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14.1 Organizational Structure: The Case of Toyota

Figure 14.1

Mike Mozart – Toyota – CC BY 2.0.

Toyota Motor Corporation (TYO: 7203) has often been referred to as the gold standard of the automotive industry. In the first quarter of 2007, Toyota (NYSE: TM) overtook General Motors Corporation in sales for the first time as the top automotive manufacturer in the world. Toyota reached success in part because of its exceptional reputation for quality and customer care. Despite the global recession and the tough economic times that American auto companies such as General Motors and Chrysler faced in 2009, Toyota enjoyed profits of $16.7 billion and sales growth of 6% that year. However, late 2009 and early 2010 witnessed Toyota’s recall of 8 million vehicles due to unintended acceleration. How could this happen to a company known for quality and structured to solve problems as soon as they arise? To examine this further, one has to understand about the Toyota Production System (TPS).

TPS is built on the principles of “just-in-time” production. In other words, raw materials and supplies are delivered to the assembly line exactly at the time they are to be used. This system has little room for slack resources, emphasizes the importance of efficiency on the part of employees, and minimizes wasted resources. TPS gives power to the employees on the front lines. Assembly line workers are empowered to pull a cord and stop the manufacturing line when they see a problem.

However, during the 1990s, Toyota began to experience rapid growth and expansion. With this success, the organization became more defensive and protective of information. Expansion strained resources across the organization and slowed response time. Toyota’s CEO, Akio Toyoda, the grandson of its founder, has conceded, “Quite frankly, I fear the pace at which we have grown may have been too quick.”

Vehicle recalls are not new to Toyota; after defects were found in the company’s Lexus model in 1989, Toyota created teams to solve the issues quickly, and in some cases the company went to customers’ homes to collect the cars. The question on many people’s minds is, how could a company whose success was built on its reputation for quality have had such failures? What is all the more puzzling is that brake problems in vehicles became apparent in 2009, but only after being confronted by United States transportation secretary Ray LaHood did Toyota begin issuing recalls in the United States. And during the early months of the crisis, Toyota’s top leaders were all but missing from public sight.

The organizational structure of Toyota may give us some insight into the handling of this crisis and ideas for the most effective way for Toyota to move forward. A conflict such as this has the ability to paralyze productivity but if dealt with constructively and effectively, can present opportunities for learning and improvement. Companies such as Toyota that have a rigid corporate culture and a hierarchy of seniority are at risk of reacting to external threats slowly. It is not uncommon that individuals feel reluctant to pass bad news up the chain within a family company such as Toyota. Toyota’s board of directors is composed of 29 Japanese men, all of whom are Toyota insiders. As a result of its centralized power structure, authority is not generally delegated within the company; all U.S. executives are assigned a Japanese boss to mentor them, and no Toyota executive in the United States is authorized to issue a recall. Most information flow is one-way, back to Japan where decisions are made.

Will Toyota turn its recall into an opportunity for increased participation for its international manufacturers? Will decentralization and increased transparency occur? Only time will tell.

Based on information from Accelerating into trouble. (2010, February 11). Economist . Retrieved March 8, 2010, from http://www.economist.com/opinion/displaystory.cfm?story_id=15498249 ; Dickson, D. (2010, February 10). Toyota’s bumps began with race for growth. Washington Times , p. 1; Maynard, M., Tabuchi, H., Bradsher, K., & Parris, M. (2010, February 7). Toyota has a pattern of slow response on safety issues. New York Times , p. 1; Simon, B. (2010, February 24). LaHood voices concerns over Toyota culture. Financial Times . Retrieved March 10, 2010, from http://www.ft.com/cms/s/0/11708d7c-20d7-11df-b920-00144feab49a.html ; Werhane, P., & Moriarty, B. (2009). Moral imagination and management decision making. Business Roundtable Institute for Corporate Ethics . Retrieved April 30, 2010, from http://www.corporate-ethics.org/pdf/moral_imagination.pdf ; Atlman, A. (2010, February 24). Congress puts Toyota (and Toyoda) in the hot seat. Time . Retrieved March 11, 2010, from http://www.time.com/time/nation/article/0,8599,1967654,00.html .

Discussion Questions

• Do you think Toyota’s organizational structure and norms are explicitly formalized in rules, or do the norms seem to be more inherent in the culture of the organization?
• What are the pros and cons of Toyota’s structure?
• What elements of business would you suggest remain the same and what elements might need revising?
• What are the most important elements of Toyota’s organizational structure?

Organizational Behavior Copyright © 2017 by University of Minnesota is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

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Home » Management Case Studies » Case Study: Organizational Structure and Culture of Virgin Group

Case Study: Organizational Structure and Culture of Virgin Group

The Virgin Group is one of the most successful business empires today. This organization has established itself in diverse industries including mobile telephony, retail, music, financial services, travel, and many more. Virgin has ruled the British market and has expanded worldwide into other regions like North America, Asia, Africa and Australia. Starting out as a simple mail-order record retailer in 1970, Virgin has grown into one of the most successful business empires in the world. The Virgin Group has established more than 300 companies, employing around 50000 people in 30 countries. Its global revenues in 2009 exceeded US$18 billion. The majority of the Virgin Group’s success has been credited to the founder and CEO of Virgin, Richard Branson . Branson’s beliefs and philosophies are deeply rooted in the corporate culture of the Virgin Group. This has helped the Virgin Group to flourish in today’s competitive business world.

History and Development of Virgin Group

Richard Branson is the founder of the Virgin Group of companies. When he was a student at Stowe, he published a magazine called Student. The magazine was a success and it encouraged Branson to leave school and try his hand at new business ventures. His first target was mail-order records. He found that by putting a single advertisement in an issue of Student magazine, he was able to establish a thriving business with almost no up-front investment and no working capital . The name “Virgin” was suggested by one of his associates who saw the name as proclaiming their commercial innocence, while possessing some novelty and modest shock-value. In 1971 Branson opened his first retail store on London’s Oxford Street. Virgin then expanded into the recording industry and the result was the Virgin record label. By 1983, the Virgin Group was earning profits of 2 million pounds on total revenues of just under 50 million pounds. Gradually Branson expanded into other ventures.

The Organizational Structure of Virgin Group

Many assume the Virgin Group to be a multinational, but such is not the case. Each of the 300 odd companies of the Virgin Group operates separately and Branson serves as shareholder, chairman, and public relations supremo. Most of them are operating companies that own assets, employ people, and offer goods and services. These operating companies are owned and controlled by about 20 holding companies. The Virgin Group has a very complex structure. It has been termed both as a brand franchising operation as well as a keiretsu . However, based on its structure, the Virgin Group can be safely termed as an organization with a keiretsu structure. A keiretsu is a group of organizations, each of which owns shares in the other organizations in the group, and all of which work together to further the group’s interests. Furthermore, such a large organization with a complex structure needs to be organic in order to be able to adapt to changes in its environment. An organic structure promotes flexibility, so people initiate change and can adapt quickly to changing conditions.

Considering each of the individual companies as a department providing a unique product or service, it is evident that they exhibit product departmentalization. Product departmentalization is the division of the departments of an organization based on the type of product or service offered. For example, Virgin Mobile offers cellular services while Virgin Records is a music label. However, the structure of the Virgin Group is so complex that it is necessary for it to not just have one type of departmentalization. For instance, Virgin Mobile has operations in many different countries like the UK, India and Australia. As such, the type of service varies in each of these countries. This shows that Virgin Mobile also exhibits geographic departmentalization. Geographic departmentalization is the division of an organization based on the geographic location. In addition, type of service and products also varies depending on the customer base hence exhibiting customer departmentalization. Customer departmentalization is the division of an organization based on the kind of customers it serves. Since the Virgin Group of companies exhibit so many types of departmentalization, the organization as a whole is said to have a hybrid structure, which is a mixture of two or more kinds of departmentalization. This multi-divisional approach helps the Virgin Group to easily adapt to the cultural, technological and other forces in the region it expands to.

The division of labor and the hierarchy is also an important aspect of an organization’s structure . The number of levels of authority, the control, and the amount of communication are key factors in the proper working of an organization. As mentioned, the Virgin Group’s companies operate as separate organizations. The companies are part of a family rather than a hierarchy. They are empowered to run their own affairs, yet the companies help one another, and solutions to problems often come from within the Group somewhere. In a sense, Virgin is a commonwealth, with shared ideas, values, interests and goals. In fact, Branson himself has provided all his employees with the authority to make unsupervised decisions based on their intuition rather than following a chain of command. This leads to the employees having more confidence in them and in the management. Since interaction among all the levels of the hierarchy is promoted, it increases effective communication. This is evident from the fact that Branson personally interacts with employees on a regular basis discussing ideas and receiving feedback. The Virgin Group expresses self-sufficiency and effective communication. Virgin has a flat hierarchical structure and this enables quick and efficient decision making . The flat structure is one of the reasons that the Virgin Group has been able to expand into new ventures. In addition, a flat structure allows a wider span of control , and decentralization. Span of control is the number of subordinates a manager manages directly. The decentralized structure of the Virgin Group gives more power in the hands of its employees when it comes to decision making. Decentralization is the delegation of authority to all levels of the hierarchy. Branson believes that the employees are the backbone of the company and hence it is important that they have enough involvement and authority in decision making.

Since the Virgin Group comprises of so many companies, along with a decentralized structure, it should show some signs of organizational bureaucracy . However, Branson has ensured since the beginning to minimize bureaucracy as much as possible since he strives to flatten the hierarchy. Bureaucracy is a structure in which people are held accountable for their actions because they are required to act in accordance with rules and standard operating procedures. The efficiency of the employees is enhanced under Branson’s leadership who emphasizes a wide span of control and self management. Branson’s skepticism of organizational hierarchy and a formal structure has contributed to organizational cohesiveness to a great extent. His adoption of this unorthodox strategy rather than traditional business practices and non-traditional structuring of the organization may be the reason for the Virgin Group’s success.

The Organizational Culture of Virgin Group

Much of the Virgin Group’s culture is influenced by its founder Richard Branson’s personal philosophies. Just as his employees are important to him, so are the customers the Virgin Group serves. The ability of the Virgin Group to operate effectively with almost a non-formal structure is because of its unique organizational culture . The culture of the Virgin Group reflects Branson’s casual nature, his disrespect for hierarchy and formal authority, commitment to employees and consumers and his belief in hard work and responsibility. This influences all of the companies in the Virgin Group and its organizational culture. This in turn, enables the Virgin Group to provide an environment in which talented, ambitious people are motivated to do their best and strive for a higher level of performance. However, even in an informal environment, a high level of commitment, acceptance of personal responsibility and long hours of work when needed is expected. Performance incentives at Virgin for most employees are diffident but Virgin provides benefits like social activities, company sponsored weekend getaways and impromptu parties. Such an environment promotes better relations among the employer and the employees.

Virgin’s unique culture has gradually progressed to where it is today. Virgin describes itself as a “family” emphasizing its informal but strong belief system and values. Possessing such a culture enables the Virgin Group to have effective coordination among its various departments. Working as a community rather than a corporation, instills the ability to communicate effectively among the many companies in the Group. The Group as a whole works together based on these shared set of values which are continuously strengthened. This is important considering the vast size and complexity of the organization. Following in the footsteps of its founder, Virgin has always maintained the belief that the employees are the biggest force of the organization and as such, should be treated with respect. The management cares for the welfare of the employees and allows them to work in a free environment. Because of these primary beliefs and values, Virgin has been able to compete, thrive, and challenge new business opportunities . As mentioned before, Richard Branson has influenced the culture of the organization the most. He has managed to instill his belief system into all of his employees and this has motivated them to strive to perform better.

One of the many strong points in Virgin’s favor is the fact that it is non-traditional; revolutionary even; in the manner it does business. Virgin believes in grasping opportunities. Contrary to what many people may think, Virgin’s constantly expanding and eclectic empire is neither random nor reckless. Each successive venture demonstrates their devotion to picking the right market and the right opportunity. This has proved beneficial to the organization and is one of the many reasons for its success.

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BMW’s Organizational Structure (An Analysis)

BMW’s organizational structure represents business operations primarily in the automotive industry, although the company’s hierarchy and structural divisions also address the management of financial services and motorcycle manufacturing. The main support of this company structure is for automotive manufacturing, distribution, and sales. Nonetheless, as BMW’s mission and vision emphasize mobility and transportation products, the corporate structure ensures the strategic growth and development of all segments of the business. The company’s organizational design and structural characteristics influence business growth in the automotive industry. BMW’s organizational structure provides a backbone for implementing business growth strategies.

BMW (Bayerische Motoren Werke/Bavarian Motor Works) implements its competitive strategies with its organizational structure’s support for resources and processes. This business structure enables competence against competitors, including automakers, like Toyota , Tesla , Ford , and General Motors , as well as motorcycle manufacturers, like Harley-Davidson . This competition involves innovative technologies and marketing campaigns, as demonstrated in the Five Forces analysis of BMW . The company’s corporate structure helps keep the integrity of the automotive business organization despite competitive pressure.

Characteristics of BMW’s Structure

BMW’s organizational structure is designed to enable multinational business growth in automotive and motorcycle markets. The company’s structural characteristics support strategic management that buttresses business growth and development in these vehicle markets. The characteristics of BMW’s structure are:

• Departments for corporate functions
• Product segments
• Regional divisions

Departments for corporate functions indicate the global centralization of BMW’s organizational structure and its hierarchy. This structural characteristic allows managerial control that encompasses international operations in the automotive, motorcycle, and financial services markets. In this company structure, the corporate headquarters and their officers are responsible for directing BMW’s generic competitive strategy and intensive growth strategies for multinational operations. Also, human resource development approaches are designed based on communication channels, lines of authority and command, and business processes inherent in this automotive business structure. For example, the department for labor relations implements strategies and programs for BMW’s organizational culture (work culture) through leaders, groups, and teams in the corporate structure. The structural design ensures that the company’s culture is developed throughout the business and its human resources. The following are the departments for corporate functions in BMW’s structure:

• Office of the Chairman
• Customer, Brands & Sales
• People, Real Estate & Labor Relations
• Purchasing & Supplier Network
• Development

Product segments in BMW’s structure are based on the types of products that the company offers to its target markets. The business is known for its automobiles, but also manufactures motorcycles and provides financial services. The persistence and profitable operations of these segments depend on the effective use of business strengths, such as the company’s brands and other competitive advantages mentioned in the SWOT analysis of BMW . The following are the product segments in BMW’s organizational structure:

• Motorcycles
• Financial Services

Regional divisions in BMW’s company structure account for market differences. For example, the European and Asian markets differ in terms of customer preferences and expectations regarding cars and other vehicles. The geographic divisions of this corporate structure support BMW’s marketing mix (4P) involving strategies and tactics based on the characteristics of regional markets. Strategies for distribution and sales in regional and local automobile markets are fine-tuned through the regional divisions of this organizational structure. The following are the regional divisions in BMW’s business structure:

• Other regions

BMW’s Organizational Structure & Business Strategy

BMW’s structure continues improving to support and enable business strategies. The regional divisions in this organizational structure relate to the strategic factors influencing vehicle markets. For example, the performance of these divisions depends on how the industry trends examined in the PESTEL/PESTLE analysis of BMW influence market demand for different types of cars and motorcycles. Moreover, management decisions depend on the characteristics of the automotive and motorcycle business structure. For example, this company structure affects the goals and targets in BMW’s operations management , such as in productivity management, product design, quality management, job design, and layout design.

• Albert, D. (2023). What do you mean by organizational structure? Acknowledging and harmonizing differences and commonalities in three prominent perspectives. Journal of Organization Design , 1-11.
• BMW Group – Brands & Business Segments .
• BMW Group Leadership & Governance .
• BMW Group Report .
• Gandrita, D. M. (2023). Improving Strategic Planning: The Crucial Role of Enhancing Relationships between Management Levels. Administrative Sciences, 13 (10), 211.
• Muzzio, M. (2023). Imagined futures of the automotive industry stemming from uncertainty. Joule, 7 (6), 1099-1100.
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Microsoft’s Organizational Structure and Culture: A Case Study of a Technology Leader

Microsoft is one of the world’s leading technology companies, with a diverse portfolio of products and services that include Windows, Office, Azure, Xbox, LinkedIn, and more. The company operates in a highly competitive and dynamic market, where innovation, customer satisfaction, and strategic alignmen t are crucial for success. How does Microsoft organize its structure to achieve its goals and mission? In this article, we will explore the main features, advantages, and challenges of Microsoft’s organizational structure.

What is Microsoft’s Organizational Structure?

Microsoft has a product-type divisional organizational structure based on functional business groups and engineering groups. This means that the company is divided into several divisions that focus on specific product lines or services, such as Cloud and AI, Experiences and Devices, Gaming, etc. Each division has its own research and development, sales and marketing, and customer support functions.   The divisions are led by executive vice presidents who report directly to the CEO, Satya Nadella.

In addition to the product divisions, Microsoft also has functional divisions that provide support and guidance to the entire organization. These include Business Development, Finance, Human Resources, Legal and Corporate Affairs, Marketing, etc.   These divisions are also headed by executive vice presidents or senior vice presidents who report to the CEO.

Microsoft also has two geographic divisions: United States and International. These divisions are responsible for managing the regional operations and customer relationships of the company.   They are led by corporate vice presidents who report to the executive vice president of Global Sales, Marketing and Operations.

What is Microsoft’s Organizational Culture?

Microsoft’s organizational culture is defined by its core values and principles that guide its employees’ behavior and decision-making.   The company describes its culture as a culture of accountability, quality and innovation, responsiveness to customers, growth mindset, diversity and inclusion.

Accountability means that Microsoft employees take ownership of their actions and outcomes, and strive to deliver value to the customers and stakeholders. Quality and innovation means that Microsoft employees pursue excellence in their products and services, and constantly seek new ways to improve them. Responsiveness to customers means that Microsoft employees listen to the needs and feedback of the customers, and aim to exceed their expectations. Growth mindset means that Microsoft employees embrace learning and development as a continuous process, and welcome challenges and changes as opportunities.   Diversity and inclusion means that Microsoft employees respect and value the differences among people, and foster a culture of belonging and collaboration.

How Does Microsoft’s Organizational Structure Support Its Culture?

Microsoft’s organizational structure supports its culture by enabling the following benefits:

• Streamlined innovation : By having product-based divisions with dedicated R&D functions, Microsoft can foster a culture of innovation within each division. The divisions can focus on their core competencies and leverage their expertise to create new products and services that meet the customer needs. The divisions can also collaborate with each other to share best practices and synergize their efforts.
• Minimization of internal conflict : By having clear boundaries and responsibilities among the divisions, Microsoft can reduce the potential for conflict over resources or priorities. The divisions can operate autonomously within their scope of authority, without interfering with other divisions’ activities. The divisions can also align their goals with the overall strategy of the company, as communicated by the senior management.
• Flexibility and responsiveness : By having a divisional structure with a flat hierarchy, Microsoft can increase its agility and adaptability to the changing market conditions. The divisions can respond quickly to customer demands and feedback, without waiting for approval from higher levels of management. The divisions can also adjust their strategies and operations as needed, without affecting other divisions’ performance.

What are the Challenges of Microsoft’s Organizational Structure?

Despite its advantages, Microsoft’s organizational structure also faces some challenges that need to be addressed:

• Coordination and integration : By having multiple divisions with different functions and objectives, Microsoft may face difficulties in coordinating and integrating its activities across the organization. The divisions may have conflicting interests or agendas that hinder their cooperation. The divisions may also have inconsistent standards or processes that create inefficiencies or errors.
• Communication and information sharing : By having a large number of employees spread across different locations and time zones, Microsoft may face challenges in communicating and sharing information effectively within the organization. The employees may have limited access or awareness of the information or resources available in other divisions or regions. The employees may also have different communication styles or preferences that cause misunderstandings or delays.
• Culture maintenance and alignment : By having a diverse workforce with different backgrounds and perspectives, Microsoft may face challenges in maintaining and aligning its culture across the organization. The employees may have different interpretations or expectations of the company’s values and principles. The employees may also have different levels of engagement or commitment to the company’s mission and vision.

How Does Microsoft Address These Challenges?

To overcome these challenges, Microsoft employs various strategies and practices, such as:

• Establishing a clear vision and strategy : Microsoft has a clear and compelling vision of empowering every person and every organization on the planet to achieve more 5 .   The company also has a well-defined strategy of being a productivity and platform company for the mobile-first and cloud-first world 6 . These statements provide a common direction and purpose for the entire organization, and help align the divisions’ goals and actions.
• Creating a culture of collaboration and feedback : Microsoft encourages its employees to collaborate and communicate across the divisions and regions, using various tools and platforms, such as Teams, Yammer, SharePoint, etc. The company also promotes a culture of feedback and learning, where employees can give and receive constructive feedback, and seek or offer mentorship and coaching.
• Providing training and development opportunities : Microsoft invests in its employees’ training and development, by providing various programs and resources, such as Microsoft Learn, LinkedIn Learning, Microsoft Certifications, etc. The company also supports its employees’ career growth and mobility, by offering internal job postings, transfers, rotations, etc.

Microsoft’s organizational structure is a product of its history, strategy, and culture. The company has evolved its structure over time to adapt to the changing market and customer needs. The company has also maintained its culture of accountability, quality and innovation, responsiveness to customers, growth mindset, diversity and inclusion. The company’s structure and culture support each other in creating value for the customers and stakeholders. However, the company also faces some challenges in coordinating, communicating, and aligning its activities across the organization. The company addresses these challenges by establishing a clear vision and strategy, creating a culture of collaboration and feedback, and providing training and development opportunities for its employees.

Header image credit:  " Microsoft Store sign" p hoto by Turag Photography licensed under Unsplash License

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