1. The Strategic Management Process
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Figure 1.1
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2. Chapter 11: Organizational Structure (and Controls)
Components of internal strategic fit
Role of organizational structure in strategy implementation
Basic forms of organizational structure;
advantages/disadvantages of each
- simple
- functional
- multi-divisional (M-Form) - 3 types
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3. Chapter 11: Organizational Structure (and Control)
Strategic control; financial control
Strategy-structure “fit”
Contemporary forms of organizational structure
- matrix structure
- strategic alliances, networks, virtual
organizations (Chapter 9)
- creative/experimental forms
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4. Components of Internal Strategic Fit (Froelich Model)
Environment
Strategy
Structure
Systems
Resources/Capabilities
Organizational Culture
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5. Organizational Structure
Organizational structure specifies:
The firm’s formal reporting relationships, procedures, controls, and authority and
decision-making processes
It is critical to match organizational structure to the firm’s strategy
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6. 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
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7. Relationships between Strategy and Structure
Strategy and structure have a reciprocal relationship:
Structure flows from or follows the selection of the firm’s strategy but …
Once in place, structure can influence current strategic actions as well as choices about future strategies
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8. 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
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Figure 11.1

9. Strategy and Structure: Simple Structure
Owner-manager
Makes all major decisions directly
Monitors all activities
Staff
An extension of manager’s supervisor authority
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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10. Simple Structure (cont’d)
Advantages? Disadvantages?
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11. Strategy and Structure: Functional Structure
Chief Executive Officer (CEO)
Limited corporate staff
Functional line managers in needed organizational areas, possibly:
Manufacturing Marketing Engineering
Accounting R&D HRM
Supports use of business-level strategies and some corporate-level strategies
(larger) Single or dominant business with low levels of diversification
Facilitates centralization/company-wide coordination
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12. Functional Structure for Implementation of a Differentiation Strategy
Notes: • Marketing is the main function for keeping track of new product ideas • New product R&D is emphasized
• Most functions are decentralized, but R&D 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
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Figure 11.3

13. Functional Structure under a Differentiation Strategy
Marketing is the main function for tracking new product ideas
New product R&D is emphasized
Most functions are decentralized
Formalization is limited to foster change and promote new ideas
Overall structure is organic
Job roles are less structured
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14. Functional Structure for Cost Leadership Strategy
Notes: • Operations is the main function • Process engineering is emphasized rather than new product R&D • 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
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Figure 11.2

15. Functional Structure under a Cost Leadership Strategy
Operations is typically the main function
Process engineering is emphasized over research and development
Large centralized staff oversees activities
Formalized procedures guide actions
Structure is mechanical
Job roles are highly structured
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16. Implementing an Integrated Cost Leadership/Differentiation Strategy
The integrated form of the functional structure must have:
Decision-making patterns that are partially centralized and partially decentralized
Semi-specialized jobs
Rules and procedures that allow both formal and informal job behaviors
A hybrid form; no wonder it is hard to implement!
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17. Functional Structure (cont’d)
Differences in orientation among organizational functions can:
Impede communication and coordination
Cause functional-area managers to focus on local versus overall company strategic issues
Increase the need for CEO to integrate decisions and actions of business functions
Facilitate career paths and professional development in specialized functional areas
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18. Evolutionary Growth of the Firm leading to increased diversification
A firm’s 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 can’t handle
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19. 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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20. Example of M-Form Structure
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21. Multidivisional Structure (cont’d)
Major Benefits
Corporate officers are more detached as they monitor and compare performance of divisions, facilitating resource allocation decisions
Stimulates divisional managers to optimize performance of their units
Provides for faster reaction to change and a stronger customer focus at division level
Development of “general management” expertise within the firm
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22. Multidivisional Structure (con’t)
Major Disadvantages
Increased complexity of the firm overall
Difficulties coordinating and sharing expertise across divisions
Duplication of resources
Tendency to rely on financial controls rather than strategic controls
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23. Organizational Controls
Strategic
Controls
Organizational
Controls
“Subjective” (strategically relevant) Criteria
Philosophy of the “balanced scorecard”
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, product mix
requires in-depth knowledge/insight in market
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24. Organizational Controls
Strategic
Controls
Organizational
Controls
Financial
Controls
“Objective” financial criteria
Enables comparisons of differing divisions using “standardized financial measures, such as:
Requires less strategic understanding
Use with caution - do not tell the whole story!
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25. Matching Control to Strategy
Relative use of controls varies by type of strategy
Large diversified firms using a cost leadership strategy tend to emphasize financial controls
Companies and business units using a differentiation strategy typically emphasize strategic controls
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26. Corporate-Level Strategies and the Multidivisional Structure (cont’d)
Diversification strategy requires firm to change from functional structure to a multidivisional structure
Different levels of diversification create the need for implementation of a unique form of the multidivisional structure
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27. Variations of the Multidivisional Structure
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Figure 11.4

28. 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
• R&D is likely to be centralized•
• Rewards are subjective and tend to emphasize overall corporate performance in addition to divisional performance
• Culture emphasizes cooperative sharing
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Figure 11.5

29. Multidivisional Structure: Cooperative Form
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
R&D is likely centralized
Greater use of strategic control measures
Related-Constrained Strategy
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30. Cooperative Form (cont’d)
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!
Related-Constrained Strategy
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31. 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
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Figure 11.7

32. Multidivisional Structure: Competitive Form
A structure in which there is independence among the firm’s 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; plus legal is acquisitions/divestitures are frequent
Culture of competition rather than cooperation between divisions
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Unrelated Strategy

33. Even More Structures !!! Structures for international strategies
(Network) structures for cooperative strategies
Matrix structures to facilitate innovation
Creative and experimental structures
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34. 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
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Figure 11.8

35. 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
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Figure 11.9

36. Matrix Organizational Form
Simultaneous use of functional departments and project teams
To facilitate and speed strategies relying on innovation
Seldom used for structuring an entire organization; rather, used in particular areas of the organization as needed
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37. Matrix Structure Advantages Disadvantages
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38. 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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39. Creative and Experimental Structures,(con’t)
think about - is the new structure really cutting edge, or merely a wasteful fad?
BEWARE of the “latest and greatest” consultant’s products!
be pragmatic -
- does the structure fit your strategy?
- are employee relationships clear and
workable?
- is the structure adequately efficient?
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40. A Strategic Network - for elaborate cooperative strategies (Chapter 9)
Center
Firm
Adapted from Figure 11.10
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41. Strategic Center Firm
Is the foundation for the strategic network’s structure
Manages the complex, cooperative interactions among network partners
Is more obvious in stable and vertically arranged networks, but less obvious in horizontally arranged and dynamic networks
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42. The “best” organizational structure =
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43. Conclusions about organizational structure:
Structure must facilitate the necessary tasks to accomplish the organization’s strategy.
Structure is a major “ingredient” in successful strategy implementation.
Change in strategy requires change in structure
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