordination between functions – rivalry may develop.
Functional experts may seek to build mini- empires.
Conflict between divisions for resources.
Possible confusion over locus of responsibility (local or head office).
Duplication of efforts and resources.
Divisions may think short-term and concentrate on profits.
Divisions may be of different sizes and some may grow very large.
Evaluation of relative performances may be difficult.
Coordination of interdependent divisions and establishing transfer pricing may be difficult.
Difficult to implement.
Dual responsibilities can cause confusion.
Accounting and control difficulties.
Potential conflict between the two wings, with one generally more powerful.
High overhead costs.
Decision making can be slow.