1. Chapter 11 Competitive Rivalry and Competitive Dynamics
Hitt, Ireland, and Hoskisson
In Chapter 11 we discuss competitive rivalry and dynamics. We begin by discussing organizational structure and controls, then look more closely at why and how a firm needs to match its strategy and structure. While strategy may have a more important influence on structure, structure also influences strategy. We’ll also discuss how successful firms manage the relationship between growth and structural change and the various organizational structures they use to implement the separate business-level, corporate-level, international, and cooperative strategies.

2. Organizational structure and controls
The firm’s formal reporting relationships, procedures, controls, authority and decision-making processes.
It specifies the work to be done and how to do it, given the firm’s strategy.
Organizational controls
Guides the use of strategy, indicates how to compare actual and expected results, suggests actions to take to improve performance when it falls below expectations.
It influences how managers work and the decisions resulting from that work.
A firm’s structure includes its formal reporting relationships, procedures, controls, authority, and decision-making processes. It specifies the work to be done and how to do it, given the firm’s strategy or strategies. It influences how managers work and the decisions resulting from that work.
Effective structures provide the stability a firm needs to successfully implement its strategies and maintain its current competitive advantages while simultaneously providing the flexibility to develop advantages it will need in the future. Structural stability provides the capacity the firm requires to consistently and predictably manage its daily work routines while structural flexibility provides the opportunity to explore competitive possibilities and then allocate resources to activities that will shape the competitive advantages the firm will need to be successful in the future. An effectively flexible organizational structure allows the firm to exploit current competitive advantages while developing new ones that can potentially be used in the future. Modifications to the firm’s current strategy or selection of a new strategy call for changes to its organizational structure.
Organizational controls guide the use of strategy, indicate how to compare actual results with expected results, and suggest corrective actions to take when the difference is unacceptable.
A proper match between strategy and structure can lead to a competitive advantage.
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3. Organizational controls
Strategic controls (largely subjective criteria)
financial controls (largely objective criteria)
Both controls are critical, although their degree of emphasis varies based on individual matches between strategy and structure.
Properly designed organizational controls provide clear insights regarding behaviors that enhance firm performance. Firms use both strategic controls and financial controls to support their strategies.
Organizational controls guide the use of strategy, indicate how to compare actual results with expected results, and suggest corrective actions to take when the difference is unacceptable.
Strategic controls are largely subjective criteria intended to verify that the firm is using appropriate strategies for the conditions in the external environment and the company’s competitive advantages.
Financial controls are largely objective criteria used to measure the firm’s performance against previously established quantitative standards.
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4. Strategy and structure
Strategy and structure - a reciprocal relationship
Although strategy has a stronger influence on structure.
Firms tend to change structure when declining performance forces them to do so.
Effective managers anticipate the need for structural change and quickly modify structure to better accommodate the firm’s strategy when evidence calls for that action.
Strategy and structure have a reciprocal relationship, meaning that one is typically the result of the other. Once structure is in place, it can influence current strategic actions as well as choices about future strategies. This means that changes to the firm’s strategy may create how the organization is structured to complete its work. When changing strategies, a firm should simultaneously consider the structure that will be needed to support use of the new strategy; properly matching strategy and structure can create a competitive advantage.
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5. Simple structure Simple structure Associated strategy
A structure in which the owner-manager makes all major decisions and monitors all activities while the staff serves as an extension of the manager’s supervisory authority.
Associated strategy
Focus strategies, often used in small firms, require a simple structure until such time that the firm diversifies in terms of products and/or markets.
The simple structure is a structure in which the owner-manager makes all major decisions and monitors all activities while the staff serves as an extension of the manager’s supervisory authority. Typically, the owner-manager is active in the daily work of the firm. This structure is characterized by informal relationships, few rules, limited task specialization, and unsophisticated information systems. There are frequent and informal communications between the owner-manager and employees.
The simple structure is matched with focus strategies and business-level strategies, so these firms typically offer a single product line in a single geographic market. Examples include local restaurants, repair businesses, and other specialized enterprises.
When the small firm grows larger and becomes more complex, oftentimes it must change its structure. The owner-manager makes all major decisions and monitors all activities while the staff serves as an extension of the manager’s supervisory authority.
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6. Functional structure The functional structure Associated strategy
Used to implement business-level strategies.
Structure includes a chief executive officer and a limited corporate staff, with functional line managers in dominant organizational areas such as production, accounting, marketing, R&D, engineering, and human resources.
Associated strategy
Cost leadership strategy requires a centralized functional structure—one in which manufacturing efficiency and process engineering are emphasized.
Differentiation strategy uses a functional structure that decentralizes implementation-related decisions.
The functional structure consists of a chief executive officer and a limited corporate staff, with functional line managers in dominant organizational areas such as production, accounting, marketing, R&D, engineering, and human resources.
This structure allows for functional specialization so the company has specialists in various functional areas. This can be a strength unless communication and coordination break down among the various functional areas. For this reason, the CEO must work hard to verify that the decisions and actions of individual business functions promote the entire firm rather than a single function. The functional structure supports implementing business-level strategies and some corporate-level strategies (e.g., single or dominant business) with low levels of diversification. When changing from a simple to a functional structure, firms want to avoid introducing value-destroying bureaucratic procedures such as failing to promote innovation and creativity.
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7. Multidivisional structures
The multidivisional (M-form) structure
Consists of operating divisions, each representing a separate business or profit center in which the top corporate officer delegates responsibilities for day-to-day operations and business-unit strategy to division managers.
Cooperative M-form
SBU M-form structure
Competitive M-form structure
With continuing growth and success, firms often consider greater levels of diversification. In order to be successful in using a diversification strategy, the firm must analyze substantially greater amounts of data and information when the firm offers the same products in different markets (market or geographic diversification) or offers different products in several markets (product diversification). In addition, trying to manage high levels of diversification through functional structures creates serious coordination and control problems, a fact that commonly leads to a new structural form.
For that reason many firms in this situation will now consider a multidivisonal structure also called the M-form. The M-form consists of operating divisions, each representating a separate business unit or profit center. Each of those business units is led by a top corporate officer who delegates responsibility for the daily operations and business-unit strategy to division managers.
We will discuss three types of M-form structure.
The cooperative M-form is used to implement related constrained corporate-level strategy. It has a centralized corporate office and extensive integrating mechanisms, and divisional incentives are linked to overall corporate performance.
The SBU M-form structure has separate profit centers within the diversified firm. Each profit center may have divisions offering similar products, but centers are unrelated to each other.
The competitive M-form structure is used to implement the unrelated diversification strategy. It is highly decentralized, lacks integrating mechanisms, and uses objective financial criteria to evaluate each unit’s performance.
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8. Characteristics of the Structures Necessary to Implement the Related Constrained, Related Linked, and Unrelated Diversification Strategies
Overall Structural Form
Cooperative M-Form SBU M-Form Competitive M-Form
Structural (Related Constrained (Related Linked (Unrelated Diversification Characteristics Strategy)a Strategy)a Strategy)a
Centralization of Centralized at Partially centralized Decentralized to operations corporate office (in SBUs) divisions
Use of integration Extensive Moderate Nonexistent mechanisms
Divisional Emphasize subjective Use a mixture of Emphasize objective performance (strategic) criteria subjective (strategic) (financial) criteria appraisals and objective (financial) criteria
Divisional incentive Linked to overall Mixed linkage to Linked to divisional compensation corporate corporate, SBU, and performance performance divisional performance
The three major forms of the multidivisional structure – cooperative, SBU, and competitive – should each be paired with a particular corporate-level strategy.
Shown in this table are each structure’s characteristics. The structures differ by degree of centralization, focus of the performance appraisal, the horizontal structures (integrating mechanisms), and the incentive compensation schemes.
The most centralized and most costly structural form is the cooperative structure. The least centralized, with the lowest bureaucratic costs, is the competitive structure. The SBU structure requires partial centralization and involves some of the mechanisms necessary to implement the relatedness between divisions. Also, the divisional incentive compensation awards are allocated according to both SBUs and corporate performance.
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9. Multi-domestic strategy
The multi-domestic strategy
Implemented through the worldwide geographic area structure
emphasizes decentralization
locates all functional activities in the host country or geographic area.
Firms using the multidomestic strategy decentralize their strategic and operating decisions to business units in each country. By doing so, product characteristics can be tailored to local preferences.
Firms using this strategy try to isolate themselves from global competitive forces by establishing protected market positions or by competing in industry segments that are most affected by differences among local countries.
Firms using this strategy have a worldwide geographic area structure. The worldwide geographic area structure emphasizes national interests and facilitates the firm’s efforts to satisfy local differences.
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10. Transnational strategy
Combines local responsiveness of multi-domestic strategy and global efficiency of global strategy, implemented through the combination structure
Combination structure - difficult to organize and manage because it must be simultaneously centralized and decentralized, integrated and nonintegrated, and formalized and non-formalized
The transnational strategy calls for the firm to combine the multi-domestic strategy’s local responsiveness with the global strategy’s efficiency. Firms using this strategy are trying to gain the advantages of both local responsiveness and global efficiency. The combination structure is used to implement the transnational strategy. The combination structure is a structure drawing characteristics and mechanisms from both the worldwide geographic area structure and the worldwide product divisional structure.
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11. Implementing transnational strategy
2 structural designs suggested
Both have geographic and product-oriented divisions
Matrix structure
Unites local market and product expertise into teams
Problem: employees may be accountable to multiple managers
Reporting relationships may be complex and vague
Hybrid structure
Some oriented toward products, others toward market areas
The transnational strategy is often implemented through two possible combination structures: a global matrix structure and a hybrid global design.
The global matrix design brings together both local market and product expertise into teams that develop and respond to the global marketplace. The global matrix design promotes flexibility in designing products and responding to customer needs. However, it has severe limitations in that it places employees in a position of being accountable to more than one manager. At any given time, an employee may be a member of several functional or product group teams. Relationships that evolve from multiple memberships can make it difficult for employees to be simultaneously loyal to all of them. Although the matrix places authority in the hands of managers who are most able to use it, it creates problems in regard to corporate reporting relationships that are so complex and vague that it is difficult and time consuming to receive approval for major decisions.
In the hybrid structure, some divisions are oriented toward products while others are oriented toward market areas. Thus, in some products where the geographic area is more important, the division managers are area-oriented. In other divisions where worldwide product coordination and efficiencies are more important, the division manager is more product-oriented.
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12. Cooperative strategies and network structures
Are increasingly important to competitive success
Are implemented through organizational structures framed around strategic networks.
Strategic center firms play a critical role in managing strategic networks.
A network strategy exists when partners form several alliances in order to improve the performance of the alliance network itself through cooperative endeavors. The greater levels of environmental complexity and uncertainty facing companies in today’s competitive environment are causing more firms to use cooperative strategies such as strategic alliances and joint ventures.
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13. Network strategies Strategic network Strategic center firm
Group of firms formed to create value by participating in multiple cooperative arrangements
Strategic center firm
Foundation for the strategic network’s structure.
Strategic center firm has 4 primary tasks
Strategic outsourcing
Competencies
Technology
Race to learn
A strategic network is a group of firms that has been formed to create value by participating in multiple cooperative arrangements. A strategic network can be a source of competitive advantage for its members when its operations create value that is difficult for competitors to duplicate and that network members can’t create by themselves.
Commonly, a strategic network is a loose federation of partners participating in the network’s operations on a flexible basis. At the core or center of the strategic network is the strategic center firm. The strategic center firm has 4 primary tasks: strategic outsourcing, competencies, technology, and race to learn.
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