Todays Agenda 103107

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Chapter 11
Organizational Structure and Controls
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Vision and Mission ? ? 1.External
analysis 2.Internal analysis ?
? Opportunities threats Strengths
weaknesses Key success factors
Distinctive competence ?
? Strategy 4.Social ? ?
?3.Managerial responsibility values Implementat
ion ? Sustainable competitive advantage Above
average returns
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Strategic Management shooting at a moving
target of co-alignment (Thompson, 1967)

• External Strategic Fit
• Strategy formulation to
• -match internal capabilities
• with specific attractive
• external opportunities
• -create strategies
• that effectively adapt to
• external (industry and
• competitive) trends.

• Internal Strategic Fit
• Strategy implementation to
• -match the skills and
• resources of the firm to
• requirements for successful
• strategy execution
• -ensure that actions and
• resources facilitate strategy
• accomplishment.

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Components of Internal Strategic Fit(Froelich
Model)

• (Environment)
• Strategy
• Structure
• Systems
• Resources/Capabilities
• Organizational Culture

STRUCTURE

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Organization structure Why so important?

• Bounds day-to-day behaviors it directs daily
  actions of individuals and groups
• Includes authority relationships, which are huge
  influences on workplace behaviors
• Has resource allocation and control implications
• Involves pragmatic operational issues related to
  efficiency and effectiveness
• Structural decisions are more common than
  strategic decisions
• Structure expertise is undeveloped/needed

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Strategy and Structure Growth Pattern
Efficient implementation of formulated strategy

• As firms grow larger and become more complex,
  structural challenges emerge
• Firms larger sizes dictate the need for more
  sophisticated workflows and integrating
  mechanisms
• Simple
• Functional
• Multidivisional

Efficient implementation of formulated strategy
Figure 11.1
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Strategy and Structure Simple Structure

• Owner-manager
• Makes all major decisions directly
• Monitors all activities
• Matched with focus (or niche) strategies and
  small single business strategies
• Commonly compete by offering a single product
  line in a single geographic market

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Simple Structure (contd)

• Advantages? Disadvantages?

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Strategy and Structure Functional Structure

• CEO and corporate staff
• Functional line managers in needed organizational
  areas (critical functions vary, depending on the
  strategy), possibly
• ? ?
• ? ?
• fits (larger) single or dominant business
  strategies with low levels of diversification

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Functional Structure (cont)

• Advantages

• Disadvantages
• departmental silos, loyalties, perspectives,
  not a big picture view
• cross-functional communication
• slower to adapt
• needs centralized authority to integrate the
  various functions

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Functional Structure for Implementation of a
Differentiation Strategy
Notes Marketing is the main function for
keeping track of new product ideas New product
RD is emphasized Most functions are
decentralized, but RD and marketing may have
centralized staffs that work closely with each
other Formalization is limited so that new
product ideas can emerge easily and change is
more readily accomplished Overall structure is
organic job roles are less structured
Figure 11.3
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Functional Structure for Cost Leadership Strategy
Notes Operations is the main function
Process engineering is emphasized rather than new
product RD Relatively large centralized staff
coordinates functions Formalized procedures
allow for emergence of a low-cost culture
Overall structure is mechanical job roles are
highly structured
Figure 11.2
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Evolutionary Growth of the Firm leading to
increased diversification

• A firms continuing success that leads to
• Product diversification, or
• Market diversification, or
• Both product and market diversification
• Increasing diversification creates information
  processing and coordination problems that the
  functional structure cant handle

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Strategy and Structure Multidivisional Structure

• Top corporate officer delegates responsibilities
  to division managers
• For day-to-day operations
• For business-unit strategy
• Appropriate as a firm grows through
  diversification

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Example of M-Form Structure
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Multidivisional Structure (cont)

• Advantages

• Disadvantages
• duplication of functional skills
• increased complexity
• harder to share, transfer, or coordinate
  expertise across divisions
• dominance of financial over strategic controls

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Multi-divisional Structure
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Organizational Controls

• Objective financial criteria enables
  comparisons of differing divisions using standard
  financial measures
• Requires less understanding of the competitive
  dynamics of the particular marketplace
• Use with caution - do not tell the whole story!

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Organizational Controls

• Subjective (strategically relevant) criteria
• Evaluate the degree to which the firm
  accomplishes key tasks related to success of the
  particular strategy being implemented
• Examples market share, innovation lead time,
  image, location advantages
• requires in-depth knowledge/insight in market

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Matching Control to Strategy

• Relative use of controls varies by type of
  strategy
• Large diversified firms using a cost leadership
  strategy and/or unrelated diversification tend to
  emphasize financial controls
• Companies and business units using a
  differentiation strategy and/or related
  diversification use more strategic controls

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Corporate-Level Strategies and the
Multidivisional Structure (contd)

• Diversification strategy eventually requires firm
  to change from functional structure to a
  multidivisional structure
• Different levels of diversification create the
  need for implementation of a different types of
  multidivisional structure

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Variations of the Multidivisional Structure
Figure 11.4
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Competitive Form of Multidivisional Structure
Unrelated Strategy
Notes Corporate headquarters has a small
staff Finance and auditing are the most
prominent functions in the headquarters
office to manage cash flow and assure the
accuracy of performance data coming from
divisions
The legal affairs function becomes important
when the firm acquires or divests assets
Divisions are independent and separate for
financial evaluation purposes Divisions retain
strategic control, but cash is managed by the
corporate office Divisions compete for
corporate resources
Figure 11.7
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Multidivisional Structure Competitive Form

• More independence among the firms divisions
• Divisions do not share common strengths, so
  integrating mechanisms are not employed
• Corporate HQ has a small staff strategy is
  delegated to divisions, but resource allocation
  among divisions is centralized
• Financial controls predominate
• Prominent functions are finance, auditing
  legal if acquisitions/divestitures are frequent
• Culture of competition rather than cooperation
  between divisions

Unrelated Strategy
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Cooperative Form of Multidivisional Structure
Related-Constrained Strategy
Notes Structural integration devices create
tight links among all divisions Corporate
office emphasizes centralized strategic planning,
human resources, and marketing to foster
cooperation between divisions RD is likely to
be centralized
Rewards are subjective and tend to emphasize
overall corporate performance in addition to
divisional performance Culture emphasizes
cooperative sharing
Figure 11.5
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Multidivisional Structure Cooperative Form
Related-Constrained Strategy

• Development of integrating mechanisms to bring
  about cooperation among divisions
• Goals activity sharing/skill transfer
• HQ involved in centralized strategic planning,
  HRM, marketing, and possibly other functions with
  synergistic potential
• RD is likely centralized
• Greater use of strategic control measures

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Cooperative Form (contd)
Related-Constrained Strategy

• Rewards consider overall corporate performance in
  addition to division performance
• A more cooperative culture is nurtured
• A more complex management task compared to the
  competitive M-Form
• Companies need to better figure out/understand
  how to do this! HOW?

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Even More Structures !!!

• Structures for international strategies - match
  the strategy and the structure!
• Matrix structures to facilitate innovation
• Strategic alliances for collaborative strategies
  between firms
• Creative and experimental structures

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Worldwide Geographic Area Structure
Multi-domestic Strategy
Notes The perimeter circles indicate
decentralization of operations Emphasis is
on differentiation by local demand to fit an
area or country culture Corporate
headquarters coordinates financial resources
among independent subsidiaries The
organization is like a decentralized federation
Figure 11.8
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Worldwide Product Divisional Structure Global
Strategy
Notes The headquarters circle indicates
centralization to coordinate information flow
among worldwide products Corporate
headquarters uses many intercoordination
devices to facilitate global economies of scale
and scope Corporate headquarters also
allocates financial resources in a
cooperative way The organization is like a
centralized federation
Figure 11.9
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A useful structural generalization -

• Prioritized/very important organizational
• functions are found at higher levels and are
• elaborated in the organization.
• Organize around key functions make sure
• key functions have authority and resources.

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A prominent structural dilemma today . . .
How to be big, but work small? How to
capture advantages of the simple structure within
our HUGE mega-firms?
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Matrix Organizational Form

• Pull people from functional departments to create
  multi-functional project teams
• To facilitate strategies relying on innovation
• Some problems with role conflict and continued
  reassignments
• Seldom used for structuring an entire
  organization rather, used in particular areas of
  the organization as needed

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Strategic Alliances for outsourcing and
collaborative strategies

• MANY TYPES
• virtual corporations
• alliances with suppliers
• alliances with rivals
• joint ventures
• joint licensing
• joint production
• joint distribution
• cross-border
• equity-based
• contractual
• informal

MANY MOTIVES
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Successful Strategic Alliances . . .

• have a clear strategic purpose.
• view alliances a means to an end, not an end.
• find a fitting partner, with compatible goals,
  complementary capabilities, and accommodating
  organizational culture.
• communicate, share information, and interact on a
  variety of levels - need to develop trust!
• create incentives for cooperation and joint
  success (win-win! not win-lose!).
• conscientiously minimize/manage conflicts.
• are flexible, and allow the alliance to evolve.
• INCREASING A KSF IN MANY INDUSTRIES!

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Creative/Experimental Structural Forms . . .

• Organizational ecosystem concept of overlapping
  teams - to facilitate innovation and high
  employee commitment
• Bottom-up structures - to emphasize importance of
  customers and staff
• Non-hierarchical structures - to focus on
  organizational mission/shared values

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Creative and Experimental Structures (continued)

• think about - is the new structure really cutting
  edge, or merely a wasteful fad?
• BEWARE of the latest and greatest consultants
  products!
• be pragmatic -
• - does the structure fit your strategy?
• - are employee relationships clear?
• - is the structure adequately efficient?

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The best organizational structure

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Conclusions about organizational structure

• Structure must facilitate the necessary tasks to
  accomplish the organizations strategy.
• Structure is a major ingredient in successful
  strategy implementation.
• Change in strategy requires change in structure