“To be in hell is to drift; to be in heaven is to steer.” ~ George Bernard Shaw


Course Curator: Dr. G. Danford (London Business School MBA, Helsinki School of Economics PhD)

Eight MBA-level sessions covering: Models of change, structural barriers, cultural challenges, and the implementation of change. Speakers include: business school professors (Harvard, Stanford…), corporations (McKinsey, Bain & Co…) and more.



BEFORE YOU BEGIN: We recommend that you test your understanding of this sessions content.

WHY? Because the MOST VALID method for measuring learning is to compare results from a pre/post test of content.


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Please make a note of your score for comparison purposes at the end of this session.

Time Required: 20 min. 


4.0 Formal Structures

  • What are the components of formal structures?
  • The two principles of formal structure (grouping and linking)?
  • The advantages and disadvantages of functional vs. divisional structures?


LEARNING MOMENTS from this session

There are two distinct paradigms on how to view the role of management in change (control and shaping). Control is associated with the top-down, hierarchical view of management (the organization as a machine). Shaping views managements as facilitators of participative processesw. Douglas McGregor (1957) proposed that organizations should exhibit the following characteristics:

  • Active participation by all involved.
  • A transcending concern with individual dignity, worth and growth.
  • Reexamination and resolution of conflict between individual needs and organizational goals.
  • A concept of influence that relies not on coercion, compromise, evasion etc. but on openness, confrontations and “working through” differences.
  • A belief that human growth is self-generated and furthered by an environment of trust, feedback, and authentic human relationships.

Organizational structures define how activities (task allocation, coordination, supervision etc.) are directed toward the achievement of organizational aims. The two dominant structural forms are:

  • Functional Structure: Production of standardized goods and services at large volume and low cost. Coordination and specialization is centralized.
  • Divisional Structure (product structure): Self-contained divisions, or a collection of functions which plan to compete and operate as a separate business or profit center.

In today’s fast-paced and disruptive world, one source of sustainable competitive advantage (M. Nadler, U.C. Berkeley)  lies in ‘organizational capabilities. Linking capabilities effectively requires grouping of inter-dependencies within an organization.

The ‘North Star’ for Change can help to articulate an organizations strategy, and core priorities (specific metric or defined goal.). The ‘North Star’ clarifies the role of organizations as protagonists.



4.1 Organizational Theory

Organizational theory is a loosely knit family of many approaches to organizational analysis. Its themes, questions, methods, and explanatory modes are extremely diverse “organization theory is characterized by vogues, heterogeneity, claims and counterclaims”. Therefore, organization theory cannot be described as an orderly progression of ideas, or a unified body of knowledge in which each development builds carefully on and extends the one before it. Rather, developments in theory and prescriptions for practice show disagreement about the purposes and uses of a theory of organization, the issues to which it should address itself (such as supervisory style and organizational culture), and the concepts and variables that should enter into such a theory.

Theories of organizations include Bureaucracy, Rationalization (Scientific Management), Division of Labor, and Modernization Theory. Each theory provides provides some insights into the challenges of organizational change. source: wikipedia.org

  • Bureaucracy: Provides accountability, responsibility, control, and consistency. The hiring of employees is an impersonal and equal system. Although this classical perspective encourages efficiency, it is often criticized as ignoring human needs. Also, it rarely takes into consideration human error or the variability of work performances (since each worker is different).
  • Rationalization (Taylor’s Scientific Management Theory): In a rational organization system, there are two significant parts (goals and formalization). Goal specification provides guidelines for specific tasks to be completed along with a regulated ways for resources to be allocated. Formalization is a way to standardize organizational behavior. As a result, there will be stable expectations, which create the rational organizational system. The problem with scientific management is that standardization leads workers to rebel against mundanes, and workers may reject the incentive system because they are required to constantly work at their optimum level, an that expectation may be unrealistic.


McDonaldization Theory (2:30)

Prof. George Ritzer
NOTE: This video will start and stop at the pre-assigned times 0:19-2:40

4.2 Laws of Economics



According to Adam Smith, the division of labor is efficient due to three reasons: a) occupational specialization, b) saving from not changing tasks, and c) machines taking the place of human labor. Occupational specialization leads to increased productivity and distinct skill. Smith argued that human and physical capital must be similar or matched; if the skill of workers were matched with technological improvements, there would be a major increase in productivity. There are several problems that arise from this theory: lack of creativity, monotony, and lack of mobility.


The rationalist worldview (F. Dobbin) states that, “transcendental economic laws exist therefore, organizational structures must function under the parameters of those laws, as the environment will eliminate organizations that adopt non-efficient solutions. The modernity of organizations is to generate maximum profit, through the uses of mass media, technological innovations, and social innovations in order to effectively allocate resources for the betterment of the global economy.


What Drives Organizational Change? (5:00)

NOTE: this video will start and stop at the pre-assigned times 0:19-5:10


4.3 Case: Functional @Walmart

Walmart has a functional organizational structure (Panmore Institute). ‘This structure has two features: hierarchy and function. The hierarchy involves vertical lines of command and authority throughout the organization (every employee has a superior, directives and mandates from the top levels of management are implemented through middle managers, and then down to the rank-and-file employees. The function-based features of the company’s organizational structure involve groups of employees fulfilling certain functions (department of human resource management, information technology, and marketing). These are just some of the numerous function-based departments in Walmart’s organizational structure.

The main advantage of this structure is the ability of corporate managers to easily influence the entire organization. Also effective monitoring and control are achieved through Walmart’s hierarchical functional organizational structure.

The downside of this organizational structure is that it has minimal support for organizational flexibility. The lower levels of the organizational structure cannot easily adjust business practices because of the lengthy communications and approval process involving the middle managers and corporate managers at Walmart’s headquarters’.


4.4 Visualizing Organizational Change

The Autodesk OrgOrg Chart (Organic Organization Chart) project looked at the evolution of a Autodesk’s structure over time. A snapshot of the Autodesk organizational hierarchy was taken each day between May 2007 and June 2011, a span of 1498 days. Each day the entire hierarchy of the company is constructed as a tree with each employee represented by a circle, and a line connecting each employee with his or her manager. Larger circles represent managers with more employees working under them. The tree is then laid out using a force-directed layout algorithm. Each second corresponds to approximately one week of activity.From day to day, three types of changes were monitored:

  • Employees join the company.
  • Employees leave the company.
  • Employees change managers.

OrgOrg Chart @Autodesk (2:30)

NOTE: this video will start and stop at the pre-assigned times 0:06-2:30


4.5 Case: Divisional @CocaCola

The Coca Cola Company uses the design of ‘division of work by location’ (The Times 100).  Each area/region divides its employees up according to geographic location. Being closer to market allows teams to work accordingly with regards to advertising campaigns, meeting the tastes of consumers of that region etc. Each region is sub divided (Europe divided up into North West,South East, Nordic and Baltic). Meeting the individual tastes of consumers is achieved more effectively due to a division and sub divisions by location. Each division insures areas such as marketing are localized appropriately (advertising slogans etc.) that is appropriate to some markets but may not necessarily be considered appropriate in another country. Each division has its own Marketing manager, Public Affairs Director, Finance Director etc.


4.6 Organizational Structures


  • Strength: Maximizes functional performance and specialization.


  • Strength: Clearer accountability, better departmental coordination, broader skill-development, more responsive in unstable environments.


Structural Forms (2:30)

NOTE: this video will start and stop at the pre-assigned times 5:11-7:58


  • Weakness: Restrictive organizational view (lack broader awareness), slow response, and less accountability.


  • Weakness: Resource duplication (due to not sharing), specialist career development (poor exposure to cross-firm learning), divisional allegiance (lack perspective of whole organization), and product integration challenges (product management fragmented).

Pro’s and Con’s? (3:30)

NOTE: this video will start and stop at the pre-assigned times 7:59-11:46


4.7 Case: Linking @Google

Linking involves the grouping of inter-dependencies within an organization. Linking mechanisms include: rules, programs, procedures, cross-unit teams, integrator roles, and matrix structures. In today’s fast-paced and disruptive world, one source of sustainable competitive advantage (M. Nadler, U.C. Berkeley)  lies in ‘organizational capabilities’: the unique ways each organization structures its work and motivates its people to achieve clearly articulated strategic objectives.

‘For too long, too many managers have thought about organization merely in terms of rearranging the boxes and lines on an organizational chart-but as Competing by Design clearly illustrates, organizational strength is found far beyond one-dimensional diagrams. As companies are coming to realize they can’t compete successfully in the 21st century with organizations based on 19th century ideas, companies need to harness the power of organizational architecture to unleash the competitive strengths embedded within each organization.’

Google wanted to find out what the social network at Google looks like. The findings showed that there were unhealthy communications channels between functions. It seems that even in Google, people interact with people who are similar to themselves (functions).


Networking @Google (4:00)

Dr. Brian Welle, Director of People Analytics, Google

NOTE: this video will start and stop at the pre-assigned times 34:45-38:49


Take A Pomodoro Break Now (5 min. to relax & reflect)

Learning always benefits from short breaks. 


4.8 Complex Structures

The matrix structure groups employees by both function and product. A matrix organization frequently uses teams of employees to accomplish work, in order to take advantage of the strengths, as well as make up for the weaknesses, of functional and decentralized forms. Matrix management is more dynamic than functional management in that it is a combination of all the other structures and allows team members to share information more readily across task boundaries. It also allows for specialization that can increase depth of knowledge in a specific sector or segment.

The disadvantage of the matrix structure is an increase in the complexity of the chain of command. This occurs because of the differentiation between functional managers and project managers, which can be confusing for employees to understand who is next in the chain of command.

An additional disadvantage is higher manager to worker ratio that results in conflicting loyalties of employees. However, The matrix structure improves upon the “silo” critique of functional management in that it diminishes the vertical structure of functional and creates a more horizontal structure which allows the spread of information across task boundaries to happen much quicker. Moreover, matrix structure allows for specialization that can increase depth of knowledge & allows individuals to be chosen according to project needs. source: wikipedia.org


Linking & Matrix Structure (2:30)

NOTE: this video will start and stop at the pre-assigned times 11:47-14:21



4.9 Case: ‘Institutional Yes’ @Amazon

Amazon are, ‘willing to plant seeds and wait a long time for them to turn into trees’. There are a lot of why’s asked by observers outside of the company. Inside Amazon there is a focus on what will not change in the future along with looking forward to trans-formative changes. The company also remains grounded in their 14 Leadership Principles, of which the following five support continuous change efforts:

  • Learn and Be Curious: Leaders are never done learning and always seek to improve themselves. They are curious about new possibilities and act to explore them.
  • Bias for Action: Speed matters in business. Many decisions and actions are reversible and do not need extensive study. We value calculated risk taking.
  • Think Big: Thinking small is a self-fulfilling prophecy. Leaders create and communicate a bold direction that inspires results. They think differently and look around corners.
  • Invent and Simplify: Leaders expect and require innovation and invention from their teams. They are externally aware, look for new ideas from everywhere, and are not limited by “not invented here”. As we do new things, we accept that we may be misunderstood for long periods of time.
  • Ownership: Leaders are owners. They think long term and don’t sacrifice long-term value for short-term results. They act on behalf of the entire company, beyond just their own team. .

Amazon always try maximize the number of experiments per given unit of time. They are ‘stubborn on the vision and flexible on the details’.


Yes! @Amazon (3:30)

Werner Vogels, CTO Amazon

NOTE: this video will start and stop at the pre-assigned times 9:09-12:29



4.10 The ‘North Star’

‘Organizations today are faced with growing complexity. Organizational, environmental, political, and competitive changes conspire to create a challenging and complex operating environment. In response to these ever evolving pressures, companies often try to mirror the external complexity in their internal environments’ (Prof. Michael Wade IMD).  There are multiple causes of this complexity: the continued expansion of products and/or services, inconsistent and overlapping processes, misaligned incentives, byzantine organizational structures, and poorly articulated strategies.

How can the organization minimize complexity, while simultaneously focusing on core organizational priorities?

Borrowing from the startup culture, the concept of the ‘North Star’ can be helpful when articulating an organizations strategy and core priorities. The North Star is where the organization wants to go. For the startup, that North Star is associated with a specific metric which; everyone is thinking about, everyone is supporting the drive towards, and everyone understands that in the long-run, the organization will be successful due to those efforts. Pick the metric that you feel the deepest about (should align with your other core metrics and your values).

Often the startup North Star is closely associated with the ‘unique value proposition’ of the company at any given point in time. The North Star is also used to vet every important decision made in a startup. Examples of critical North Star metric in startups include;

  • Facebook: monthly active users.
  • Airbnb: nights booked.
  • eBay: gross merchandise volume.
  • Apple: customer satisfaction rates.
  • WhatsApp: send rate.

For startups, having a well articulated North Star means that employees are excited to get out of bed every morning, because they believe they are doing something big and important in the world. Startup organizations need to have this North Star, because it guides them, gives them energy, and confirms that everyone is going in the same direction…on the same journey. The North Star may be a massive objective for the organization, but everyone should feel it is obtainable (at some time in the future).

“Good people need a North Star. Every moment of the day, they need to be able to answer: where are we going from here?” ~Rob Hayes, First Round Capital

All conversations with employees should allude to the North Star. Leaderships job is to continually ask, ‘how is what each person is doing helping us to get to the North Star? Everyone in the organization should be able to say how ‘what they are doing in the moment, day, week…is helping the organization closer to the North Star. When they can’t answer that question, often their interest in their work will suffer, and interest in the organization.

It is important to keep the North Star out into the future (fuzzy but achievable). Once you find yourself getting close to the star it is important to not get blinded, and at that stage leadership needs to re-define the journey destination, or risk stagnation. This is because, losing the North Star can destroy and organization.


The Protagonist (2:30)

Alan Hilburg, CEO Hilburg Associates
NOTE: This video will start and stop at the pre-assigned times 0:04-2:36

4.11 Conclusion

  • Organizational structure affects organizational action in two ways (foundation for standard procedures/routines and determining which individuals participate in decision-making.
  • Organizations are coming to realize they can’t compete successfully in the 21st century with organizational structures based on 19th century ideas. Therefore, organizations need to harness the power of organizational architecture to unleash competitive strengths.
  • The disadvantage of the matrix structure is an increase in complexity. However, The matrix structure can improve upon the “silo” critique of functional structures in that they diminish the vertical structure of functional organizations,and create a more horizontal process which allows for the spread of information across task boundaries.
  • During the process of change, all conversations with employees should allude to the ‘North Star’. Leaderships job is to continually ask, ‘how is what each person is doing helping us to get to the North Star?
  • The Nadler and Tushman ‘Congruence Model of Change’ reveals the degree to which three key components are congruent with one another (organizational fit with tasks, individual skills, and task requirements). Four inputs can have a significant influence on the pace of change.
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COMPLETE Session 4/8 quiz again, and compare the results.

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Recommended Reading:

Designing Organizations: A Blueprint for Effectiveness (Queens University)



CONTENT: Lean Change Management, Tony Hsieh (CEO Zappos) presents the ‘holacracy’ form of organization, Prof. John Kotter reviews the; ‘Two-Structures/One Organization’ concept, and more (informal structure, social network theory etc.).