Eight Primary Options

1
Eight Primary Options For Choosing
Organizational Structure
Source B.A. Macy, Successful Strategic Change,
Berrett-Koehler Publishers, San Francisco, CA
(forthcoming)
2
The Common Eight Different Options
for Organization Structure

• The Headquarters Structure
• The Centerless Decentralization Structure
• The Functional Structure
• The Product Structure
• The Market (Customer) Structure
• The Geographical Structure
• The Process Structure
• The Hybrid Structure Combinations of the
• above seven

Source B.A. Macy, Successful Strategic Change,
Berrett-Koehler Publishers, San Francisco, CA
(forthcoming)
3
History of Organization Design /HPWS
Corporate Office
SBUs/ G.B.U.s and LOBs (P/L Centers) Global
Services/ GBU/ SBU
21st Century
Value Chain Design
Demand Side
Supply Side
Organization Design HPWS at Supply Side of
Value Chain
1990s
Organization Design HPWS at Operations
1960s 1980s
4
The Five Types of Macro Structure
Entire Global Organizational Design
1. 2. 3.a 4. 5.
Strategic Organization Unit (GBUs/S.B.U./LOBs/P
/L Centers) Design
Supply-Chain/ Product Supply Alignment
Demand Chain Alignment
3.b
Value Chain
P/L Centers
Revised 7/1/99
Enterprise teams
Source B.A.Macy, Successful Strategic Change
Berrett-Koehler Publishers, San Francisco, CA
(forthcoming)
5
The Interaction of Macro Organization Structure
and Work Team Micro Structure
Macro Organization Structure Type 4 --
Profit Center (For Example AES Plant or a
Store)
Micro Team Design
6
Typical Movement from a National Structure to a
Multi-National Structure
High
5
International/ Centerless Structure
Integrated/ Centerless Structure
4
GBU Structure
GBU Structure
3
Market Share
SBU Structures
SBU Structures
2
International Division Structure
International Division Structure
1
National Structure
National Structure
National Structure
Low
Time
Time
Very Mature
Early
7
21st Century Organization Design
Markets/ Sales Orgs. MDOs
GBUs
-Bus. A -Western Europe
-Bus. B -Central or Eastern Europe
-Bus. C -Middle East Africa
-Bus. D -Northern Asia
-Bus. E -Greater China
-Bus. F -North America
-Bus. -Latin America
8
-South America
-Others
8
21st Century Organization Design
Global Business Services (GBS) In/ Outsourcing
Corporate Functions/ Expertise Centers
9
21st Century Organization Design
Markets/ Sales Orgs. MDOs
GBUs
-Bus. A -Western Europe
-Bus. B -Central or Eastern Europe
-Bus. C -Middle East Africa
-Bus. D -Northern Asia
-Bus. E -Greater China
-Bus. F -North America
-Bus. -Latin America
8
-South America
-Others
Global Business Services (GBS) In/ Outsourcing
Corporate Functions/ Expertise Centers
10
QuestionIs your Firm a Cost Center or a
Profit Center?

• Cost center
• Emphasis on
• Costs

• P/L Center
• Emphasis on
• Customer Satisfaction/ Loyalty/ repeat business
• Quality
• Service
• Innovation
• Production
• Costs

11
Four Key Concepts / Issues of Structure ( to be
analyzed for your case)

• Integration
• Coordination
• Communications
• Power Control

12
Time
GO/ Corporate Office
6th Century early 1970
P/L
SBU/ GBU
1970s-Now
P/L
LOBs/ Brands/ Products
1980s-Now
Modified P/L
ET/ Stores/ Countries/Regions
1990s-Now
Modified P/L
13
The Headquarters Models of Structure
Pros Cons

• Efficiency NOT very effective in todays
  turbulent times
• Communication and coordination among business
  and product
• units suffer
• Dysfunctional strategy evolves as field units
  focus on own
• business landscape and diverge from
  corporate direction
• Leadership careers are aimed at hierarchical
  advancement..
• propagates inclusion/exclusion dynamics
  leading to loyalty
• cliches (homophile tends to prelude
  diversity detract
• from creativity.
• Proclivity for assignees to field units to go
  native and focus
• on field unit needs to exclusion of entire
  system or other
• field units.
• Rigidity slows adaptation of innovation, in
  particular, IT/
• Telecom legacy systems difficult to update
• Risk management is encumber ed by slow response
  
• duplicate controls
• Internal focus 1) slows adaptation to
  customers/markets and/
• or 2) creates backlash resistance within
  ranks when one
• field unit is treated better

• Easy to use everyone has one boss
• Relies on Power and Control
• Career circuits across field units proffers high
  caliber general
• management
• Strong governance promotes transparency in
  accounting
• reconciliation and due diligence
• Establishes an order quickly for uniform results
  once the
• pathway is established
• Uniformity in IT likely making standards and
  networks easy
• to apply

Who is Using?

• Amazon.com, U.S. Govt., G.M.- PRC industry
  monoliths, most overseas Chinese Dynastic Firms -
  Very few using

Issues Implementation

• Mission, policy statements, standards/manuals,
  consistent personnel practices must be
  well-conceived and uniformly adopted
• by leadership at all levels
• Orientation and training must be exhaustive to
  mature core group compliance to corporate
  direction and willing to enforce
• Systems need to be fully developed at
  implementation as adaptation and correction will
  be closely scrutinized and thus time
• consuming
• Resistance is likely to any change to standing
  routine or regime
• Role of H.Q. Strategic Planning vs. Strategic
  Control vs. Management by the Members

Source B.A. Macy, Successful Strategic Change,
Berrett-Koehler Publishers, San Francisco, CA
(forthcoming)
14
The Headquarters Model
Headquarters
Field A
Field B
Field C
15
Centralized Headquarters Model
B
A
Mainly Flows of Goods
H.Q.
C
F
D
E
Tight, Simple Controls (key strategic decisions
made centrally)
16
Choosing Organization Structures -2
2. The Centerless-Decentralized Structure Model

• Integrated Network
• Differentiated Network
• S.B.U., LOBs, and field units is where the
  Power and
• Control and Decision Making resides
• H.Q. acts as a holding company
• Communication flows from the S.B.U.s, LOBs,
  and
• field units also into H.Q.
• Coordination is within and across the S.B.U.s,
  LOBs,
• and field units
• Effectiveness is the goal

Source B.A. Macy, Successful Strategic Change,
Berrett-Koehler Publishers, San Francisco, CA
(forthcoming)
17
3. Functional Structure

• Small-size, single-product
• Undifferentiated market
• Scale or expertise within the function
• Long product development and life cycles
• Common standards
• Usually, early on in the Organizational Life
  Cycle

Source B.A. Macy, Successful Strategic Change,
Berrett-Koehler Publishers, San Francisco, CA
(forthcoming)
18
Functional Organization Structure
General manager
Finance
Human resources
Research and development
Operations
Product marketing
19
Choosing Organization Structures -4
4. Product Structure

• Product or Groups of Products focused
• Multiple products for separate customers
• Short product development and life cycle
• Minimum efficient scale for functions or
  outsourcing

Source B.A. Macy, Successful Strategic Change,
Berrett-Koehler Publishers, San Francisco, CA
(forthcoming)
20
Product Group Structure of a Consumer Products
Company
CEO
Corp. Headquarters Staff
Toiletries S.B.U.
Soap S.B.U.
Paper S.B.U.
Food S.B.U.
RD
Towel
Tissue
Diapers
Sales
21
Choosing Organization Structures - 5
5. Market (Customer) Structure

• Key market (customer) segments
• Products and/or services unique to segment
• Buyer (customer) strength
• Customer knowledge advantage
• Rapid customer service and product cycles
• Minimum efficient scale in functions or
  outsourcing

Source B.A. Macy, Successful Strategic Change,
Berrett-Koehler Publishers, San Francisco, CA
(forthcoming)
22
Market (Customer) Segments and Lateral Functions
S.B.U. General manager
Finance
Operations
Sales/marketing
Information technology
Human Resources
Health
Financial services
Governments
Distribution
Sales
Sales
Sales
Sales
Marketing
Marketing
Marketing
Marketing
Information technology
Information technology
Information technology
Information technology
Installation and repair
Installation and repair
Installation and repair
Installation and repair
Network operations
Network operations
Network operations
Network operations
23
Choosing Organization Structures - 6
6. Geographical Structure

• Low value-to-transport cost ratio
• Service delivery on-site
• Closeness to customer for delivery or support
• Perception of the organization as local (not
  global)
• Geographical market (customer) segments needed

Source B.A. Macy, Successful Strategic Change,
Berrett-Koehler Publishers, San Francisco, CA
(forthcoming)
24
Geographical (Pre-Restructuring)
CEO Industrial Gases
AFROX (South Africa)
Process Plants
North Pacific
AirCo (U.S.A)
U.K. Gases
CIG (Australia)
25
Choosing Organization Structures - 7
7. Process Structure

• Best seen as an alternative to the functional
  structure
• Potential for new processes and radical change to
  processes
• Reduced working capital
• Need for reducing process cycle times

Source B.A. Macy, Successful Strategic Change,
Berrett-Koehler Publishers, San Francisco, CA
(forthcoming)
26
Process Organization Structure
General manager
New product development process
Order fulfillment process
Customer acquisition and maintenance
New product teams
Product teams
Customer teams
27
Choosing Organization Structures - 4
8. Hybrid Structure Model

• Best seen as a combination option to the above
  seven different types
• of structures
• A combination of one to three of the above seven
  types of structure
• Perception of the organization as being both
  global and local
• Horizontal S.B.U.s, LOBs Integrated/Differenti
  ated Networks
• Matrix Design
• Market/Customer Focus Enterprise Teams
• Used where the need for great flexibility
  (market/customer and innovation)
• is demanded.
• Potential to maximize learning (information and
  knowledge sharing)

Source B.A. Macy, Successful Strategic Change,
Berrett-Koehler Publishers, San Francisco, CA
(forthcoming)
28
ABB (Simplified Structure)-1
CEO (Percv Bamevik) (previous CEO Thought up
this structure)
Executive Committee
Power Transformers
Robots
Power Generation
47 Other Business Areas
Germany
U.S.A
National Companies
Norway
137 Other National Companies
29
ABB Four Types of Organization Structures - 2
Corporate Office
A
(Very Small)
B
3 Regions and 4 Businesses Areas (BAs)
Regions-National Companies
1
2
3
1 2 3
1 2 3 4
1
Global Business Areas
2
Corporate Structures
Tight/Clear Accountability/Responsibility
Through a Single Financial Performance
Measurement System
3
4
C
Company Presidents
Local Country Companies and Many Profit Center
Structures
(some are also Country Managers) - 1 or 2 levels
5,000 Profit Centers (lead by Profit Center
Managers 3 levels to lowest person)
D
________________ Source B.A.Macy, Successful
Strategic Change Berrett-Koehler Publishers, San
Francisco, CA (forthcoming)
30
Which one is best? It Depends!
Source B.A. Macy, Successful Strategic Change,
Berrett-Koehler Publishers, San Francisco, CA
(forthcoming)
31
Summary for Organization Structure 1
There is no silver bullet when it comes to
creating an organizational structure. There is
not one ideal form of organization, and the best
advice I give to people is that they should
relax and stop searching
____________________________ Source B.A. Macy,
Successful Strategic Change, Berrett-Koehler
Publishers, San Francisco, CA (forthcoming)
32
At the end--------- count on your people (NOT
Organization Structure!) Remember you can
change all the deck chairs on the Titanic (as
many Time as you want), the boat will Still
sink!!
Source B.A. Macy, Successful Strategic Change,
Berrett-Koehler Publishers, San Francisco, CA
(forthcoming)