Without the classic structure of departments that create walls within a company’s work dynamic, employees are free to dabble in a variety of areas. The Difference Between Vertical & Horizontal Business Organizations. All those departments and managers can get in the way of progress. Organization structure can be thought of in terms of three dimensions: Vertical Differentiation in Organizational Structure. In the smallest and least complex type of business, all tasks might be performed by just one or two people. A vertical organization structure is one that relies on managers to command and control their employees' work. The vertical and horizontal differentiation of task management in the firm. The result was a company that was quickly selling cars that consumers really wanted, even as Ford, clearly a vertical, top-down organization, was stuck selling first Model Ts, then Model As, all in black. Horizontal organizational structure examples include those in which communication is constantly moving between all parts of the organization and all members of the organization are seen as equal. Horizontal organizations can be the epitome of “too many cooks in the kitchen" since everyone has equality with his colleagues. A “vertical” company is known for having a large staff of middle managers between the CEO and the front line. Horizontal organizations are better, by far, for most businesses when compared to vertical structures. No decisions will be made without your approval. The differences between a horizontal structure and a vertical organization are considerable, … Sloan did it all using horizontal organizational structure types, shunting aside the model that had dominated business for centuries: the vertical hierarchy. He has also written for/and worked as an editor at "The Press-Enterprise" as well as two business publications and several online media companies. It is the perfect place for people who want to make a career of a job because in theory, there is upward mobility and the opportunity for advancement. complexity The extent of differentiation within an organization: horizontal, or the division of labor, degree of horizontal separation between units; vertical, the depth of the organizational hierarchy; and Persons with vertical authority have the power to assign work and to exercise control to ensure job performance. What Are the Differences Between Vertical & Horizontal in Strategic Management? This method may be optimum for saving lives, but for running a business, it can be highly inefficient. The vertical structure begins with the CEO or president at the head of the company, and below him sits top-level management, which includes vice presidents and executive managers. This can also make vertical organizations more risk averse because of the defensive stance departments and managers may take in order to avoid having any possible failures blowing back on them. The workflow in a vertical organization, then, is like firemen on a ladder, going up and down, frequently and to the point of exhaustion. Strip away the money, the jobs, the assets and everything else, and business comes down to the simple act of making choices. The same thing that makes vertical companies beneficial to some employees is what can mean others never reach their potential simply because bureaucracy dictated that they belonged in the department that hired them rather than where they might shine brighter. This may help ensure that a small company doesn't incur any expenses that might lead to a cash-flow problem, financial issues or even bankruptcy. Individual vice-presidents direct the activities of the staff below them according to specific lines of business. Horizontal differentiation is high. GM developed divisions such as Chevrolet and Pontiac, which even to the public seemed like independent companies. Having a vertical organization can also mean better employee development. Structure defines how power is held and exercised within a company. B. Sloan is credited with building the architecture of the modern American corporation. Vertical organizations "feature well-defined leadership at the top of the organization whose influence filters down to middle managers and department heads," says Technology Advice. It is also why vertical structures are all about accountability. Vertical differentiation, which refers to the location of decision-making responsibilities within a structure (that is, centralization or decentralization) and also to the number of layers in a hierarchy (that is, whether the organizational structure is tall or flat). International Journal of Industrial Organization Organization ELSEVIER 14 (1996) 485-506 Horizontal and vertical differentiation: The Launhardt model Rodolphe Dos Santos Ferrelra • a " ge , Jacques-Franqois Thisse b'c "BETA, UniversitO Louis Pasteur, 38 Boulevard d'Anvers, 67000, Strasbourg, France A good example of this is a fast-food restaurant chain, where food needs to be prepared exactly the same way every time at each company location or franchise to ensure consistent quality and taste, as well as efficient production. There is no autonomy in a vertical organization. An organization's structure dictates who is in a position of authority, how work is divided and how employees are assigned duties. Think of it as an ongoing, open form of brainstorming. Horizontal differentiation : the degree of task specialization across the hierarchy. This leads to the “jack of all trades, master of none” conundrum that can see people underperforming because their potential never gets fully realized. There was no room for discussion. Horizontal differentiation exists when one product's attributes vary from those of another product in ways that satisfy the needs of a particular customer group. Who has control, where does the buck stop and who makes the critical decisions going forward? What is Structure? Decisions can be slow to happen because there could be multiple departments affected by each choice. By centralizing decision making, a firm: A. allows managers to respond to environmental changes more quickly. Vertical differentiation: based on levels of authority or positions holding formal power within the organization. Indeed, Sloan's GM held less than 13 percent of the automobile market in the U.S. when he took the reins at the car maker in 1923; Ford Motor Company, by contrast, owned more than 50 percent of the market, mainly by selling its iconic Model Ts to the masses. 2. Balancing Differentiation and Integration Horizontal differentiation is supposed to enable people to specialize and thus become more productive. "Sloan set up a simple decentralized system at GM where each division could operate like an autonomous body yet be answerable to a central authority. B. vertical differentiation C. organizational structure D. horizontal differentiation. Work that employees do must then go back up the chain of command for approval. Business Models & Organizational Structure, Weakness of Hierarchical Organizational Structures, Corporate Organizational Structure for a Project Manager, Reference for Business: Organizational Structure, Pioneering Minds: Alfred Sloan: Organizing The Corporation, Technology Advice: The Difference Between Vertical and Horizontal Project Management, Org Chart: Differences Between Vertical and Horizontal Org Chart, Green Garage: 14 Main Advantages And Disadvantages Of Vertical Integration, Practical Management: Structural Dimensions of an Organization, Food and Agricultural Organization of the U.N.: Planning the Project Organization, The Vertical Structure Vs. the Horizontal Structure in an Organization. The Organizational System Organizational Structure Organizational Designs 2. Horizontal differentiation- the formal division of the organization into sub-units 3. A vertical organization is truly structured. As head of a horizontal organization, Henry Ford dictated that it would be such – the order filtered down the chain of command, and that's what the company did. When comparing the differences between horizontal and vertical organizations, there is one name that towers above all others: Alfred P. Sloan. Horizontal Differentiation. Copyright 2020 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. Structural organization theory is concerned with vertical differentiation, hierarchical levels of organizational authority and coordination, and horizontal differentiation between organizational units. In a horizontal organization, there may be task forces or teams that work together across divisions to solve problems and achieve innovation. Industrial Organization-Matilde Machado Product differentiation 4 4.1. Vertical structures can have some advantages, particularly for smaller, entrepreneurial businesses as well as well as those operating on razor-thin profit margins. 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