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222 PART 3 • STRATEGY IMPLEMENTATION

TABLE 7-6 Symptoms of an Ineffective Organizational Structure
1. Too many levels of management
2. Too many meetings attended by too many people
3. Too much attention being directed toward solving interdepartmental conflicts
4. Too large a span of control
5. Too many unachieved objectives
6. Declining corporate or business performance
7. Losing ground to rival firms
8. Revenue and/or earnings divided by number of employees and/or number of managers is low
compared to rival firms

strategies and how these changes can best be accomplished. We examine this issue by
focusing on seven basic types of organizational structure: functional, divisional by
geographic area, divisional by product, divisional by customer, divisional process, strategic
business unit (SBU), and matrix.

The Functional Structure
The most widely used structure is the functional or centralized type because this struc-
ture is the simplest and least expensive of the seven alternatives. A functional structure
groups tasks and activities by business function, such as production/operations, market-
ing, finance/accounting, research and development, and management information
systems. A university may structure its activities by major functions that include acad-
emic affairs, student services, alumni relations, athletics, maintenance, and accounting.
Besides being simple and inexpensive, a functional structure also promotes specializa-
tion of labor, encourages efficient use of managerial and technical talent, minimizes the
need for an elaborate control system, and allows rapid decision making.
Some disadvantages of a functional structure are that it forces accountability to the
top, minimizes career development opportunities, and is sometimes characterized by low
employee morale, line/staff conflicts, poor delegation of authority, and inadequate
planning for products and markets.
A functional structure often leads to short-term and narrow thinking that may under-
mine what is best for the firm as a whole. For example, the research and development
department may strive to overdesign products and components to achieve technical
elegance, while manufacturing may argue for low-frills products that can be mass pro-
duced more easily. Thus, communication is often not as good in a functional structure.
Schein gives an example of a communication problem in a functional structure:
The word “marketing” will mean product development to the engineer, studying
customers through market research to the product manager, merchandising to the
salesperson, and constant change in design to the manufacturing manager. Then
when these managers try to work together, they often attribute disagreements to
personalities and fail to notice the deeper, shared assumptions that vary and dictate
how each function thinks. 4
Most large companies have abandoned the functional structure in favor of decentral-
ization and improved accountability. However, two large firms that still successfully use a
functional structure are Nucor Steel, based in Charlotte, North Carolina, and Sharp, the
$17 billion consumer electronics firm.
Table 7-7 summarizes the advantages and disadvantages of a functional organizational
structure.

The Divisional Structure
The divisional or decentralized structure is the second most common type used by U.S.
businesses. As a small organization grows, it has more difficulty managing different
products and services in different markets. Some form of divisional structure generally