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Understanding the key factors of organizational structure

Organizational construction can be defined as the formal system of undertaking and authorization relationships that control how people coordinate their actions and utilize resources to accomplish organisational ends. ( Jones, et Al, 2010 )

Organizational construction specifies:

The house ‘s formal coverage relationships, processs, controls, and authorization and decision-making procedures ; and,

The work to be done and how to make it, given the house ‘s scheme or schemes

Developing an organisational construction that efficaciously supports the house ‘s scheme is hard, particularly because of the uncertainness about the cause-effect relationship in the planetary economic system ‘s quickly altering and dynamic competitory environments.

Organizational Controls

Organization Control includes any procedure designed to guarantee that organisation programs are carried out the manner they were designed. Control in the organisational context can be classified as:

1. Strategic controls

2. Financial controls

Strategic controls are mostly subjective standards intended to verify that the house is utilizing appropriate schemes for conditions in external environment and the company ‘s competitory advantage. Strategic controls are concerned with analyzing the tantrum between:

What the house might make ( chances in its external environment )

What the house can make ( competitory advantages )

Financial controls, on the other manus, are mostly nonsubjective standards used to mensurate the house ‘s public presentation against antecedently established quantitative standards.iii Financial controls have two standards:

Accounting-based steps include:

Tax return on investing

Tax return on assets

Market-based steps include:

Economic Value Added ( EVA )

Relative usage of controls varies by type of scheme. Large diversified houses utilizing a cost leading scheme stress fiscal controls. Companies and concern units utilizing a distinction scheme stress strategic controls. In relation with organisational construction, organisational controls are of import to mensurate the consequence caused by a alteration in the construction.

Relationships between Strategy and Structure

Scheme and construction have a mutual relationship. Structure flows from or follows the choice of the house ‘s scheme but one time in topographic point, construction can act upon current strategic actions every bit good as picks about future schemes.

Evolutionary Patterns of Strategy and Organizational Structure

The relationship between organisation ‘s scheme and construction was studied extensively by Alfred D. Chandler in his legendary book Strategy and Structure: Chapters in the History of the American Industrial Enterprise. Harmonizing to Chandler ( 1962 ) , houses grow in predictable forms:

First by volume

Then by geographics

Then integrating ( perpendicular, horizontal )

And eventually through product/business variegation

Chandler besides says that a house ‘s growing patterns find its structural signifier. All organisations require some signifier of organisational construction to implement and pull off their schemes. Firms often alter their construction as they grow in size and complexness. The three basic construction types are:

Simple construction

Functional construction

Multidivisional construction ( M-form )

Global enlargement construction

The undermentioned figure explains the alteration in organisational construction with growing and scheme.

Efficient execution of formulated scheme

Efficient execution of formulated scheme

Simple Structure

A simple construction is where the owner-manager makes all the major determinations and proctors all activities while the staff serves as an extension of the director ‘s supervisory authorization. ( C. Levicki, 1999 ) . This type of a construction is matched with focal point schemes and business-level schemes where houses normally compete by offering a individual merchandise line in a individual geographic market.

Functional Structure

A functional construction is a design that groups people together on the footing of their common expertness and experiences or because they use the same resources. ( Jones, et Al, 2010 ) Functional construction supports usage of business-level schemes and some corporate-level schemes individual or dominant concern with low degrees of variegation.

Multi-divisional Structure

The multi-divisional construction ( M-form ) consists of operating divsions, each stand foring a separate concern or net income centre in which the top corporate officer delegates duties for daily operations and business-unit scheme to division directors. Multi-divisional construction has three major benefits:

Corporate officers are able to more accurately supervise the public presentation of each concern, which simplifies the job of control

Facilitates comparings between divisions, which improves the resource allotment procedure

Stimulates directors of ill executing divisions to look for ways of bettering public presentation

International Strategies and Worldwide Structures

International schemes are going progressively of import for long-run competitory success in what continues to go a planetary economic system. The undermentioned model explains how organisations proper in a planetary economic system:

Global enlargement schemes

Global enlargement schemes can be understood in footings of local reactivity and geographical integrating within the company. On the footing of these two parametric quantities, four schemes of planetary enlargement have been arrived at. These are:

International scheme

Multi-domestic scheme

Global scheme

Transnational scheme

International Strategy

In instance of international scheme, houses decentralize all value-creation maps except for R & A ; D and selling.

Multi-domestic Strategy

Multi-domestic scheme is oriented towards local reactivity by deconcentrating control to subordinates and divisions in each state.

Global enlargement Strategy

Global enlargement scheme is oriented towards cost decrease, with all the chief value-creation maps centralized at the lowest cost planetary location.

Transnational Strategy

In a multinational scheme some maps are centralized, while others are decentralized at the planetary location best suited to accomplishing these aims.


Global Expansion

International integrating

Multi-domestic Strategy

International Strategy

Local Responsiveness

An observation on construction and scheme

The theory developed above is merely a guideline to how organisations might construction themselves in their chase of growing and planetary enlargement. However, these are non cosmopolitan regulations and many organisations have prospered in malice of constructions wholly out of sync with those discussed above. Organizations can besides utilize constructions which are a loanblend of those detailed supra.

This survey analyses the instances of two organisations, ABB and Semco, which have used contrastingly different constructions to implement their schemes.


“ Asea Brown Boveri ( ABB ) is seen by more and more planetary concern leaders as the theoretical account of the manner that organisations will hold to run to boom in the 21st century-that is, streamlined in construction, rapid in reassigning information, holding employees who are extremely empowered, committed to uninterrupted acquisition, running world-class HRD plans, and squad working and networking globally. ”

ABB became one of the most widely admired companies in the universe, non because of its merchandises, or its advanced engineering, but because of its organisational construction. ABB prided itself on being an organisation that its former CEO, Percy Barnevik, saw as being at the same time planetary and local, large and little, centralised and decentralized.

Formation of ABB: Amalgamation of Asea & A ; Brown Boveri

ABB was created by the amalgamation in 1987-88 of two companies whose roots lie in the 19th century: Asea, founded in Sweden in 1890, and Brown Boveri, established in Switzerland in 1891. The two companies were among the rush of industrial endeavors established towards the terminal of the nineteenth century to supply equipment for the quickly spread outing electrical power industry, which involved generating, transmission, and administering power, and utilizing it in industrial motors.

The strategic committedness to the power industry and to a planetary scheme was demonstrated in a rapid series of confederations and acquisitions. These moves quickly extended ABB ‘s international range into North America and Eastern Europe. The velocity with which these acquisitions were integrated into ABB was attributed to the flexibleness of its new organisation design.

Strategic Context

ABB ‘s largest concern is bring forthing and serving the equipment for bring forthing, conveying, and administering electrical power. The clients in this concern are electric public-service corporations around the universe, many of which are state-owned or strongly state-regulated. Because national or local authoritiess either straight ain or indirectly command the public-service corporations, they had a strong inclination to prefer providers with a local fabrication presence, both because local companies are lending to the local economic system and because they can be relied upon for serving and replacing parts for the complex power systems, any dislocation of which can hold tremendous costs for local concern and for the repute of the public-service corporation. But they have besides pressed providers to take down their monetary values and increase the life-time of equipment, cutting net income borders for providers that are unable to accomplish greater efficiency in production.

ABB is besides a universe leader in rail transit systems, such as engines, light rail vehicles, and signaling. Again, this is a concern in which rail webs are state-owned or state-regulated and capable to the same slightly contradictory force per unit areas to fabricate locally and to be locally antiphonal to clients, while accomplishing efficiency through scale economic systems and cost nest eggs.

A 3rd set of merchandises in ABB is directed to a really different type of client. Its edifice systems and industrial production systems are sold to industrial companies, whose concerns are much more focussed on monetary value.

ABB ‘s concerns require the company to be locally antiphonal and to keep a believable local presence in each of its major markets, and at the same time to be efficient and cost-competitive. Furthermore, runing in 140 states in a broad assortment of merchandise lines, many of which are closely related in the eyes of the client, the company needs to hold a high grade of intra-product and cross-product coordination if the company is to capture to the full the benefits of its merchandise diverseness. However, it besides needs to be able to react rapidly to clients and local jobs, and to promote its directors to take duty for their units.

Organizational Design of ABB

One of the first stairss taken after the amalgamation of Asea and Brown Boveri was announced in August 1987 was the creative activity of a undertaking force of five top directors from each of the two companies to bring forth an organisational architecture for ABB. The undertaking force had agreed on the chief characteristics of the new organisation. The construction was to be an international matrix of concern and geographics. The basic forming rule was to make extremely focussed local companies describing both to a worldwide concern director, who would be responsible for accomplishing efficiency in that merchandise line and turning the concern on a planetary graduated table, and to a state director responsible for organizing the assorted concerns within a peculiar state.

In pulling up the short lists for the high degree directors, accent was placed on placing flexible persons who could collaborate in multi-cultural environments and for whom invention, risk-taking and the ability to actuate others were about 2nd nature. One of the ends of the new design was to force answerability, decision-making, and the duty for action far down the organisational hierarchy.

One of the first stairss taken by the new top direction was the extremist decrease of the company central office. Within a few months, the head count at corporate HQ in Zurich went from over 1,300 professional staff to merely over 100.

Another important measure in the procedure was the design of a company-wide information system, called ABACUS ( Asea Brown Boveri Accounting and Communication System ) .ABACUS collected monthly public presentation informations from each unit, put it into a standard currency ( US dollars ) , and transmitted the information to its chief informations processing centre in Sweden, which compiled the informations and passed it to the top directors at the Swiss central office and to the designated directors at each degree of the company.

The basic unit on which public presentation informations are collected for ABACUS is the net income centre, the smallest organisational unit in the new organisation. Each month they report their public presentation informations to the following highest degree of the organisation, the local operating company/Business Unit ( BU ) , which in bend put the information into the ABACUS system.

The local operating company composed of two or more net income centres and focused on individual concern and market. ABB ‘s scheme was to concentrate on radically cut downing costs in each site, cut downing throughput times, maximising design and production flexibleness, and concentrating on local client demands.

The local operating company president had CEO duties for his operations. However, the caputs of the local operating companies report to two foremans – 1 was the Business Area director ; the other was the state director for the state in which the operating company was located.

The Business Side of the Matrix: The Business Area

The Business Area ( BA ) director was responsible for the worldwide scheme and public presentation of a business.BA direction undertakings include organizing engineering development, make up one’s minding on transportation monetary values among local runing companies in the BA, reassigning expertness within the BA, capturing economic systems of graduated table in buying, and, possibly most of import, allotment of markets and production to local operating companies.

The fact that the BA director was besides the caput of a local operating company increased his or her motive to force duty and decision-making down to the local operating companies, on the footing of clip force per unit area, if non personal direction doctrine. In add-on, they were supported by a BA Board, which assisted the BA director in puting scheme, reexamining public presentation, and identifying and turn toing cardinal job countries. The BA Manager selected the members of the Board, and rank varied well depending on the nature of the concern. The BA Board was an international group, and normally met in a different location for each of its meetings over the class of a twelvemonth.

In add-on to the BA Board, the BA had a figure of functional councils that brought together cardinal directors in a map for quarterly meetings to measure and interchange internal best patterns and to place and suggest solutions for cardinal jobs in their country of expertness. For peculiar jobs, the BA Board besides formed undertaking forces from among the high-voltage younger directors in the BA.

The BA director received monthly studies through ABACUS on the public presentation of each of the net income centres and runing companies in the BA. The BA director decided how to circulate this sort of information across the local operating companies.

One of the most of import functions of the BA was the airing of best pattern. Sharing information about public presentation and exposing directors to different ways of operating, through transportations and through travel aid in accomplishing this. The combination of rigorous public presentation demands with the resources for public presentation betterment was a powerful driver of alteration in ABB.

The Business Segment

The BA directors in bend reported to Business Segment Managers. Business sections were groupings of related BAs. Each section was headed by a member of the Executive Committee, the highest-level organisational unit in the company.

The Country Level

The local operating company directors besides reported to the state director of the state in which it is located. The state director had profit-and-loss duties for all ABB activities within that state. The state director ‘s undertaking was to recognize the possible synergisms across the assorted ABB local operating companies, to show a “ local face ” for major undertakings within that state, to supply the legal and political substructure for operations, to organize certain forces development plans, and to do certain that the local political and societal environment was understood and considered suitably in concern determinations.

The state director received monthly studies through ABACUS on the public presentation of each of the local operating companies in the state, and could utilize these informations to place common jobs they faced.

The caputs of the local operating companies were supported in their contrasting responsibilities to the state director and the BA director by a Steering Committee, with representatives from the national company, the BA, and other closely-related local operating companies in the same company. Performance ratings of the president of the local operating companies were conducted by both the BA caput and the state director. Each portion the same basic public presentation prosodies, but each has slightly different outlooks.

Pull offing the Matrix: The Top Management

At the top of the company the two dimensions of the matrix met at the degree of the Executive Committee, which was chaired by the CEO.

The CEO chaired the Committee, and each of the 10 Executive VPs had duty for one or more of the sections and states. The extent of their single duties varied by the range of their undertakings. Each BA director and each state director reported straight to a member of the Executive Committee.

With ABB ‘s acquisitions, the single duties assigned to Executive Committee members changed over clip, particularly in footings of geographicss. The major alteration was on geographics: alternatively of holding different members responsible for a portfolio of different national companies, geographic duties were clustered into three parts: Europe, the Americas, and Asia Pacific. Each member was assigned either one of the four industrial sections or one of three geographical regions.The move to do the geographics side of the matrix study to Committee members with regional instead than single state duties besides reflected ABB ‘s planetary scheme.

Each Executive Committee member was involved in the one-year planning procedure of each of the BAs and geographic units describing to him. But as of import were their corporate duties in charting the overall strategic way for the company.

Extensive communicating in a company that operates in 140 states required a common linguistic communication, which in ABB ‘s instance was English. Communication besides took topographic point on a more single degree, between the Executive Committee and their direct studies, and even between the Executive Committee and the caputs of the local operating companies.

Executive Committee members had entree to monthly public presentation informations for all the operating companies, national companies, and concern countries for which they were responsible. The ABACUS system provided rapid feedback on alterations in the public presentation of any of these units, and the monthly informations were routinely scrutinized carefully at the top of the company.

Alliance: Developing the Global Manager

One of the key challenges which faced ABB was developing directors who could work efficaciously in the demanding system. The development of the “ planetary directors ” who could busy cardinal places in the Business Areas and at the top of the company on the Executive Committee was the most of import undertaking.

The planetary directors should be capable of equilibrating the frequently contradictory pulls of being locally antiphonal and globally efficient, forcing decision-making and duty for action down while implementing answerability and control, and at the same time encouraging local runing companies to be entrepreneurial while doing certain that ABB does non lose the competitory advantage of being a multi-business planetary company. Keeping this doctrine in head, such people were developed through the preparation plans, experience on cross-national squads, and rotary motion across locations. One of the trademarks of the cell of planetary directors was that they spent a batch of their clip going internationally.


Business Section

Executive Committee


Local Operating Company

Net income Centers


Business Section

Figure 1. ABB ‘s Organizational Structure from 1988-1998 ( note: ABB has now moved on from a matrix organisational construction to a more customer-centric organisational construction ) .

Learning from the ABB organisational construction and its impact on its scheme and public presentation

ABB ‘s illustration clearly shows the illustration of an organisation which can successfully vie on a planetary degree by being both locally antiphonal every bit good as paying attending to its planetary integrating scheme. Each local operating company caput was given the freedom to run as the Chief executive officer of his concern and was free to do his ain determinations. By repairing double duty, both to the state director every bit good as to the merchandise director on a planetary degree, ABB was successful in accomplishing its strategic purpose of going the leader in the electrical systems and the power coevals and distribution concern.

ABB successfully demonstrated how successful matrix organisations can be. Matrix organisations ever had been an of import theoretical construct but even other really big organisations with a planetary presence had failed in implementing it. Matrix organisations were widely touted to be as the organisations of the hereafter in the 1970 ‘s and organisations such as Citibank and IBM tried to pattern their organisations around the matrix constructions, but failed, as they found the theoretical account excessively complicated. In fact, ABB was the first company on a planetary degree to implement the matrix organisational theoretical account so expeditiously. Sing the success of ABB, many organisations around the universe besides adopted the matrix construction successfully.

The assorted public presentation indexs of ABB during the 1988-1996 period clearly showed that when the organisational construction is in sync with scheme of the organisation and vice-versa, it consequences in accomplishing great consequences. ABB achieved the co-ordination of 210,000 employees, 310 concern units and 5000 net income centres in 140 states through the matrix construction. This demonstrated the important function of associating mechanisms in turning a complex kaleidoscope of grouping forms into a smoothly operation organisation. ABB at the same time achieved the end of moving as a planetary human dynamo & A ; accumulating resources & A ; know-how on a planetary graduated table and reacting fleetly to run into the demand of local markets and clients.

ABB ‘s net income rose to $ 1.3 billion in 1996 and its stock monetary value doubled between 1992 and 1996, reenforcing the pick of its organisation construction.

The SEMCO Model

What makes the SEMCO theoretical account so interesting is that it for the first 20years it was in operation its construction and civilization were bossy and relied to a great extent on bid and command direction manners. However, for the last 20years it has been run democratically. SEMCO is a manner lf how companies who have non yet evolved into democratic civilizations can do the passage with believable success.

What is besides alone about the SEMCO theoretical account of democratic organisation is how efficaciously it works in Brazil-a state that is still developing, frequently unstable and known for economic blessings and flops. One could ground that in extremely unpredictable environment, bid and command corporate constructions are even more unequal for covering with a dynamic socio-economic clime. Possibly this is why the SEMCO ‘s adaptative theoretical account has been a extremely effectual theoretical account of company


A Semco A a Brazilian company which manufactures over two thousand different merchandises including industrial pumps, chilling towers etc. and besides provides environmental and internet services, saw its grosss turning from $ 32 million in 1990 to $ 212 million in 2003.It achieved this growing rate in an economic environment characterized by reeling rising prices, and helter-skelter national economic policy in Brazil. Between 1982 and 1998, Semco ‘s productiveness increased about septuple and net incomes rose quintuple. Semco was besides one of the most sought after Brazilian companies every bit far as employment was concerned. Employee turnover among its 3,000 employees was approximately 1 % during the period 1994 to 2004. Repeat clients accounted for around 80 % of Semco ‘s 2003 one-year grosss. The civilization at Semco was alone in the sense that there were no power-packed occupation rubrics ; employees including top directors themselves did the photocopying, sent facsimiles, typed letters, and made and received phone calls. There were no executive dining suites, and parking was purely first-come, first-served. Organizational net incomes were shared with the employees and the wages were set by the employees themselves. Behind this “ rebel ” organisation was Ricardo Semler ( Semler ) , the CEO of the company who referred to himself as the Chief Enzyme Officer Wrote Semler, “ If you ask me to depict it in conventional concern footings, I ‘d hold to acknowledge I have no thought what concern Semco is in. For old ages, I have resisted specifying Semco for a simple ground: one time you say what concern you ‘re in, you create boundaries for your employees, you restrict their thought and give them a ground to disregard new chances. ”

A Semler ‘s manner of believing resulted in an administration which had no conventional construction, no organizational chart ; no fixed CEO, no VP ‘s, CFO ‘s, COO ‘s or CIO ‘s. There was no long term strategic concern programs, no calling programs, no occupation descriptions or frock codifications for the employees. Some of the of import organizational determinations like relocating a unit or geting a company were taken on the footing of employees ‘ ballots.


Semler ‘s male parent, Antionio Curt Semler, an Austrian-born applied scientist, migrated to Argentina in1937. A visit to Brazil in 1952 prompted him to believe about the chances a “ huge, undeveloped state ” like Brazil presented. During this clip, he was working on a extractor engineering capable of dividing oil from veggies. With an impulse to get down his ain concern, he selected the metropolis of Sao Paulo to get down his venture, Semco, a contraction of Semler & A ; Co, in 1953. Soon after, he obtained a patent for his engineering. Through the sixtiess and 1970s, Semco was chiefly a maker of Marine pumps. In the late1960s, 90 per centum of the gross revenues of Semco were to the Brazilian ship building industry. Semco was a hierarchal organisation with 12 beds of direction. Harmonizing to a Fortune article, “ Fear was the regulating rule. Guards patrolled the mill floor, timed people ‘s trips to the bathroom, and frisked workers as they left the works. Anyone luckless plenty to interrupt a piece of equipment would replace it out of his ain pocket. “ Harmonizing to Semler it was a company “ with a pyramidic construction and a regulation for every eventuality. ”

Enter Semler

In 1980, at the age of 21, Semler took over as the CEO of Semco. Semler ‘s positions on running the company were wholly different from those of his male parent. He felt that the company in its bing signifier was excessively stiff. He wanted to replace the old manner of making concern and planning with a participatory manner of direction. But the old guard at Semco was non unfastened to this, with the consequence that Semler fired two tierces of the top direction. Semler started out with a functional organisational construction at Semco. Under this construction, decision-making took a long clip and each section took independent determinations that sometimes were non in the involvements of other sections. Then, the company shifted to a matrix construction. But, unhappy with its effectivity, Semler changed the construction of the organisation one time again.A

New Organization Structure: From Pyramid to circle

Though the company worked on the rule of no Organization construction but it really had was a really flexible organisation construction in the signifier of 3 homocentric circles and few trigons floated in it.

The smaller innermost circle would include squad of a twelve people the eqivalent of VP ‘s and above

Second circle would include the 7- 1o leaders of SEMCO ‘s concern units and be called spouses.

Last huge circles would keep virtually everyone else at Semco machine operators, cafeteria workers, janitors, salesman, security guards and so on. They will be called associates

The triangles- They will be distributed around the large circle each enveloping a individual individual we would name a coordinator. These people would consist the first important degree of Management A the selling, gross revenues and production supervisors, the technology and assembly country chief, anyone who had a basic leading function in our old system.

Organizational Culture

The reproduction of concern units into smaller units as and when the demand arose created units little plenty to run with a normally shared set of values, doctrine and civilization. The organisation was bound together by the three interdependent nucleus values: Employee Participation, Profit Sharing and Free Flow of Information. These three values stemmed from the belief that engagement in design and execution of work processs would give employees command over their work ; net income sharing would convey in a sense of ownership ; and the handiness of information as and when needed would assist the employees understand to better their work patterns continuously… A

Leadership and Change Management

Semler can be credited with prolonging the extremist alterations at Semco. He nurtured alterations that might hold been viewed as taking away his power and authorization. He created an sceptered environment where employees could introduce continuously. An thought he generated would subsequently pervade to the whole work force. For illustration, after seeing a company order file cabinets deserving $ 50,000, which were meant merely to maintain paperss which were barely of all time referred to, Semler said that every individual in the company should unclutter his ain file cabinets of paperss which were ne’er referred to and maintain merely those that were necessary. This shortly became a semiannual exercising at Semco…

Valuess of SEMCO:

The key values that propeeled the uniwue civilization of Semco can be summarised as follows:

Making Newss

The Semco manner of running an organisation is easy but steadily being accepted as a really effectual method of concern direction. The BBC series ‘Re-engineering the Business, included Semco while concentrating on the five most successful direction constructions across the Earth. CIO magazine selected Semco ( the merely Latin American company in its list ) among the most successfully re-engineered companies in the universe. Fortune magazine referred to Semco as a “ lab for originative direction.

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