Chapter 11 Organizational Design: Structure, Culture, and Control

Chapter 11 Organizational Design: Structure, Culture, and Control
Be sure to see the NEW integrated Instructor’s Manual located in the Connect Library under Instructor’s Resources. Chapter 11 Organizational Design: Structure, Culture, and Control

The AFI Strategy Framework
Jump to Appendix 1 long image description

Chapter 11 Outline (1 of 2) 11.1 Organizational Design and Competitive Advantage Organizational Inertia: The Failure of Established Firms Organizational Structure Mechanistic vs. Organic Organizations 11.2 Strategy and Structure Simple Structure Functional Structure Multidivisional Structure Matrix Structure

Chapter 11 Outline (2 of 2) 11.3 Organizational Culture: Values, Norms, and Artifacts Where Do Organizational Cultures Come From? How Does Organizational Culture Change? Organizational Culture and Competitive Advantage 11.4 Strategic Control-and-Reward Systems Input Controls Output Controls 11.5 Implications for the Strategist

Learning Objectives LO 11-1 Define organizational design and list its three components. LO 11-2 Explain how organizational inertia can lead established firms to failure. LO 11-3 Define organizational structure and describe its four elements. LO 11-4 Compare and contrast mechanistic versus organic organizations. LO 11-5 Describe different organizational structures and match them with appropriate strategies. LO 11-6 Describe the elements of organizational culture, and explain where organizational cultures can come from and how they can be changed. LO 11-7 Compare and contrast different strategic control-and-reward systems.

Organizational Design and Competitive Advantage

Organizational Design
The process of: Creating, implementing, monitoring, and modifying… The structure, processes, and procedures of an organization Key components: Structure Culture Control Instructors: The digital companion to this book McGraw-Hill Connect has a video case exercise on this section of the textbook. It builds student confidence on building competitive advantage through organizational processes. (LO 11-2).

Organizational Inertia
A firm’s resistance to change the status quo Can lead to the firm’s subsequent failure The pattern of a firm: Mastery of the current environment Success as measured by financial measurements Structures, measures, and systems to manage size Organizational inertia results from shifts in the internal and external environment.

Jump to Appendix 2 long image description
Exhibit 11.2 Failure of Firms to Respond to Shifts in the External or Internal Environments Jump to Appendix 2 long image description

The Premature Death of a Google-like Search Engine at Microsoft
Strategy Highlight 11.1 The Premature Death of a Google-like Search Engine at Microsoft Microsoft had a prototype called Keywords. More than a decade earlier than Google It was shut down because managers didn’t see it as a viable business model. Microsoft almost acquired this capability. But determined Overture Services was overpriced Launched their own, Bing, in 2009 The CEO has admitted impatience. Was replaced in 2014

Organizational Structure
A key building block of organizational design Determines how the work efforts of individuals and teams are orchestrated Determines how resources are distributed Includes four building blocks: Specialization Formalization Centralization Hierarchy

Specialization Describes the degree to which a task is divided into separate jobs (i.e., the division of labor) Larger firms: high degree of specialization Ex: Large-firm accountant might do internal auditing Smaller ventures: low degree of specialization Ex: Small-firm accountant might do: Internal auditing Payroll Accounts receivable Financial planning Taxes

Formalization Captures the extent to which employee behavior is steered by explicit and codified rules and procedures Is not necessarily negative Often can be necessary for consistent and predictable results Ex. Pilot training Ex. Customer service call centers Can slow decision making, reduce innovation, and hinder customer service

Centralization Refers to the degree to which decision making is concentrated at the top of the organization Example: BP oil spill in 2010 Decisions made in UK HQ and not on site Centralization reduced response time and led to a prolonged crisis. Affects strategic planning: Top-down strategic planning takes place in highly centralized organizations. Planned emergence is found in more decentralized organizations.

Hierarchy Determines the formal, position-based reporting lines
Stipulates who reports to whom Span of control: The number of employees who directly report to a manager In tall structures: the span of control is narrow. In flat structures: the span of control is wide. Meaning one manager supervises many employees

Mechanistic vs. Organic Organizations
Mechanistic Organization High degree of specialization and formalization Tall hierarchies Rely on centralized decision making Organic Organization Low degree of specialization and formalization Flat organizational structure Decentralized decision making Mechanistic example: The fast food chain McDonald’s fits this description quite well. Each step of every job such as deep-frying fries is documented in minute detail (e.g., what kind of vat, the quantity of oil, how many fries, what temperature, how long, and so on). Decision power is centralized at the top of the organization: McDonald’s headquarters provides detailed instructions to each of its franchisees so that they provide comparable quality and service across the board although with some local menu variations. Communication and authority lines are top-down and well defined. To ensure standardized operating procedures and consistent food quality throughout the world, McDonald’s operates Hamburger University, a state-of-the-art teaching facility in a Chicago suburb, where 50 full-time instructors teach courses in chemistry, food preparation, and marketing. In 2010, McDonald’s opened a second Hamburger University campus in Shanghai, China. Organic example: See Strategy Highlight 11.2

Strategy Highlight 11.2 (1 of 2)
W. L. Gore & Associates: Informality and Innovation Inventor of path-breaking new products GORE-TEX fabrics, Glide dental floss, and Elixir guitar strings Devoted to innovation, imagination and initiative No formal job titles, job descriptions, chains of command, formal communication channels, written rules or standard operating procedures Use a boundryless organization form Everyone is empowered

Strategy Highlight 11.2 (2 of 2)
W. L. Gore & Associates: Informality and Innovation Organized in project-based teams Led by sponsors, not bosses Peer control enhances productivity Group members evaluate each other’s performance This type of culture has been linked to: Greater employee satisfaction & retention Higher personal initiative & creativity Innovation at the firm level

Exhibit 11.3 Mechanistic vs. Organic Organizations
Mechanistic Organizations Organic Organizations Specialization High degree of specialization Rigid division of labor Employees focus on narrowly defined tasks Low degree of specialization Flexible division of labor Employees focus on “bigger picture” Formalization Intimate familiarity with rules, policies, and processes necessary Deep expertise in narrowly defined domain required Task-specific knowledge valued Clear understanding of organization’s core competencies and strategic intent Domain expertise in different areas Generalized knowledge of how to accomplish strategic goals valued Centralization Decision power centralized at top Vertical (top-down) communication Distributed decision making Vertical (top-down and bottom-up) as well as horizontal communication Hierarchy Tall structures Low span of control Clear lines of authority Command and control Flat structures High span of control Horizontal as well as two-way vertical communication Mutual adjustment Business Strategy Cost-leadership strategy Examples: McDonald’s; Walmart Differentiation strategy Examples: W.L. Gore, Zappos

Strategy and Structure

Firm Strategy & Structure
Are interdependent Impact a firm’s performance Changes over time as the firm grow in: Size Complexity Successful new ventures generally grow: First by increasing sales Then by obtaining larger geographic reach Finally by diversifying Through vertical integration Entering into related and unrelated businesses Instructors: The digital companion to this book McGraw-Hill Connect has a brief case exercise on this section of the textbook. It builds student confidence on the connections between strategy and organizational structure using a short case on W.L. Gore. (LO 11-5).

Exhibit 11.4 Types of Organizational Structure
Simple Functional Multidivisional Matrix Jump to Appendix 3 long image description

Simple Structure Generally used by small firms with low organizational complexity Founders make all the strategic decisions. Founders run day-to-day operations. Professional managers / sophisticated systems are not usually in place.

Functional Structure Employees are grouped into functional areas.
Based on domain expertise Often correspond to distinct stages in the value chain R&D, engineering, manufacturing, marketing and sales Supporting areas such as HR, finance, and accounting Leaders of functional areas report to the CEO. Influenced by strategy: Cost leadership Mechanistic organization Differentiation Organic organization Integration strategy Ambidextrous organization

Exhibit 11.5 Typical Functional Structure

Functional Structure & Business Strategy
Cost Leadership Strategy Using a functional structure allows the cost leader to: Nurture and constantly upgrade core competencies Differentiation Strategy Using a functional structure allows a differentiator to: Incorporate decentralized decision making Foster and incentivize continuous innovation and creativity Blue Ocean Strategy To implement a functional blue ocean strategy: The firm must be both efficient and flexible The firm must control costs & foster creativity Mitigate the disadvantages of this approach

Disadvantages of Functional Structure
Frequently lacks effective communication channels across departments The top-level manager must take on the coordination and integration work. It cannot effectively address a higher level of diversification, which often stems from further growth.

Multidivisional Structure
Consists of several distinct strategic business units (SBUs) Each with its own profit-and-loss (P&L) responsibility Each SBU is operated independently. Each is led by a CEO. Responsible for the unit’s business strategy Responsible for day-to-day operations

Exhibit 11.7 Typical Multidivisional Structure

Multidivisional Structure & Business Strategy
Related Diversification Cooperative M-Form Centralized decision making High level of integration at corporate headquarters Co-opetition among SBUs Unrelated Diversification Competitive M-Form Decentralized decision making Low level of integration at corporate headquarters Competition among SBUs for resources

Disadvantages of the Multidivisional Structure
Adds another layer of corporate hierarchy Increases bureaucracy, red tape, & duplication of efforts Can slow down decision making SBUs can end up competing with each other Corporate politics and turf wars over resources

Matrix Structure Firm is organized according to SBUs
Like in the M-form Also has a second dimension of organizational structure Consists of different geographic areas Purpose: Combine the benefits of the M-form Domain expertise, economies of scale, and the efficient processing of information With benefits of the functional structure Responsiveness and decentralized focus

Exhibit 11.9 Typical Matrix Structure

Matrix Structure & Global Strategy
International Multidomestic Multidivisional Geographic areas Decentralized decision making Global Standardization Product divisions Centralized decision making Transnational Global Matrix Centralized and decentralized decision making Coordinate geography & products

Disadvantages of the Matrix Structure
Usually difficult to implement Creates additional organizational complexity Increases administrative costs Reporting structures are often not clear. Employees can have trouble reconciling goals. They have two or more supervisors Accountability can be undermined. Increased principal-agent problems Performance appraisals more difficult Can slow decision-making

Organizational Culture: Values, Norms, and Artifacts

Organizational Culture
The collectively shared values and norms of an organization’s members Values: define what is considered important Norms: define appropriate employee attitudes and behaviors Expressed through artifacts: The design and layout of space: cubicles vs. offices Symbols: the type of clothing worn by employees Events: what is celebrated and highlighted Vocabulary: what stories are told Instructors: The digital companion to this book McGraw-Hill Connect has a video case exercise on this section of the textbook. It builds student confidence on organizational culture using Zappos as an example. (LO 11-6).

Exhibit 11.11 The Elements of Organizational Culture
Placeholder Jump to Appendix 7 long image description

Where Do Organizational Cultures Come From?
Founder imprinting The founder defines & shapes the culture. Can persist for decades after his or her departure Examples: Steve Jobs, Walt Disney, Michael Dell, Oprah Winfrey, Martha Stewart, Bill Gates Groupthink When opinions combine Results when individuals don’t critically evaluate and challenge a leader’s opinions and assumptions Founder imprinting: Steve Jobs (Apple), Walt Disney (Disney), Michael Dell (Dell), Sergey Brin and Larry Page (Google), Oprah Winfrey (Harpo Productions and OWN, the Oprah Winfrey Network), Bill Gates (Microsoft), Larry Ellison (Oracle), Ralph Lauren (Polo Ralph Lauren), Martha Stewart (Martha Stewart Living Omnimedia), and Herb Kelleher (Southwest Airlines). Walmart founder Sam Walton personified the retailer’s cost-leadership strategy. At one time the richest man in America, Sam Walton drove a beat-up Ford pickup truck, got $5 haircuts, went camping for vacations, and lived in a modest ranch home in Bentonville, Arkansas. Everything Walton did was consistent with the low-cost strategy.

How Does Organizational Culture Change?
Culture can turn from a core competency into a core rigidity. A firm must hone, refine, and upgrade. Because the firm and the environment change The primary means of cultural change: The board of directors brings in new leadership. Leadership is charged to make changes in strategy and structure. Culture is shaped through: Organizational structure Resource allocation & reward systems GM’s bureaucratic culture, combined with its innovative M-form structure, was once hailed as the key to superior efficiency and management. However, that culture became a liability when the external environment changed following the oil-price shocks in the 1970s and the entry of Japanese carmakers into the United States. As a consequence, GM’s strong culture led to organizational inertia. This resulted in a failure to adapt to changing customer preferences for more fuel-efficient cars, and it prevented higher quality and more innovative designs. GM lost customers to foreign competitors that offered these features.

Organizational Culture and Competitive Advantage
Can organizational culture can help a firm gain and sustain competitive advantage? Yes, IF: The culture makes a positive contribution to the firm’s economic value creation. If the culture obeys the VRIO principles It can be an effective lever for new ventures: It is malleable. Firm founders, early-stage CEOs, and venture capitalists should be proactive: Create a culture that supports a firm’s economic value creation

Two Examples of Culture Affecting Employee Behavior
Example #1: Southwest Airlines Friendly and highly energized employees Sing songs, throw peanuts, wear Halloween costumes Work across functional and hierarchical levels Turn time between flights is only 15 minutes Example #2: Zappo’s Someone called up Zappo’s to ask where a local pizza could be delivered to her hotel. This type of action can increase the company’s perceived value & economic value creation. Provided “wow” through service!

Strategic Control-and-Reward Systems

Strategic Control & Reward Systems
Internal-governance mechanisms Put in place to align the incentives of: Principals (shareholders) Agents (employees) Allow managers to: Specify goals Measure progress Provide performance feedback

Input Controls Seeks to define & direct employee behavior through:
Explicit, codified rules Standard operating procedures Considered prior to the value-creating activities Example: a budget Managers allocate money to R&D projects before they begin

Output Controls Seek to guide employee behavior by:
Defining expected results (outputs), but Leaving the means to those results open to individual employees, groups, or SBUs “ROWE” = Results Only Work Environment Intrinsic motivation in a task is highest when an employee has Autonomy (what to do) Mastery (how to do it) Purpose (why to do it) Today, 3M is best known for its adhesives and other consumer and industrial products. But its full name reflects its origins: 3M stands for Minnesota Mining and Manufacturing Company. Over time, 3M has relied on the ROWE framework and has morphed into a highly science-driven innovation company. At 3M, employees are encouraged to spend 15 percent of their time on projects of their own choosing. If any of these projects look promising, 3M provides financing through an internal venture capital fund and other resources to further develop their commercial potential. In fact, several of 3M’s flagship products, including Post-it Notes and Scotch Tape, were the results of serendipity. To foster continued innovation, moreover, 3M requires each of its divisions to derive at least 30 percent of their revenues from products introduced in the past four years.

Implications for the Strategist

Strategy Implementation
Requires managers to design and shape: Structure Culture Control mechanisms Is iterative and interdependent with strategy formulation Is just as important as strategy formulation Some argue that strategy implementation is more important than strategy formulation. Often, managers do a good job of analyzing the firm’s internal and external environments to formulate a promising business, corporate, and global strategy, but then fail to implement the chosen strategy successfully. That is why some scholars refer to implementation as the “graveyard of strategy.”

Organizational Structures Evolve
Companies grow and become more complex. Different organizational structures get adopted. Beginning with a simple structure Then a functional structure Followed by a multi-divisional or matrix structure Organizing for competitive advantage: Is a dynamic, not static.

Chapter 11 Summary

Take Away Concepts (1 of 7)
LO 11-1 Define organizational design and list its three components. Organizational design is the process of creating, implementing, monitoring, and modifying the structure, processes, and procedures of an organization. The key components of organizational design are structure, culture, and control. The goal is to design an organization that allows managers to effectively translate their chosen strategy into a realized one.

LO 11-2 Explain how organizational inertia can lead established firms to failure. Organizational inertia can lead to the failure of established firms when a tightly coupled system of strategy and structure experiences internal or external shifts. Firm failure happens through a dynamic, four-step process (see Exhibit 11.2).

LO 11-3 Define organizational structure and describe its four elements. An organizational structure determines how firms orchestrate employees’ work efforts and distribute resources. It defines how firms divide and integrate tasks, delineates the reporting relationships up and down the hierarchy, defines formal communication channels, and prescribes how employees coordinate work efforts. The four building blocks of an organizational structure are specialization, formalization, centralization, and hierarchy (see Exhibit 11.3).

LO 11-4 Compare and contrast mechanistic versus organic organizations. Organic organizations are characterized by a low degree of specialization and formalization, a flat organizational structure, and decentralized decision making. Mechanistic organizations are described by a high degree of specialization and formalization, and a tall hierarchy that relies on centralized decision making. The comparative effectiveness of mechanistic versus organic organizational forms depends on the context.

LO 11-5 Describe different organizational structures and match them with appropriate strategies. To gain and sustain competitive advantage, not only must structure follow strategy, but also the chosen organizational form must match the firm’s business strategy. The strategy–-structure relationship is dynamic, changing in a predictable pattern—from simple to functional structure, then to multidivisional (M-form) and matrix structure—as firms grow in size and complexity. In a simple structure, the founder tends to make all the important strategic decisions as well as run the day-to-day operations. A functional structure groups employees into distinct functional areas based on domain expertise. Its different variations are matched with different business strategies: cost leadership, differentiation, and blue ocean (see Exhibit 11.6). The multidivisional (M-form) structure consists of several distinct SBUs, each with its own profit-and-loss responsibility. Each SBU operates more or less independently from one another, led by a CEO responsible for the business strategy of the unit and its day-to-day operations (see Exhibit 11.7). The matrix structure is a mixture of two organizational forms: the M-form and the functional structure (see Exhibit 11.9). Exhibits 11.8 and show how best to match different corporate and global strategies with respective organizational structures.

LO 11-6 Describe the elements of organizational culture, and explain where organizational cultures can come from and how they can be changed. Organizational culture describes the collectively shared values and norms of its members. Values define what is considered important, and norms define appropriate employee attitudes and behaviors. Corporate culture finds its expression in artifacts, which are observable expressions of an organization’s culture.

LO 11-7 Compare and contrast different strategic control-and-reward systems. Strategic control-and-reward systems are internal governance mechanisms put in place to align the incentives of principals (shareholders) and agents (employees). Strategic control-and-reward systems allow managers to specify goals, measure progress, and provide performance feedback. In addition to the balanced-scorecard framework, managers can use organizational culture, input controls, and output controls as part of the firm’s strategic control-and- reward systems. Input controls define and direct employee behavior through explicit and codified rules and standard operating procedures. Output controls guide employee behavior by defining expected results, but leave the means to those results open to individual employees, groups, or SBUs.

Key Terms Ambidexterity Ambidextrous organization Centralization
Exploitation Exploration Formalization Founder imprinting Functional structure Groupthink Hierarchy Holacracy Inertia Input controls Matrix structure Mechanistic organization Multidivisional structure (M-form) Organic organization Organizational culture Organizational design Organizational structure Output controls Simple structure Span of control Specialization Strategic control-and-reward systems

Chapter 11 Cases & Exercises

Chapter Case 11: Consider This… (1 of 2)
Zappos – online shoe retailer Implementation of holacracy is not going well. Holacracy distributes power to self managed teams. Reasons why the implementation was difficult: Removed paths for clear advancement Employee circles introduced paralysis Made the organization more political 200 employees quit. Rather than relying on a traditional top-down hierarchical management structure, holacracy attempts to achieve control and coordination by distributing power and authority to self-organizing groups (so-called circles) of employees. Circles of employees are meant to self-organize and own a specific task, such as confirming online orders or authorizing a customer’s credit card. At this point of its reorganization, Zappos grouped its over 1,500 employees in some 400 circles, with each employee in two or more circles. Order is supposed to emerge from the bottom up, rather than rely on top-down command and control as in traditional organizational structures.

Chapter Case 11: Consider This… (2 of 2)
What elements of an organic organization are apparent from the chapter material? What is holacracy, and how does it differ from others discussed in this chapter? Why is Zappos’ experiencing significant implementation problems with holacracy? Do you think that holacracy is good match with Zappos’ business strategy?

My Strategy Exercise: What Organization Best Suits You?
It can be helpful to gauge compatibility between career and personality type. Think about your next job and your career plans: Review Exhibit 11.3 and circle what appeals to you, cross out the factors that you don’t like. What values are most important to you? Which control / reward system discussed in the concluding section of this chapter do you prefer?

Small Group Exercise #1 You decide to open a small retail shop.
Concept #1: high end antique store Near a coffee shop, items authenticated by an appraiser Concept #2: drop-off store for online auctions List, sell, and ship the items for a % of the sales price Questions to answer: What is the business strategy for these concepts? How would the structure be different for the concepts? What are the cultural differences in the concepts? Control-and-reward system differences?

Small Group Exercise #2 Daniel Pink developed the ROWE theory:
Most powerful motivation occurs when: There is an interest in the work The work itself has meaning Brainstorm ways the university can apply ROWE How might this change allocation of resources? What impacts would result if the number of desired online courses increased? How might this change your program of study? How would you address the pitfalls? Intrinsic motivation is highest when an employee has autonomy (about what to do), mastery (how to do it), and purpose (why to do it). Discuss whether you would be more motivated and better educated if you had more autonomy in designing your program of study, could determine the best way for you to learn and gain mastery, and could develop your own statement of purpose as to why you were pursuing a particular program of study.

End of Chapter 11

Strategy Smart Videos

Strategy Smart Videos (1 of 6)
Talent Reviews at GE As Discussed with Jeff Immelt & Jack Welch Part 1 Link: 10:32 Minutes Part 2 Link: 6:24 Minutes

Amy Kates, Managing Partner at Kates Kesler Organization Consulting Organization design and how it affects business innovation Link: 2:29 Minutes

Dan Pink The Surprising Truth About What Motivates Us Link: 10:47 Minutes

Daniel Pink TED Talk: The Puzzle of Motivation Link: 18:36 Minutes

How Zappos will run with no job titles Aligns with the ChapterCase Link: 3:44 Minutes

Corporate Culture at Apple The cultural artifacts and inferring underlying beliefs and value structures at Apple Link: 4:35 Minutes

Chapter Case 11

Chapter Case 11: Zappo’s (1 of 2)
An online shoe and clothing store The world’s largest shoe store Also offers handbags, clothing items, eyewear, and accessories Mission: deliver happiness Zappo’s has also made investors happy 10 years after founding, has achieved $1 billion in annual sales Amazon.com acquired the company for $1.2 billion

Chapter Case 11: Zappo’s (2 of 2)
Zappo’s has experienced rapid growth. 20 million unique visitors a month Is reorganizing to a holacracy To offer the best customer service possible Employees self-direct their work instead of reporting to a manager who tells them what to do. This structure can be hard to implement. Zappo’s is the first large corporation to try it.

Appendix 1 The AFI Strategy Framework
The important inside circle is titled "Gaining and Sustaining a Competitive Advantage" that is at the very center of the image, with five different circles on the outside of it. Arrows go back and forth from the center circle to each of the five outer circles. The five outer circles are labeled: (1) Getting Started, (2) External and Internal Analysis, (3) Formulation: Business Strategy, (4) Formulation, Corporate Strategy, and (5) Implementation. Each of these outer five circles have a brief description beside them to explain what the circle means: Under the first outer circle titled "Getting Started", it says: Part 1, Strategy Analysis, "What is Strategy (Chapter 1)" and "Strategic Leadership: Managing the Strategy Process (Chapter 2)". Under the second outer circle titled "External and Internal Analysis", it says: Part 1, Strategy Analysis, "External Analysis: Industry Structure, Competitive Forces and Strategic Groups (Chapter 3)", "Internal Analysis: Resources, Capabilities and Core Competencies (Chapter 4)", and "Competitive Advantage, Firm Performance, and Business Models (Chapter 5)". Under the third outer circle titled "Formulation: Business Strategy", it says: Part 2, Strategy Formulation, "Business Strategy: Differentiation, Cost Leadership and Integration (Chapter 6)" and "Business Strategy, Innovation and Entrepreneurship (Chapter 7)". Under the fourth outer circle titled "Formulation: Corporate Strategy", it says: Part 2, Strategy Formulation, "Corporate Strategy: Vertical Integration and Diversification (Chapter 8)", "Corporate Strategy: Strategic Alliances, Mergers and Acquisitions (Chapter 9)", and "Global Strategy: Competing Around the World (Chapter 10)". Under the fifth outer circle titled "Implementation", it says: Part 3, Strategy Implementation, "Organizational Design: Structure, Culture and Control (Chapter 11)", and "Corporate Governance and Business Ethics (Chapter 12)". Return to slide

Appendix 2 Exhibit 11.2 Failure of Firms to Respond to Shifts in the External or Internal Environments This image shows a large oval, which contains four smaller ovals. Namely, 1. Mastery of, and fit with, the current environment. 2. Success, usually measured by financial measurements. 3. Structures, measures, and systems to accommodate and manage size. 4. A resulting organizational inertia that tends to minimize opportunities and challenges created by shifts in the internal and external environment. There are shorter internal arrows titled "External Shifts / PESTEL Factors" which indicate pressures on the firm. A square on the inside of the model is titled "Internal Shifts" such as accelerated growth, a change in the business model, entry into new markets, a change in the top management team (TMT), or mergers and acquisitions. Return to slide

Appendix 3 Exhibit 11.4 Types of Organizational Structure
This an important evolutionary pattern. Small firm size, low organizational complexity = simple structure. Medium firm size, medium organizational complexity = functional structure. Large firm size, high organizational complexity = multidivisional structure or matrix structure. As a firm diversifies into different product lines and geographies, it generally implements a multidivisional or a matrix structure. Return to slide

Appendix 4 Exhibit 11.5 Typical Functional Structure
This image demonstrates that while work in a functional structure tends to be specialized, it is centrally coordinated by the CEO. All positions in this image report to the CEO. A functional structure allows for an efficient top-down and bottom-up communication chain between the CEO and the functional departments, and thus relies on a relatively flat structure. Return to slide

Appendix 5 Exhibit 11.7 Typical Multidivisional Structure
Corporations may use SBUs to organize around different businesses and product lines or around different geographic regions. Each SBU represents a self-contained business with its own hierarchy and organizational structure. Above all of the CEOs is a president who reports to the board of directors. Also reporting to the president are the Corporate R&D team as well as the corporate HQ staff. Return to slide

Appendix 6 Exhibit 11.9 Typical Matrix Structure
The geographic divisions (North America, South America, Europe, Middle East & Africa, and Asia) are charged with local responsiveness and learning. At the same time, each SBU is charged with driving down costs through economies of scale and other efficiencies. A global matrix structure also allows the firm to feed local learning back to different SBUs and thus diffuse it throughout the organization. Return to slide

Appendix 7 Exhibit 11.11 The Elements of Organizational Culture
Values, norms, and artifacts are shown as concentric circles. The most important yet least visible element—values—is in the center. As we move outward in the figure, from values to norms to artifacts, culture becomes more observable. Understanding what organizational culture is, and how it is created, maintained, and changed, can help you be a more effective manager. A unique culture that is strategically relevant can also be the basis of a firm’s competitive advantage. Return to slide

Chapter 11 Organizational Design: Structure, Culture, and Control

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