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PART FOUR ORGANIZATION MANAGEMENT 9 Learning Objectives 1 Identify the vertical and horizontal dimensions of organization structure. 2 Apply the three basic approaches— United and Continental Airlines Announce a Merger In 2010 United Airlines and Continental Airlines announced their intention to merge their operations in a functional, divisional, and matrix—to $3 billion deal to form the world’s largest airline. The departmentalization. merged combination of the two airlines will account for 3 Develop coordination across departments and hierarchical levels. 4 Use organization structure and the three basic organization designs—mechanistic, organic, and boundaryless—to achieve strategic goals. 5 Develop an awareness of strategic events that are likely to trigger a change in the structure and design of an organization. 40 percent of the U.S. passenger traffic across the Atlantic and 53 percent of all traffic on Pacific routes. In the U.S. the two airlines have overlapping nonstop flights in 13 markets. United is buying Continental, and the combined company will keep the United name and be based in Chicago. Jeffrey A. Smisek, Continental’s chief executive, would run the merged company. The U.S. airline industry in the first decade of the 21st century has accumulated $60 billion in losses and shed 160,000 jobs, according to the Air Transport Association, a Washington trade group. United and Continental each suffered losses for the past two years, and as borrowers they have both received poor credit ratings. The U.S. airline industry has been plagued by a necessity to book over capacity, which has led to clogged airports and delays on the tarmac as planes wait to take off and for landing slots to open up. Mergers are one way that airline executives can improve efficiency. The synergy of an airline combining United and Continental could lead to improvements in 254 Managing the Structure and Design of Organizations determines which pilots get to operate higher-paying aircraft assignments and better working hours, sorting out the seniority roster can result in strong resistance from the pilots who fare worse under the combined roster. US Airways, for instance, continues to fail to get workers to agree to unified contracts, five years after its merger with America West. Maintaining two sets of work rules has kept US Airways from profiting from some of the planned economies of this merger. The two chief executives of United and Continental revenue and costs, and give the airline better access to Airlines claim that the combined carrier should benefit credit and equity markets. from savings of at least $1 billion a year and from substan- The logistics of running the merged airline can be expected to be enormously challenging. The main fleets of tial extra revenues once operational integration is completed in 2013. the two carriers consist of 700 aircraft. Continental flies only Boeing planes, while United flies both Boeing and Airbus planes. Flying planes from different manufacturers requires separate maintenance procedures, staff training, and spare parts. The combined workforces of the two carriers amount to more than 88,000 employees. Other than Sources: “Love is in the Air: UAL and Continental Agree to Merge,” The Economist, May 8, 2010, p. 64; M. Schlangenstein, M. Credeur, J. Hughes, and J. Bliss, “United and Continental Reach for the Sky,” Bloomberg BusinessWeek, May 10–16, 2010, pp.19–20; P. Barrett, “The Departed: A Merger of United and Continental Makes Sense, but Can it Bring Back the Business of Flying? Bloomberg BusinessWeek, May 10–16, 2010, pp. 7–8; J. Mouawad and M. de la Merced, “United and Continental Said to Merge,” The New York Times, May 2, 2010. www.nytimes.com/2010/05/.../03merger.html. the consolidation of administrative personnel, management does not plan to have large cuts in staff. Yet it still could CRITICAL THINKING QUESTIONS face difficult negotiations with the unions that represent 1. What changes in the structure of the organization pilots, flight attendants, and maintenance workers which formed by the two combined airlines are related to the can create major stumbling blocks to a successful merger. reasons for the merger? A key task in implementing a merger between airlines 2. Which coordination mechanisms will be useful to align has been to synchronize work rules and consolidate union the units of the merged companies into a more coherent seniority lists into a single worker roster. Since seniority and unified organization? 255 256 PART 4 • ORGANIZATION MANAGEMENT SKILLS FOR MANAGING 9.1 Organization Structure and Design 䊉 䊉 Understanding the chain of command. Some organizations are structured in a hierarchical fashion. In these organizations, employees are expected to respect and follow the chain of command, that is, the directives of top managers. Other organizations are less hierarchical and permit individuals in the lower ranks to initiate and implement ideas without the approval of their bosses. Understanding the dimensions of organization structure. Some of the factors that affect the design of an organi- organizing The management function that determines how the firm’s resources are arranged and coordinated; the deployment of resources to achieve strategic goals. zation include size (large or small), emphasis on teams or individuals, degree of change in the work environment, and broad versus narrow spans of supervisory control. By understanding the key dimensions of organization structure, you can get an idea of what it would be like to work in an organization so that you can choose a work environment in which you can make your most valuable contributions. At the end of the chapter in our Concluding Thoughts, we will revisit the critical thinking questions regarding the decision to merge United and Continental Airlines. Many strategies and key business decisions have profound effects on the structures and designs of various organizations. A change in strategic direction due to a merger or acquisition or a change in competitive strategy requires the management team to rethink how to deploy company resources. Organizing is the deployment of resources to achieve strategic goals, and is reflected in: (1) the organization’s division of labor that forms jobs and departments, (2) formal lines of authority, and (3) the mechanisms used for coordinating diverse jobs and roles in the organization. Organizing follows the formulation of strategy. While strategy indicates what needs to be done, organizing shows how to do it. This chapter begins by examining the vertical and horizontal dimensions of organization structure. It then examines ways to coordinate organizational units so that they move in the same direction toward meeting organization goals. Finally, it identifies different approaches to organization design. Skills for Managing 9.1 lists the key skills for managing organizing. The Vertical Dimension of Organization Structure organization structure The formal system of relationships that determines lines of authority and the tasks assigned to individuals and units. vertical dimension The element of who has the authority to make decisions and who supervises which subordinates. horizontal dimension The element of dividing work into specific jobs and tasks and assigning jobs into units. unity of command The management concept that a subordinate should have only one direct supervisor. authority The formal right of a manager to make decisions, give orders, and expect the orders to be carried out. Organization structure is a formal system of relationships that determines lines of authority (who reports to whom) and the tasks assigned to individuals and units (who does what task and with which department). The vertical dimension of organization structure indicates who has the authority to make decisions and who is expected to supervise which subordinates. The horizontal dimension is the basis for dividing work into specific jobs and tasks and assigning those jobs into units such as departments or teams. Unity of Command The concept of unity of command is based on one of Fayol’s 14 principles of management (see Chapter 1): a subordinate should have only one direct supervisor. Multiple bosses may give a subordinate conflicting instructions or goals. In unity of command, a decision can be traced back from the subordinates of the manager who made it. Exceptions to the unity of command principle are sometimes necessary. For example, computer programmers in software firms are often assigned to different projects as the need arises. They are supervised by a project manager who coordinates the people and resources on the project and by a functional manager, the manager of information technology (IT), who supervises the IT department. This violation of the unity of command principle makes it critical for both managers to coordinate goals and priorities to avoid causing confusion. Authority, Responsibility, and Accountability Managers, teams, and employees have varying amounts of authority, responsibility, and accountability based on where they are in the vertical structure of the organization. Authority is the formal right of a manager to make decisions, give orders, and expect those orders to be carried out. A manager is CHAPTER 9 • MANAGING THE STRUCTURE AND DESIGN OF ORGANIZATIONS an agent of the owners of the business. The role of the manager encompasses decisionmaking authority to manage the workforce, resources, and assets of the business in the owners’ best interests. Authority is given to the position of the manager, not the person. It originates at the top of the organization based on the property rights of the owners and flows down the vertical organizational hierarchy from top executives to middle managers to supervisors and operative employees. Consequently, positions at the top of the hierarchy have more authority than positions at lower levels. Responsibility is the duty to perform assigned tasks. All employees are expected to accept these responsibilities as a condition of employment. Ideally, a manager’s responsibilities are matched with the appropriate amount of authority so that the manager is in “control” of the task. The manager may delegate, or transfer responsibility to a subordinate or team, but the manager is still in control because the subordinate or team is subject to his or her authority. Managers delegate decision-making authority for some tasks in order to give themselves more time to focus on the most important tasks and decisions. Chapter 6, on decision making, listed the steps that lead to effective delegation skills. Management Is Everyone’s Business 9.1 offers some advice on how you can manage your work responsibilities more effectively given a limited amount of time to do them. Sometimes managers are given responsibility without equal levels of authority. This situation is common in organizations in which managers must work with managers of other units or with customers outside of the organization. For example, the vice president of global learning solutions at Alcatel-Lucent, a manufacturer of telecommunications equipment, is responsible for disseminating employee development courses to various business units throughout the large corporation. This MANAGEMENT IS EVERYONE’S BUSINESS 9.1 WORKING AS A MANAGER Here are some suggestions that should help you manage your work responsibilities more effectively. 䊉 䊉 䊉 䊉 Establish priorities. Priorities include both urgent and important tasks. Spend as much time as possible doing things that are important but not urgent. Otherwise you will find you have neglected important tasks such as training and learning opportunities (and your skills become obsolete) because you’ve only attended to the urgent tasks as you “put out fires.” Schedule self-improvement and other learning opportunities as priorities in your weekly or monthly schedule. If you don’t, you’ll find yourself attending to the less critical but more urgent activities that arise that will preclude improving your skills. Delegate lower priority tasks to subordinates. Tasks that are of a lower priority can be delegated to subordinates which frees up time for you to concentrate on more demanding ones. However, it is important to be able to identify the right subordinates who have the skills and work habits to do the delegated task effectively with a minimum amount of your supervision. Otherwise you may end up spending more time reworking the delegated task, which is counterproductive. Give yourself thinking time. Close your door if possible and spend an hour each day working without the interruptions of people, phones, or e-mail. Schedule the most crucial, creative tasks when you have the most energy, and use your downtime when you tend to tire to open mail or return phone calls. Use the informal organization to get things done. The informal organization is a network of social groups that are formed based on friendships or interests between employees. Most typical, friendship groups within an informal organization are groups of employees who meet for lunch, or meet after work for drinks, sports, or other activities. You can use the informal organization to solve work-related problems and gather information that may not be available through formal processes. For example, you may learn while playing golf with some company executives who are part of a friendship group that corporate headquarters is about to enact a freeze on hiring new employees within a week. Knowledge of this suspension of hiring may enable you to urgently conclude employment negotiations with a desirable employee being recruited and bring the individual on board before the hiring freeze is formally announced. Sources: Based on J. Welch, Winning (New York: HarperBusiness, 2005); S. Covery and R. Merrill, “New Ways to Get Organized at Work,” USA Weekend, February 6,1998, p. 18; J. Segal, L. Horowitz, E. Jaffe-Gill, M. Smith, and R. Segal, “How to Reduce and Manage Workplace Stress,” November, 2008. www.helpguide.org/mental/work_stress_management.htm. 257 New York City Mayor Michael R. Bloomberg promised voters an overhaul of the city’s troubled public school system, but his subsequent dismantling of the system’s central bureaucracy was controversial. The principals’ union opposed the mayor’s plan on the grounds that it stripped principals of their authority. responsibility The manager’s duty to perform assigned tasks. 258 PART 4 • ORGANIZATION MANAGEMENT accountability The expectation that the manager must be able to justify results to a manager at a higher level. management by objectives (MBO) A goal-setting program for managers and subordinates. line authority The manager’s control of subordinates by hiring, discharging, evaluating, and rewarding. chain of command The superior–subordinate authority relationship. line managers The management level that contributes directly to the strategic goals of the organization. staff authority Management function of advising, recommending, and counseling line managers. staff managers Mangers who assist line managers to achieve bottom-line results. organization chart A graphic depiction that summarizes the lines of authority in an organization. executive does not have the authority to control whether or how business-unit managers use the training services with their own employees. Instead, the executive must “market” the training courses to various business units in order to effectively fulfill the responsibility of the position. A manager may delegate responsibilities to subordinates, but he or she remains accountable for the actions of subordinates. Managers hold the ultimate responsibility for tasks they delegate. Accountability means that a manager or other employee with authority and responsibility must be able to justify results to a manager at a higher level in the organizational hierarchy. One way managers are held accountable for the performance of their units is in periodic performance appraisals. For example, a management by objectives (MBO) program can be used to compare planned goals with achieved results. Employees receive rewards based on meeting or exceeding expected results. There are two distinct types of authority: line and staff authority. Line authority entitles a manager to directly control the work of subordinates by hiring, discharging, evaluating, and rewarding them. It is based on superior-subordinate authority relationships that start at the top of the organization hierarchy and extend to the lowest level. This provides what is called the chain of command. Line managers hold positions that contribute directly to the strategic goals of the organization. For example, the line managers of a manufacturing firm include production managers and sales managers who contribute directly to the bottom line. Staff authority includes giving advice, making recommendations, and offering counsel to line managers and other members of the organization. Staff authority is based on expertise and is not directly related to achieving the strategic goals of the organization. Staff managers help line managers achieve bottom-line results, but they contribute only indirectly to outcomes. For example, the accounting, legal, and human resource management staffs of a manufacturing firm provide specialized advice on cost control, federal regulations, and staffing requirements to line managers. The key to knowing whether a position has line or staff status is the organization’s strategic objectives. In an accounting firm, the accountants have line authority since their work directly contributes to the bottom line, whereas accountants in a manufacturing firm are used in an advisory capacity and thus are classified as having staff authority. An organization chart summarizes the lines of authority in an organization. In the organization chart seen in Figure 9.1, authority flows in a vertical downward direction starting with the president, who has authority over the vice president, who in turn supervises several department heads. The department heads manage the supervisors, who have authority over the operatives. Each box represents a position in the organization occupied by one person. Each horizontal level FIGURE 9.1 A Formal Organization Chart President Vice President Dept. head Dept. head Vice President Dept. head Dept. head Supervisor Operative Dept. head Supervisor Operative Vice President Dept. head Supervisor Operative Dept. head Dept. head Supervisor Operative Operative Dept. head CHAPTER 9 • MANAGING THE STRUCTURE AND DESIGN OF ORGANIZATIONS 259 MANAGEMENT IS EVERYONE’S BUSINESS 9.2 WORKING AS AN INDIVIDUAL While formal power and influence in an organization are often structured to flow in a top-down direction, this does not mean that you cannot influence your boss by managing your relationship with him or her. For example, you can 䊉 䊉 䊉 䊉 Make yourself indispensable by anticipating your boss’s need for support and by providing it without being asked. Look for ways to show loyalty by speaking well of your boss to others. Develop a trusting relationship by being dependable, consistent, and honest. Do your work well and look for ways to exceed your boss’s expectations. Keep your boss well informed. of boxes represents a level of authority in the organization. Management Is Everyone’s Business 9.2 shows you how you can influence your boss despite the fact that authority flows in a vertical downward direction in an organization’s formal structure. Span of Control A critical feature of the vertical structure of an organization is the number of subordinates who report to a manager. This is called the span of control, and it determines the number of managers and number of levels of management in an organization. A manager with a small span of control supervises a small number of subordinates (about five or six on average) and can closely monitor the work of each subordinate. Small spans of control are usually associated with many levels of management, which gives rise to a tall vertical organization structure. A tall vertical structure may have too many levels of management separating front-line employees from top executives. It may cause the organization to perform inefficiently because the company is not being responsive to the needs of customers. When a top executive is required to go through numerous intermediaries to learn what is happening at the operational level of the business, information often gets distorted and poor decisions result. Larger spans of control (ranging from 10 to 20 or more subordinates) mean more responsibility is pushed to lower levels. A manager with a large span of control may not be able to directly monitor the behavior of all subordinates. However, using management information systems, which provide systematic feedback on employee performance, and work teams, in which monitoring activities are performed by peers on the team, managers can effectively supervise many subordinates. Large spans of control result in fewer management levels. Executives at well-managed companies such as General Electric and Nucor (one of the most productive steel companies in the world) take pride in having fewer levels separating top management from first-level operative employees who deal with customers or produce the product. A large span of control works best when there are routine tasks, highly trained subordinates, competent managers, similar jobs with comparable performance measures, and subordinates who prefer autonomy. span of control The feature of the vertical structure of an organization that outlines the number of subordinates who report to a manager, the number of managers, and the layers of management within the organization. Centralization and Decentralization Centralization and decentralization are related to the degree of concentration of decision authority at various levels of the organization. Centralization means that decision-making authority is located at the top of the organization hierarchy. Centralized companies can coordinate activities in a consistent way across diverse units or departments of an organization. With decentralization decision-making authority is pushed to lower levels in the organization. Decentralization is often more effective in rapidly changing environments where it is necessary to be responsive to changing customer needs and tastes. Decentralized decision-making authority spurs innovation and risk taking by allowing individuals to control resources and engage in experimentation without having to obtain the approval of higher authorities. In recent years decentralized decision authority has become relatively common in organizations. Decentralization permits greater utilization of the talents and abilities of managers and teams of employees and makes it possible to be more responsive to the needs of customers. By maintaining a highly decentralized structure, the 3M Corporation has become one of the world’s most centralization The location of decision authority at the top of the organization hierarchy. decentralization The location of decision authority at lower levels in the organization. 260 PART 4 • ORGANIZATION MANAGEMENT innovative companies with more than 60,000 diverse products such as Scotch Tape, Post-it Notes, video recording tape, reflective highway signs, and computer storage diskettes. One of the keys to the high rate of innovation at 3M is its 40 autonomous product divisions and other business units that are purposely kept small. Managers of these divisions and units have the authority to run their establishments as they see fit. There is a trade-off between centralization and decentralization. Centralization allows management to coordinate the various parts of the organization in a consistent manner. Decentralization provides greater flexibility to respond to change. IBM used a centralized structure for many years because building mainframe computers required the expenditure of vast sums of money and the coordination of units that built and designed hardware and software components. However, IBM moved significantly in the direction of decentralization as its dependence on mainframe computers diminished and as its consulting services began to provide a significant portion of its total revenues. Decentralized decision authority made IBM more flexible and responsive to customers. Formalization When Sir Howard Stringer took over as CEO of the Sony Corporation, he quickly announced a series of important changes designed to stem losses at the huge Japanese electronics maker. The biggest change was the creation of 13 productcategory units intended to centralize control of product development. The new units are empowered to cross-fertilize ideas and communicate across Sony’s famously autonomous divisions. The computer and entertainment subsidiary will build new PlayStation consoles, for instance, with microprocessors co-produced in the semiconductor division and content from Sony’s movie and music units. The degree of written documentation that is used to direct and control employees is the level of formalization present. An organization with high formalization provides employees with many documents that specify the “right way” to conduct business with customers or interact with other employees. These documents include policy manuals, job descriptions, procedures, memos, and rule books. A high degree of formalization encourages employees to do their jobs in standardized and predictable ways. Other organizations choose a low degree of formalization, with few rules and regulations, which encourages employees to improvise. This is especially useful when customer needs and conditions are subject to change. For example, Nordstrom, a retail store that serves affluent customers, has an employee handbook that consists of a single page with one rule: “Use your good judgment in all situations.” LOC-In 1 Learning Objective Check-In Ballard Company has a strict management philosophy that each subordinate in the firm—at any level—should have only one direct supervisor. Ballard also uses a goal-setting program, wherein managers and subordinates compare planned goals with achieved results. When the employees meet or exceed expectations, they receive appropriate rewards. 1. The concept that a subordinate should have only one direct supervisor is called . a. unity of comnand b. unity of management c. span of control d. accountability 2. Ballard Company’s goal-setting program can also he called a. line authority b. control-based management c. management by objectives d. staff authority formalization The degree of written documentation that is used to direct and control employees. departmentalization The horizontal basis for organizing jobs into units in an organization. . The Horizontal Dimension of Organization Structure The horizontal basis for organizing jobs into units in an organization is called departmentalization. The three basic approaches to departmentalization are functional, divisional, and matrix. CHAPTER 9 • MANAGING THE STRUCTURE AND DESIGN OF ORGANIZATIONS FIGURE 9.2 Functional Departmental Structure President Engineering Production 261 Marketing Finance Functional Structure A functional structure places similar jobs into departments. For example, the departments in Figure 9.2 are engineering, production, marketing, and finance. The president integrates the activities of these departments so that each department’s efforts are aligned with organizational goals and objectives. The functional approach works best in small to medium-sized companies operating in somewhat stable business environments without a great deal of change and uncertainty. The functional structure has several advantages. Decision authority is centralized at the top of the organization hierarchy. Career paths foster professional identity with the business function. Because this approach permits employees to do specialized tasks, it creates a high degree of efficiency.1 A functional form of structure causes employees to develop specialized expertise in a functional area of the business, such as finance or marketing. In a company with a functional form of structure, an employee in the finance department of a telecommunications company, for example, can specialize in providing financial assistance to small-business clients who purchase small phone systems. The employee can advance within the finance department by building a depth and breadth of knowledge in finance and identifying professionally with the field. The individual may be promoted to a position that provides financing to corporate clients who purchase larger, more sophisticated phone systems. The result of serving a variety of clients is that the employee eventually becomes a financial expert. The disadvantages of the functional departmental structure include communication barriers and conflicts between functional departments. It may be difficult to coordinate products and services, which could result in diminished responsiveness to the needs of customers. When employees are assigned to functional departments, they tend to identify with the functional departmental goals rather than with organizational goals or customer needs. This could lead to departmental conflict. Anyone who has called a large corporation looking for service only to be put on hold and transferred several times by indifferent employees has experienced one of the disadvantages of a functional organization. Engineers who work in an engineering department may provide a “state of the art” technical design that is difficult to manufacture and that contains features that are not desired by the targeted customer. In this case, engineering goals are at odds with production and marketing goals. If the top executive does not have time to manage the conflict among the engineering, marketing, and production departments, the product development cycle may slow down as the departmental managers try to work out their differences. By the time these differences are ironed out the product may be late to market and potential sales revenues are lost. functional structure A departmentalization approach that places similar jobs into departments. Divisional Approach The divisional approach, sometimes called the product approach, organizes employees into units based on common products, services, or markets. The divisional approach is used when a company produces many products or provides services to different types of markets, such as regional, domestic, and international markets, that require specialized knowledge. In the divisional approach key functional activities are present in each division and are coordinated by a general manager responsible for generating divisional profits. Figure 9.3 shows a hypothetical computer company structured into three divisions: computer, software, and consulting services. The division structure allows employees to develop expertise in both a function and a line of products or services. A salesperson in the computer division can develop specialized product knowledge in selling computer systems without divisional approach A departmentalization approach, sometimes called the product approach, that organizes employees into units based on common products, services, or markets. 262 PART 4 • ORGANIZATION MANAGEMENT FIGURE 9.3 Divisional Organization Structure President Computer division Production Marketing Software division Production Finance Production Consulting source division Marketing Marketing Finance Finance knowing about software or consulting services. The salesperson is likely to produce more sales revenues by focusing on computer systems rather than trying to sell software and consulting. General Motors was one of the companies that pioneered the division structure, creating divisions based on its different automobile brands (Chevrolet, Buick, and Cadillac). Hewlett-Packard has used the division structure to reinforce its entrepreneurial culture so that employees identify with smaller units within the large company. Hewlett-Packard expects that keeping the divisions small will encourage employees to innovate new products. Large consumer products companies such as PepsiCo, Procter & Gamble, Johnson & Johnson, and Colgate-Palmolive also use the division structure to create opportunities for managers to learn the skills of operating a unit of the company from a profit-and-loss perspective. The most successful division managers (judged by the profitability of their divisions) are identified as likely candidates for executive leadership roles. GEOGRAPHIC-BASED DIVISIONS A variation of the product-based divisional structure organizes geographic-based divisions A variation of the product-based departmentalization structure in which divisions are organized by geographic region. divisions by geographic region. Geographic-based divisions allow an organization to focus on customer needs that may vary by geographic region or market. In this approach to organizing, the functional business activities are coordinated by a division manager, who is responsible for products or services provided to a specific area. Figure 9.4 shows the organization of a fast-food company with United States and Canadian, Latin American, European, and Asian divisions. This structure allows each division manager to satisfy customer tastes and preferences in the region. Thus, American and Canadian menus may focus on hamburgers, a favorite North American food; the menu may add chicken burgers in India, since beef is a forbidden food for many Indians, and noodle soup in China; and the European menu may make wine available to French, Italian, and Spanish customers who customarily drink wine with meals. CUSTOMER-BASED DIVISIONS Another variation of the product-based divisional structure organizes divisions by particular types of customers or clients. Customer-based divisions allow an organization to focus on customer needs within a basic functional structure. With customer divisions, each department contains employees who perform functional tasks for a specific type FIGURE 9.4 Geographic-Based Organization Structure President United States and Canada division Latin America division Europe division Asia division CHAPTER 9 • MANAGING THE STRUCTURE AND DESIGN OF ORGANIZATIONS 263 of customer. The division manager coordinates the business activities for a specific type of customer. Figure 9.5 shows the organization of a bank that organizes its banking services into divisions that serve personal banking customers, small business banking customers, and corporate banking customers. Each customer division provides a different array of services that are relevant to it. For example, Wells Fargo Bank, a large San Francisco-based commercial bank, has organized its banking services into a customer-based structure. CONGLOMERATE The conglomerate is another variation of the product-based divisional structure and is made up of a set of unrelated businesses. Each business is run independently from the other businesses by a general manager who has profit and loss responsibility. Figure 9.6 shows a conglomerate that consists of four business groups: aircraft engines, medical systems, financial services, and plastics. Companies that use the conglomerate structure include United Technologies Corporation (helicopters, air conditioners, aircraft engines, and elevators), Honeywell (aerospace, automation and control solutions, specialty materials, and transportation systems), ITT (electronic components, defense electronics and services, fluid technology, and motion and flow control), and General Electric (financial services, media, health care, industrial products and infrastructure technologies). The executives in the company headquarters oversee all the businesses and make decisions concerning allocating corporate resources to businesses and decisions related to buying and selling businesses. ADVANTAGES AND DISADVANTAGES OF THE DIVISIONAL APPROACH The divisional approach has several advantages, including: 䊏 䊏 䊏 䊏 General Motors broke its corporate structure into several divisions based on automobile brands, each with its own management. Coordination among different business functions. Improved and speedier service. Accountability for performance. Development of general manager and executive skills.2 Bringing all the functional areas together to focus on a line of products reduces barriers that inhibit coordination among marketing, finance, production, and other functions. Employees identify with products and customers rather than with professional business disciplines. This allows the company to provide better quality products and services and employees are more responsive to customers. Division managers have bottom-line profit responsibility, which FIGURE 9.5 Customer-Based Organization Structure President Personal customer division Small business customer division Corporate customer division FIGURE 9.6 Conglomerate-Based Organization Structure President Aircraft engines Medical systems Financial services Plastics