Employees who perform a common task are grouped together so as to permit economies of scale and efficient resource use. At American Airlines, all information systems people work in the same department. They have the expertise for handling almost any problem within a single, large department. The issues related to managerial policy and technical aspects of information system are resolved under one department of information system. (Mills; Simmons & Mills, 2005)
The functional structure also offers a way to centralize decision making and provide unified direction from the top. Apple Co. has centralized decision making process with its CEO Steve Jobs having central authority in the process. Communication and coordination among employees within each department are excellent. This structure is most suitable for Apple as it promotes high quality technical problem solving. (Mills; Simmons & Mills, 2005)
Most large corporations have separate business division that perform different tasks, serve different clients or use different technologies. For example PepsiCo has divisions based on product lines such as Frinto-Lay, Pizza Hut, Taco Bell, North American Van Lines and Wilson’s Sporting Goods. Each division has its own departments which are smaller and focuses only on a single product. Marketing, Finance and Manufacturing departments are therefore duplicated across product lines. (Mills; Simmons & Mills, 2005)
Companies also have geographic divisions. For example at LSI Logic Corporation, management’s strategy is to divide the world into three geographic markets- Japan, the US and Europe. The competitive advantage comes from the production or sale adapted to local market conditions. Each division has all the resources to focus on the fierce competition in its part of the world. (Mills; Simmons & Mills, 2005)
At Marriot, the room services are provided with a very tightly centralized system of policies, procedures and control. Room attendants have to follow the standard procedure in cleaning a room, from dusting top of pictures to keeping telephone books in neat conditions. (Roberts, 2007)
The Geico Car Insurance is a firm that has a very standardized form of terms and conditions related to insurance. Customers cannot negotiate on these terms and clause according to the environmental concern they have. The company has a very centralized and formalized procedure if any new clause has to be added in the policy. (Roberts, 2007)
This type of structure is best for an organization that faces an uncertain environment. Dow Chemical set up SWOT teams that can swing into action if any unexpected disaster strikes. These teams include members from multiple departments who can provide the expertise needed for solving an immediate problem, such as plant explosion. (Roberts, 2007)
Microsoft is a giant software company in which knowledge management has central value to the success of the organization. In order to allow explicit and implicit information to flow through out the organization, Microsoft has organic structure with employees working in teams to allow greater informal communication. (Roberts, 2007)
Companies’ structure using Woodward’s manufacturing technology
Altria Group Inc. is a tobacco company whose tobacco production process is standardized and mass produces the cigarettes. Thus machines are designed to do most of the physical work and employees complement the machinery. On the other hand, British Petroleum Company has production technology in which entire work flow is mechanized. The petroleum production is a continuous process and human operators are not part of actual production because machinery does all of the work. Human operators simply read dials, fix machines that break down and manage the production process. (Iansiti, 1997)
Companies’ structure using service technology
Service organizations are characterized by intangible output and direct contact with customers. Pizza Hut, in its quest to provide Free Home Delivery service to customers, has very sophisticated system of technology and employees so that customers can be contacted promptly and pizza be delivered on time. One of the industries where the firms have more direct contact with customers while providing services is auditing. KPMG provides accounting audits as well as accounting advisory services and this requires them to employee service technology where structure tends to be organic, informal, decentralized and high level of lateral communication. (Iansiti, 1997)
Companies’ structure using Digital technology
At Deere’s Harvester Works, planters are produced in modules, like little factories inside the factory, each with all dedicated machine and employee resources needed. The factory builds 84 different planter models but has the capacity to produce options that make it possible for a farmer to order a planter equipped just the way he wants it. Hence it amounts to 1.6 million unique planters that could be ordered. Sun rise Medical also uses digital technology to make wheel chairs tailored to an individual customer’s exact specification. (Pham & Dimov, 2001)
Iansiti, M. (1997). Technology Integration: Making Critical Choices in a Dynamic World (Management of Innovation and Change Series). Harvard Business School Press.
Mills; Simmons & Mills, A.J., T. & J.H. (2005). Reading Organization Theory: A Critical Approach to the Study of Organizational Behaviour and Structure. Garamond Press.
Pham & Dimov, D.T. & S.S. (2001). Rapid Manufacturing: The Technologies and Applications of Rapid Prototyping and Rapid Tooling. Springer.
Roberts, J. (2007). The Modern Firm: Organizational Design for Performance and Growth. Oxford University Press.
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Topic: Factors Shaping Structures
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