Learning Objectives  Understand the dimensions of organizational structure and how they are important  Select an appropriate business-level structure  Select an appropriate corporate-level structure for firms with more than one business unit  Develop a comprehensive strategic control system  Understand the characteristics of accident-prone organizations and how to avoid them

Dimensions of Organizational Structure  Hierarchy of Authority  Degree of Centralization  Complexity  Specialization  Formalization  Professionalism

Functional Structure General Manager Marketing FinanceOperations HR R&D/Eng

Functional Structure  Organizing Framework Inputs such as marketing and production Inputs such as marketing and production  Degree of Centralization High centralization High centralization  Competitive Environment Stable, demands for internal efficiency or functional specialization Stable, demands for internal efficiency or functional specialization  Growth Strategy Market penetration Market penetration  Organizing Framework Inputs such as marketing and production Inputs such as marketing and production  Degree of Centralization High centralization High centralization  Competitive Environment Stable, demands for internal efficiency or functional specialization Stable, demands for internal efficiency or functional specialization  Growth Strategy Market penetration Market penetration

Functional Structure  Strengths Economies of scale Economies of scale Functional expertise and specialization Functional expertise and specialization Best if few products or services Best if few products or services  Weaknesses Slow response time Slow response time Hierarchy overload Hierarchy overload Sometimes poor coordination across departments Sometimes poor coordination across departments Can restrict view or broader organizational goals Can restrict view or broader organizational goals  Strengths Economies of scale Economies of scale Functional expertise and specialization Functional expertise and specialization Best if few products or services Best if few products or services  Weaknesses Slow response time Slow response time Hierarchy overload Hierarchy overload Sometimes poor coordination across departments Sometimes poor coordination across departments Can restrict view or broader organizational goals Can restrict view or broader organizational goals

Product/Market Structure General Manager Marketing Operations Product A Administrative Departments Marketing Operations Product B Marketing Operations Market A Marketing Operations Market B General Manager Administrative Departments

Product/Market Structure  Organizing Framework Outputs such as product groups or markets Outputs such as product groups or markets  Degree of Centralization Decentralized Decentralized  Competitive Environment Dynamic with pressure to satisfy particular market needs very well Dynamic with pressure to satisfy particular market needs very well  Growth Strategy Market and/or product development Market and/or product development  Organizing Framework Outputs such as product groups or markets Outputs such as product groups or markets  Degree of Centralization Decentralized Decentralized  Competitive Environment Dynamic with pressure to satisfy particular market needs very well Dynamic with pressure to satisfy particular market needs very well  Growth Strategy Market and/or product development Market and/or product development

Product/Market Structure  Strengths Suited to fast change in an unstable environment Suited to fast change in an unstable environment High levels of client satisfaction High levels of client satisfaction High coordination across functions High coordination across functions Best in larger organizations with several products or markets Best in larger organizations with several products or markets  Weaknesses Loss of economies of scale within functional areas Loss of economies of scale within functional areas Some redundancy of functions Some redundancy of functions Loss of in-depth functional specialization Loss of in-depth functional specialization May lead to poor coordination across product lines or markets May lead to poor coordination across product lines or markets  Strengths Suited to fast change in an unstable environment Suited to fast change in an unstable environment High levels of client satisfaction High levels of client satisfaction High coordination across functions High coordination across functions Best in larger organizations with several products or markets Best in larger organizations with several products or markets  Weaknesses Loss of economies of scale within functional areas Loss of economies of scale within functional areas Some redundancy of functions Some redundancy of functions Loss of in-depth functional specialization Loss of in-depth functional specialization May lead to poor coordination across product lines or markets May lead to poor coordination across product lines or markets

Project Matrix Structure General Manager Support Functions Support Functions Project Manager A Project Manager A Project Manager A Marketing Manager R&D Manager Operations Manager

Project Matrix Structure  Organizing Framework Inputs and outputs Inputs and outputs  Degree of Centralization Decentralization with shared authority Decentralization with shared authority  Competitive Environment Responds well to internal pressure for efficiency or specialization AND external market pressure to satisfy particular market needs or customers Responds well to internal pressure for efficiency or specialization AND external market pressure to satisfy particular market needs or customers  Growth Strategy Frequent changes to products and markets (allows flexible use of human resource) Frequent changes to products and markets (allows flexible use of human resource)  Organizing Framework Inputs and outputs Inputs and outputs  Degree of Centralization Decentralization with shared authority Decentralization with shared authority  Competitive Environment Responds well to internal pressure for efficiency or specialization AND external market pressure to satisfy particular market needs or customers Responds well to internal pressure for efficiency or specialization AND external market pressure to satisfy particular market needs or customers  Growth Strategy Frequent changes to products and markets (allows flexible use of human resource) Frequent changes to products and markets (allows flexible use of human resource)

Project Matrix Structure  Strengths Achieves coordination Achieves coordination Flexible use of human resources Flexible use of human resources Works well in medium-sized firms with multiple products Works well in medium-sized firms with multiple products  Weaknesses Dual authority can cause frustration and confusion Dual authority can cause frustration and confusion Excellent interpersonal skills needed Excellent interpersonal skills needed Additional training can be expensive Additional training can be expensive Time consuming, frequent meetings Time consuming, frequent meetings Great effort to maintain power balance Great effort to maintain power balance  Strengths Achieves coordination Achieves coordination Flexible use of human resources Flexible use of human resources Works well in medium-sized firms with multiple products Works well in medium-sized firms with multiple products  Weaknesses Dual authority can cause frustration and confusion Dual authority can cause frustration and confusion Excellent interpersonal skills needed Excellent interpersonal skills needed Additional training can be expensive Additional training can be expensive Time consuming, frequent meetings Time consuming, frequent meetings Great effort to maintain power balance Great effort to maintain power balance

Network Structure Information Center

Network Structure  Organizing Framework Outputs Outputs  Degree of Centralization Very decentralized Very decentralized  Competitive Environment Conditions vary from region to region Conditions vary from region to region  Growth Strategy Market penetration or market development Market penetration or market development  Organizing Framework Outputs Outputs  Degree of Centralization Very decentralized Very decentralized  Competitive Environment Conditions vary from region to region Conditions vary from region to region  Growth Strategy Market penetration or market development Market penetration or market development

Network Structure  Strengths Units can focus on specific needs of markets Units can focus on specific needs of markets High levels of client satisfaction High levels of client satisfaction Works well in larger organizations with highly differentiated markets Works well in larger organizations with highly differentiated markets  Weaknesses Loss of economies of scale Loss of economies of scale Duplication of resources Duplication of resources Hard to coordinate units when coordination is necessary or desirable Hard to coordinate units when coordination is necessary or desirable Can be confusing to customers with locations in multiple regions where the firm operates Can be confusing to customers with locations in multiple regions where the firm operates  Strengths Units can focus on specific needs of markets Units can focus on specific needs of markets High levels of client satisfaction High levels of client satisfaction Works well in larger organizations with highly differentiated markets Works well in larger organizations with highly differentiated markets  Weaknesses Loss of economies of scale Loss of economies of scale Duplication of resources Duplication of resources Hard to coordinate units when coordination is necessary or desirable Hard to coordinate units when coordination is necessary or desirable Can be confusing to customers with locations in multiple regions where the firm operates Can be confusing to customers with locations in multiple regions where the firm operates

Corporate Structures -- Multidivisional Few businesses compared to the other corporate structures Few businesses compared to the other corporate structures Moderate/low relatedness across divisions Moderate/low relatedness across divisions Moderate/low need for coordination across divisions Moderate/low need for coordination across divisions Financial synergy may be available across divisions and some operational synergy (although limited) only to the extent that the divisions are related to each other Financial synergy may be available across divisions and some operational synergy (although limited) only to the extent that the divisions are related to each other Few businesses compared to the other corporate structures Few businesses compared to the other corporate structures Moderate/low relatedness across divisions Moderate/low relatedness across divisions Moderate/low need for coordination across divisions Moderate/low need for coordination across divisions Financial synergy may be available across divisions and some operational synergy (although limited) only to the extent that the divisions are related to each other Financial synergy may be available across divisions and some operational synergy (although limited) only to the extent that the divisions are related to each other CEO Corporate Staff Division VP

Corporate Structures -- Strategic Business Unit Many businesses, some of which are related to each other Many businesses, some of which are related to each other Groups (SBUs) of related businesses Groups (SBUs) of related businesses Coordination needed within each SBU; low need for coordination across SBUs Coordination needed within each SBU; low need for coordination across SBUs Financial synergy across SBUs, potential exists for operational synergy within SBUs Financial synergy across SBUs, potential exists for operational synergy within SBUs Many businesses, some of which are related to each other Many businesses, some of which are related to each other Groups (SBUs) of related businesses Groups (SBUs) of related businesses Coordination needed within each SBU; low need for coordination across SBUs Coordination needed within each SBU; low need for coordination across SBUs Financial synergy across SBUs, potential exists for operational synergy within SBUs Financial synergy across SBUs, potential exists for operational synergy within SBUs CEO Corporate Staff SBU Manager Related Divisions SBU Staff

Corporate Structures -- Matrix Any number of businesses Any number of businesses Highly related businesses so people can easily transfer Highly related businesses so people can easily transfer Very high level of coordination is required Very high level of coordination is required Many opportunities exist for operational synergies (for innovation, to reduce costs, or serve multiple markets well) Many opportunities exist for operational synergies (for innovation, to reduce costs, or serve multiple markets well) Any number of businesses Any number of businesses Highly related businesses so people can easily transfer Highly related businesses so people can easily transfer Very high level of coordination is required Very high level of coordination is required Many opportunities exist for operational synergies (for innovation, to reduce costs, or serve multiple markets well) Many opportunities exist for operational synergies (for innovation, to reduce costs, or serve multiple markets well) CEO and Staff Marketing Division 2Division 1 Operations R&D

Corporate Structures -- Transnational Many businesses in different nations Many businesses in different nations Highly related businesses (similar to corporate matrix) Highly related businesses (similar to corporate matrix) Very high level of coordination is required Very high level of coordination is required Many opportunities exist for operational synergies on a world wide scale (for innovation, to reduce costs, or serve multiple markets well) Many opportunities exist for operational synergies on a world wide scale (for innovation, to reduce costs, or serve multiple markets well) Many businesses in different nations Many businesses in different nations Highly related businesses (similar to corporate matrix) Highly related businesses (similar to corporate matrix) Very high level of coordination is required Very high level of coordination is required Many opportunities exist for operational synergies on a world wide scale (for innovation, to reduce costs, or serve multiple markets well) Many opportunities exist for operational synergies on a world wide scale (for innovation, to reduce costs, or serve multiple markets well) U.S.A. Asia Europe Marketing Operations R&D Product Group 1 Product Group 2 Product Group 3

Steps in Developing a Feedback Control System  Determine Broad Goals  Establish Links Between Broad Goals and Resource Areas or Activities of the Organization  Create Measurable Operating Goals for Each Resource Area or Activity  Assign Responsibility for Goal Accomplishment  Develop Specific Action Plans  Allocate Resources  Follow Up

Key Result Areas and Possible Measures  Customers Sales $ and volume Sales $ and volume New customers New customers New customer contacts New customer contacts  Customers Growth in sales Turnover of customer base Ability to control price Near-Term Measures Long-term Measures

Key Result Areas and Possible Measures  Suppliers Cost of materials Cost of materials Delivery time Delivery time Inventory Inventory Availability of materials Availability of materials  Suppliers Growth rate of material cost, delivery time or inventory Growth rate of material cost, delivery time or inventory New ideas from suppliers New ideas from suppliers Near-Term Measures Long-term Measures

Key Result Areas and Possible Measures  Financial Community EPS EPS Stock Price Stock Price Number of “buy” lists Number of “buy” lists ROE ROE  Financial Community Ability to convince Wall Street of strategy Ability to convince Wall Street of strategy Growth in ROE, EPS, or stock price Growth in ROE, EPS, or stock price Near-Term Measures Long-term Measures

 Employees Number of suggestions Number of suggestions Productivity Productivity Number of grievances Number of grievances  Employees Number of internal promotions Turnover Key Result Areas and Possible Measures Near-Term Measures Long-term Measures

 Congress New legislation affecting firm New legislation affecting firm Access to key members and staff Access to key members and staff  Congress Number of new regulations that affect industry Number of new regulations that affect industry Ratio of “cooperative” vs. “competitive” encounters Ratio of “cooperative” vs. “competitive” encounters Key Result Areas and Possible Measures Near-Term Measures Long-term Measures

 Consumer Advocates Number of meetings, hostile encounters, coalitions formed or legal actions Number of meetings, hostile encounters, coalitions formed or legal actions  Consumer Advocates Number of changes in policy due to CA Number of changes in policy due to CA Number of CA- initiated “calls for help” Number of CA- initiated “calls for help” Key Result Areas and Possible Measures Near-Term Measures Long-term Measures

 Environmentalists Number of meetings, hostile encounters, coalitions formed, EPA complaints or legal actions Number of meetings, hostile encounters, coalitions formed, EPA complaints or legal actions  Environmentalists Number of changes in policy due to environmentalists Number of changes in policy due to environmentalists Number of environmentalist “calls for help” Number of environmentalist “calls for help” Key Result Areas and Possible Measures Near-Term Measures Long-term Measures

Feedback Controls PerformanceFeedback EstablishStrategicDirectionFormulateBasic Strategies Strategies Implementation Implementation Strategies and Controls Goals and Objectives Feedback Control Organizational Outcomes Outcomes TIME Compare Goals to Outcomes

Feedforward Controls BusinessIntelligence Establish Strategic DirectionFormulateBasic Strategies Strategies Implementation Strategies & Controls Analyze Broad Environment Analyze Operating EnvironmentAnalyzeResources & Strategies & Strategies Feedforward Control

Behavioral, Process and Accounting Controls Establish Strategic Direction Formulate Basic Strategies Strategies Implementation Strategies and Controls Behavioral Controls Bureaucracy Socialization processes (clan) Socialization processes (clan) Human resources systems Process Controls Used to guide daily processes and work activities; often technology based Accounting Controls Systems to ensure the accurate collection and reporting of financial information

How Control Elements Fit Together Business Intelligence Establish Strategic Direction Formulate Basic Strategies Strategies Create Implementation Create Implementation Strategies and Controls Information used to guide firm strategies and manage resources and stakeholder relationships (includes performance feedback) Analyze Broad Environment Analyze Operating Environment Analyze Resources and Strategies and Strategies Goals and Objectives Specific targets set; should be mission driven Organizational Outcomes Growth Stakeholder satisfaction Profitability Level of innovation Other outcomes TIME Compare Goals to Outcomes Behavioral Controls Bureaucracy Socialization processes (clan) Socialization processes (clan) Human resources systems Process Controls Used to guide daily processes and work activities; often technology based Accounting Controls Systems to ensure the accurate collection and reporting of financial information Feedforward Control Feedback Control Feedback Control Behavioral, Process and Accounting Controls

The Five Phases of Crisis Management  Signal Detection  Preparation / Prevention  Containment / Damage Limitation  Recovery  Learning

Preventing and Controlling Crises  Strategic Actions  Technical and Structural Actions  Evaluation and Diagnostic Actions  Communication Actions  Psychological and Cultural Actions