Organizational Designs and Strategy
mind that, for public companies, the board plays a critical role in overseeing and sometimes taking control of what management does.
2.6 Organizational Designs and Strategy Organizing is the deployment of organizational resources to achieve strategic objectives. It entails dividing the workforce into specific departments and jobs, identifying formal lines of authority, and creating mechanisms for coordinating diverse organizational tasks. Organizational design is thus a major determinant of whether the strategy can be implemented effectively. Strategy execu- tion depends on competent people who have the resources and the knowledge, and who know what to do and how their jobs relate to everyone else’s. Additionally they require information where and when they need it. How the company is staffed and organized becomes critical. Over time, as the organization grows, the difficulties of implementing the strategy increase. For exam- ple, as it grows to become an international organization, or broadens its product line, or acquires other companies, of necessity will its organizational design evolve. While details about executing strategies come later in the book, this section introduces the different kinds of organizational design and the reasons each one is effective.
Functional Organizational Design The functional organizational design is the most common design used by business single-companies (Figure 2.1). It groups employees together according to discrete functional activ- ities in the belief that the work will be done more effectively. Employees of small companies organized this way generally aren’t aware they are using a specific “design” because it happens to be so common.
Functional organizational designs are variants of the following struc- ture. At the top of the hierarchy sits the CEO or president. In public companies this includes the chair- man of the board of directors and office of legal counsel. Below the CEO are a number of vice presidents, each responsible for one or more functional areas. Some companies have a chief operating officer (COO) or executive VP, who has
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Functional organizations are usually led by a CEO, with posi- tions for a VP of Finance, VP of Marketing, VP of Production, VP of Human Resources, VP of Research and Development, and possibly a VP of Engineering.
CHAPTER 2Section 2.6 Organizational Designs and Strategy
the authority to act as CEO in the latter’s absence. That executive sometimes oversees the func- tional vice presidents. Reporting to most vice presidents are C-level officers, with responsibilities for their functional area. Examples include the CFO (chief financial officer), CMO (chief marketing officer), CTO (chief technology officer), and newer ones like CIO (chief information officer) and CSO (chief strategy officer). Figure 2.1 illustrates the basic functional organization design.
VP Marketing VP Human Res.VP Finance VP Production VP R&D VP Engineering
Legal CounselChairman of the Board
Chief Operating Officer