An Introduction to Structure • 439

for American corporations after World War II. Traditional divisional structures that were once the hallmark of large corporations are being scaled back and even dropped in favor of either more complex matrix structures or less elaborate and more flexible “hybrid” structures. Formerly critical parts of large firms have been shut down, spun off as separate businesses, or sold off to other firms. The large corporate actors of today are often loose alliance networks or business groups rather than integrated formal organizations. Although some skepticism is certainly reasonable regarding the persistence of a given set of structural choices, we remain convinced of the more general importance of structure—that firms must organize (and reorganize) so as to maintain the linkages between their evolving resources and capabilities and the changing contexts in which they must be put to work.

AN INTRODUCTION TO STRUCTURE

Before further developing the link between strategy and structure, it is helpful to introduce some basic concepts and describe the major kinds of organizational structures.

Individuals, Teams, and Hierarchies

Large complex organizations often grow out of small ones that are initially organized on a few simple principles. These provide a starting point for how complex structures might develop both by illustrating some basic organizing principles and by serving as building blocks for more complex structures.

Simple tasks performed by a small group of people can be structured in several ways:

•Individually. The members of the work group are organized and paid based on individual actions and outcomes, with little interaction among team members. The group is really an assemblage of individuals performing a set of tasks. This is the same whether a group is composed of personnel search advisers, each working with separate clients, or temporary workers stuffing envelopes for a firm as part of one of its mailing campaigns. This approach to organizing will be important whenever individuals can contribute significantly to the success or failure of the firm by their individual efforts. Examples can be found in how trading activities have come to be organized at large financial services and energy firms. The success of traders drove the rapid growth of such large financial firms as Bear Stearns or Goldman Sachs and of energy firms such as Enron or Dynergy following industry deregulation. When traders suffer poor performance, whether due to poor judgment, bad luck, or fraud, the results for firms organized around them can be devastating, as in the trading-related scandals at UBS in 2011, Societe Generale in 2008, and Barings in 1995. The scandal at Barings is illustrative. Barings was the oldest merchant bank in London when it failed after being in business for 233 years, due to the activities of “rogue trader” Nick Leeson, who tried to cover up losses of over $1.3 billion from futures and derivatives trades.

•Self-Managed Teams. A collection of individuals work together to set and pursue common objectives. The team’s results depend on how team members work together, share information, and coordinate their actions. Examples of situations where teams would be employed include management consultants serving a corporate client or a

440 • Chapter 13 • Strategy and Structure

construction team working on a complex installation project. Team performance determines team rewards, though the team may choose to divide the rewards unevenly, based on individual contributions to the overall outcome. Teams are especially important for complex development projects where it is unlikely that any one individual would possess the experience and skills necessary to bring the project to completion under a tight deadline. Steve Jobs was famous for assembling and driving such teams to develop new products at Apple, often placing these teams in competition with other groups in the firm. This was the case for the initial development and launch of the first Mac computer in 1984, as well as for Apple’s string of successful product launches after Jobs’s return to leadership of the firm in 1997.

•Hierarchy of Authority. In any group that grows in size or complexity, members will confront the need to coordinate with one another in order to carry out basic tasks. While it is tempting to rely on notions of entrepreneurship and individual initiative as the solution to a business’s problems, as small firms achieve success and grow, they quickly become much more complicated and require more organizing efforts just to maintain a given level of performance. The more that the attention of group members is focused on coordination and order maintenance, the less it will be focused on their basic tasks and performance. Hierarchy of authority is common in nearly all complex organizations and is introduced into a team when one member of the group specializes in monitoring and coordinating the work of the other group members, including resolving disputes in the group. In a business school, for example, there is usually an associate dean drawn from the faculty who has ultimate responsibility for course scheduling. Left to their own devices, individual professors would probably produce a schedule that was nightmarish for students and wasteful of facilities that could be utilized more fully by scheduling across a week, even during times that are less convenient for senior professors. The use of hierarchy increases as firms become larger, owing to the increase in the volume and diversity of activities that accompany increases in firm size. Hierarchy can also be introduced into smaller organizations, if the need for coordination is coupled with strong needs for individual accountability. For example, most police agencies in the United States are fairly small (less than 50 members), and yet most employ well-articulated command hierarchies, due to the need for police accountability in their interactions with citizens.

Most firms, even small ones, combine these simple arrangements in some way. An employee may do some tasks individually and others in a team. The extent to which an authority relationship enters into small-group arrangements also varies among firms, with some resembling a collection of independent workers, a common situation in professional service firms. At the other extreme, some firms may employ varying degrees of hierarchy, chain of command, and related formal controls. A work group may organize some activities around individuals and others around the group, while a supervisor may monitor the activities and outputs of both groups and individuals.

The appropriateness of each way of organizing tasks in small groups varies according to circumstances. Treating the workers as self-managing individuals is most appropriate when their tasks do not require coordination, for example, in a social service agency in which staff members interact with clients on a case-by-case basis and where coordination is restricted by privacy regulations and considerations. When coordination is necessary, say because the work involves design attributes or relationship-specific investments, as discussed in Chapter 3, then organizing by teams or hierarchy is more appropriate.