New Design Options

Teams have become an extremely popular means around which to organize work activities. When management use teams as its central coordination device, you have a horizontal organization or a team structure. The primary characteristics of the team structure are that it breaks down departmental barriers and decentralizes decision making the level of the work team. Team structures also require employees to be generalists as well as specialists.

In smaller companies the team structure can define the entire organization. For instance, Whole Foods Market Inc the largest natural foods grocer in the United States is structured entirely round teams. Every one of Whole Foods’ stores is an autonomous profit center composed of an average of 10 self-managed teams, each with a designated team leader. The team leaders in each store are a team; store leaders in each region are a team; and the company’s six regional presidents are a team.

More often particularly among larger organizations, the team structure complements what is typically a bureaucracy. This allows the organization to achieve the efficiency of bureaucracy’s standardization while gaining the flexibility that teams provide. To improve productivity at the operating level, for instance, companies like DaimlerChrysler, Motorola, and Xerox have made extensive use of self managed teams. On the other hand, when companies like Boeing need to design new products or coordinate major projects, they will structure activities around cross functional teams.

The Virtual Organization:

Why own when you can rent? That question captures the essence of the virtual organization (also sometimes called the network or modular organization), typically a small core organization that out sources major business functions. In structural terms, the virtual organization is highly centralized, with little or no departmentalization.

The prototype of the virtual structure is today’s movie making organization. In Hollywood’s golden era, movies were made by huge, vertically integrated corporations. Studios such as MGM, Warner Brothers, and 20th Century Fox owned large movie lots and employed thousands of full time specialists set designers, camera people, film editors, directors, and even actors. Nowadays most movies are made by a collection of individuals, and small companies who come together and make films project by project. This structural form allows each project to be staffed with the talent most suited to its demands, rather than having to choose just from the people employed by the studio. It minimizes bureaucratic overhead because there is no lasting organization to maintain. And it lessens long term risks and their costs because there is no long term – a team is assembled for a finite period then disbanded.

Ancle Hsu and David Ji run a virtual organization. Their firm, California based Apex Digital, is one of the world’s largest producers of DVD players, yet the company neither owns a factory nor employees or any engineer. They contract everything out to firms in China. With minimal investment, Apex has grown from nothing to annual sales of over $500 million in just 3 years. Similarly Paul Newman’s food products company, Newman’s own sells about $190 million in food every year yet employees are only 18 people. This is because it out-sources almost everything – manufacturing, procurement, shipping and quality control.

When large organizations use the virtual structure, they frequently use it to outsource manufacturing. Cisco for instance, is essentially a research and development company that uses outside suppliers and independent manufactures to assemble the Internet routers that its engineers design. National Steel Corp. contracts out its mail-room operations and Procter & Gamble out source its information technology operations to Hewlett Packard.