sustain 2011.03
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Organizational Structure2
Effective structures provide: Stability Flexibility
Structural stability provides: The capacity required to consistently and
predictably manage daily work routines Structural flexibility provides for:
The opportunity to explore competitive possibilities
The allocation of resources to activities that shape needed competitive advantages
Functional organizational structure Employees are grouped together according to
their similar tasks, skills or activities. Functional structures are suitable for SMEs with high level of specialization. The decision making is centralized at the
top of the organization.
Benefits of functional organizational structure
Efficient use of resources;
In-depth skill development;
Clear career paths;
Strategic decisions are made on the top of the organization.
Disadvantages od functional design
Slow decision making
Less innovative.
Performance responsibility is unclear;
Limited management training.
Poor coordination across functions.
Divisional organizational structure It is suitable for medium sized to big
companies, Expanding geographically or on
customer base. A Divisional design means that all
activities needed to produce a good or service are grouped into an anonymous unit.
Differences between functional and divisional design
Functional designs are based on groupings by input;
Each department is not an independent profit center;
Divisional design considers output such as product, customer or location.
Each division is independent profit center;
Forms of divisional responsible design
Product division.
• Each unit is for a single product or a group of related products. Division by products is created when there is specific in the production process;
Customer division.
• Organization sells products to diverse group of customers.
Geographic division.
• It is advantageous when is necessary to locate facilities close to customers who have differences in regional tastes or needs.
Strengths of divisional design:
Adaptation to unstable environme
nt;High customer satisfaction;
High task coordination;
Clear performance responsibility;
General management training.
Weaknesses of divisional design
Inefficient use of resources;
Low-in depth training. Decrease of the number of personnel reduces
the specialization;
Focus on division’s objectives.
Difficult coordination
between headquarter and
the division.Loss of control.
Hybrid design
Hybrid design is one that has divisional units but also have functional departments specialized and centralized in the headquarter.
Matrix design
It implements functional and divisional structures simultaneously in each department.
The worker in each department is being supervised by two bosses at the same time.
It is suitable for the following situations:
Environmental
pressure exists for a dual focus;
Large amount of information needs to
be processed;
Innovations are
performed
Organization is
working on several projects together.
Efficiency is needed in the use
of resources.
Strengths of matrix design
Provides flexibility;
Encourages resource
efficiency;
Enhances skill development;
Increase motivation and commitment;
Helps top management in planning process.
Weaknesses of Matrix Design
Confusion
Cross Responsibili
tiesRisk of inefficie
ncy
Group task
Give example of organizations having functional, divisional design.
For which industry is functional design more appropriate and when divisional is suitable?
Hierarchical Functional Matrix Product
Ringed- Fence (Virgin)
Keiretsu
Book Additional
Zaibatsu
Rich Merchants in Edo Period (Gosho)
Sumitomo
-16c Adopt Western copper refining, copper trade (Kyoto)-17c Move to Osaka-Besshi Copper Mine (under Bakufu’s commission)<Transition to Meiji>
Manager: Saihei Hirose-Avoiding gov’t confiscation-Introducing Western mining technology to renovate Besshi-Business diversification
MITSUI
-17c From Matsuzaka-Kimono trade & money exchange in Edo, Kyoto, Osaka – huge success<Transition to Meiji>
Manager: Rizaemon Minomura-Cope with bakufu policy to protect Mitsui business-Support and work with new government-Internal reform: from gosho to zaibatsu-1876 Establish Mitsui Bank & Mitsui Trading Company
Yataro Iwasaki (1835-85)
Seisho ( 政商 ) from Tosa, founder of Mitsubishi Zaibatsu
Shipping company--grew fast with government support (receiving gov’t ships, contract for military transport)
Established Nippon Yusen (NYK Line), fierce battle with Kyodo Unyu (anti-Mitsubushi company), 1883-85
Expanded to many areas: trade, banking, shipbuilding, coal, mining (later, more)
Keiretsu
Mitsubishi
Mitsui
Sumitomo Fuji
Dai-Ichi Kangyo (DKB)
Sanwa
DKB
Asahi Mutual Life Insurance (DKB)
The Dai-ichi Mutual Life Insurance Company (DKB)
Daiichi Sankyo Dentsu (DKB) Fujitsu (Furukawa) Hitachi (Hitachi) Ishikawajima-Harima Heavy
Industries (IHI) Isuzu (IHI) ITOCHU (DKB) JFE Holdings (Kawasaki) Kawasaki Heavy Industries
(Kawasaki) Kao (DKB)
K Line (Kawasaki) Kobe Steel (Suzuki) Meiji Seika (DKB) Mizuho (Mizuho Financial
Group) Seibu Department Stores
(DKB) Sojitz (Suzuki) Sompo Japan Insurance (DKB) Taiheiyo Cement (Asano) Tokyo Dome (DKB) The Tokyo Electric Power
Company (DKB) Tokyo FM (DKB) Yokohama Rubber Company
(Furukawa)
DKB
Asahi Mutual Life Insurance (DKB)
The Dai-ichi Mutual Life Insurance Company (DKB)
Daiichi Sankyo Dentsu (DKB) Fujitsu (Furukawa) Hitachi (Hitachi) Ishikawajima-Harima Heavy
Industries (IHI) Isuzu (IHI) ITOCHU (DKB) JFE Holdings (Kawasaki) Kawasaki Heavy Industries
(Kawasaki) Kao (DKB)
K Line (Kawasaki) Kobe Steel (Suzuki) Meiji Seika (DKB) Mizuho (Mizuho Financial
Group) Seibu Department Stores
(DKB) Sojitz (Suzuki) Sompo Japan Insurance (DKB) Taiheiyo Cement (Asano) Tokyo Dome (DKB) The Tokyo Electric Power
Company (DKB) Tokyo FM (DKB) Yokohama Rubber Company
(Furukawa)
Keiretsu Structure
Horizontal keiretsu (kinyû keiretsu) Affiliated `brother and sister` companies
spanning different industries
Horizontal Keiretsus
Typical of a Japanese horizontal keiretsu is Mitsubishi where the Bank of Tokyo-Mitsubishi sits at the top of the keiretsu.
Also part of the core group is Mitsubishi Motors and Mitsubishi Trust and Banking followed by Meiji Mutual Life Insurance Company which provides insurance to all members of the keiretsu.
Mitsubishi Shoji is the trading company for the Mitsubishi keiretsu.
Vertical Keretsu
• Assembled parts move up to the parent through a pyramid of supply companies
Manufactoring keiretsu (sangyô)
• The parent sends finished goods down through a pyramid of distributors to retailers
Distribution keiretsu (ryûtsû)
Vertical Keiretsu
Group of companies within the horizontal keiretsu such as Toyota.
Toyota's success is dependent on suppliers and manufacturers for parts, employees for production, real estate for dealerships, steel, plastics and electronics suppliers for cars as well as wholesalers.
All ancillary companies operate within the vertical keiretsu of Toyota but are members of the larger horizontal keiretsu, although much lower on the organizational chart.
Vertical Integration