1. 10-1

2. 10-2 Creating Effective Organizational Designs McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Chapter ten Part 3: strategic implementation

3. 10-3 Learning Objectives  After reading this chapter, you should have a good understanding of:  The importance of organizational structure and the concept of the “boundaryless” organization in implementing strategies.  The growth patterns of major corporations and the relationship between a firm’s strategy and its structure. McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

4. 10-4 Learning Objectives McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  After reading this chapter, you should have a good understanding of:  Each of the traditional types of organizational structure: simple, functional, divisional, and matrix  The relative advantages and disadvantages of traditional organizational structure  The implications of a firm’s international operations for organizational structure

5. 10-5 Learning Objectives  After reading this chapter, you should have a good understanding of:  The different types of boundaryless organizations—barrier-free, modular, and virtual—and their relative advantages and disadvantages  The need for creating ambidextrous organizational designs that enable firms to explore new opportunities and effectively integrate existing operations McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

6. 10-6 Traditional Forms of Organizational Structure McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  Organizational structure refers to formalized patterns of interactions that link a firm’s  Tasks  Technologies  People  Structure provides a means of balancing two conflicting forces  Need for the division of tasks into meaningful groupings  Need to integrate the groupings for efficiency and effectiveness

7. 10-7 Dominant Growth Patterns of Large Corporations McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Adapted from Exhibit 10.1 Dominant Growth Patterns of Large Corporations Source: Adapted from J. R. Galbraith and R. K. Kazanjian, Strategy Implementation: The Role of Structure and Process, 2nd ed. (St. Paul, MN: West Publishing Company, 1986), p. 139.

8. 10-8 Patterns of Growth of Large Corporations McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Simple Structure  Simple structure is the oldest and most common organizational form  Staff serve as an extension of the top executive’s personality  Highly informal  Coordination of tasks by direct supervision  Decision making is highly centralized  Little specialization of tasks, few rules and regulations, informal evaluation and reward system

9. 10-9 Patterns of Growth of Large Corporations McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Functional Structure Adapted from Exhibit 10.2 Functional Organizational Structure

10. 10-10 Patterns of Growth of Large Corporations McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Functional Structure  Found where there is a single or closely related product or service, high production volume, and some vertical integration Advantages  Enhanced coordination and control  Centralized decision making  Enhanced organizational-level perspective  More efficient use of managerial and technical talent  Facilitated career paths and development in specialized areas Disadvantages  Impeded communication and coordination due to differences in values and orientations  May lead to short-term thinking (functions vs. organization as a whole)  Difficult to establish uniform performance standards

11. 10-11 Divisional Structure McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Adapted from Exhibit 10.3 Divisional Organizational Structure

12. 10-12 Divisional Structure McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  Organized around products, projects, or markets  Each division includes its own functional specialists typically organized into departments  Divisions are relatively autonomous and consist of products and services that are different from those of other divisions  Division executives help determine product-market and financial objectives

13. 10-13 Divisional Structure McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Advantages  Separation of strategic and operating control  Quick response to important changes in external environment  Minimal problems of sharing resources across functional departments  Development of general management talent is enhanced Disadvantages  Can be very expensive  Can be dysfunctional competition among divisions  Can be a sense of a “zero- sum” game that discourages sharing ideas and resources among divisions  Differences in image and quality may occur across divisions  Can focus on short-term performance

14. 10-14 Divisional Structure McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  Strategic business unit (SBU) structure  Divisions with similar products, markets, and/or technologies are grouped into homogenous SBUs  Task of planning and control at corporate office is more manageable  May become difficult to achieve synergies across SBUs  Appropriate when the businesses in a corporation’s portfolio do not have much in common  Lower expenses and overhead, fewer levels in the hierarchy  Inherent lack of control and dependence of CEO-level executives on divisional executives

15. 10-15 Matrix Structure McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Adapted from Exhibit 10.4 Matrix Organizational Structure

16. 10-16 Matrix Structure McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  A combination of the functional and divisional structures  Individuals who work in a matrix organization become responsible to two managers  The project manager  The functional area manager Advantages  Facilitates the use of specialized personnel, equipment and facilities  Provides professionals with a broader range of responsibility and experience Disadvantages  Can cause uncertainty and lead to intense power struggles  Working relationships become more complicated  Decisions may take longer

17. 10-17 International Operations: Implications for Organizational Structure McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  Three major contingencies influence structure adopted by firms with international operations  Type of strategy driving the firm’s foreign operations  Product diversity  Extent to which the firm is dependent on foreign sales

18. 10-18 International Operations: Implications for Organizational Structure McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  Structures used to manage international operations  International division  Geographic-area division  Worldwide functional  Worldwide product division  Worldwide matrix

19. 10-19 Boundaryless Organizational Designs McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  Boundaries that place limits on organizations  Vertical boundaries between levels in the organization’s hierarchy  Horizontal boundaries between functional areas  External boundaries between the firm and its customers, suppliers, and regulators  Geographic boundaries between locations, cultures and markets

20. 10-20 McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Three approaches  Permeable internal boundaries  Higher level of trust and shared interests  Shift in philosophy from executive development of organizational development  Greater use of teams  Flexible, porous organizational boundaries  Communication flows and mutually beneficial relationships with internal and external constituencies Making Boundaries More Permeable Barrier-free type of organization

21. 10-21 Pros and Cons of Barrier-Free Structures McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  Leverages the talents of all employees  Enhances cooperation, coordination, and information sharing among functions, divisions, SBUs, and external constituencies  Enables a quicker response to market changes through a single- goal focus  Can lead to coordinated win-win initiatives with key suppliers, customers, and alliance partners ProsCons  Difficult to overcome political and authority boundaries inside and outside the organization  Lacks strong leadership and common vision, which can lead to coordination problems  Time-consuming and difficult-to- manage democratic processes  Lacks high levels of trust, which can impede performance Adapted from Exhibit 10.7 Pros and Cons of Barrier-Free Structures

22. 10-22 Making Boundaries More Permeable McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Three approaches  Outsources nonvital functions, tapping into knowledge and expertise of “best in class” suppliers but retains strategic control  Three advantages  Decrease overall costs, leverage capital  Enables company to focus scarce resources on areas where it holds competitive advantage  Adds critical skills and accelerates organizational learning Barrier-free type of organization Modular type of organization

23. 10-23 Pros and Cons of Modular Structures McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  Directs a firm’s managerial and technical talent to the most critical activities  Maintains full strategic control over most critical activities—core competencies  Achieves “best in class” performance at each link in the value chain  Leverages core competencies by outsourcing with smaller capital commitment  Encourages information sharing and accelerates organizational learning ProsCons  Inhibits common vision through reliance on outsiders  Diminishes future competitive advantages if critical technologies or other competences are outsourced  Increases the difficulty of brining back into the firm activities that now add value due to market shifts  May lead to an erosion of cross- functional skills  Decreases operational control and potential loss of control over a supplier Adapted from Exhibit 10.8 Pros and Cons of Modular Structures

24. 10-24 Making Boundaries More Permeable McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Barrier-free type of organization Modular type of organization Virtual type of organization Three approaches  Continually evolving network of independent companies linked together to share skills, costs, and access to one another’s markets  Suppliers  Customers  Competitors  Each gains from resulting individual and organizational learning  May not be permanent

25. 10-25 Pros and Cons of Virtual Structures McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  Enables the sharing of costs and skills  Enhances access to global markets  Increases market responsiveness  Creates a “best of everything” organization since each partner brings core competencies to the alliance  Encourages both individual and organizational knowledge sharing and accelerates organizational learning ProsCons  Harder to determine where one company ends and another begins, due to close interdependencies among players  Leads to potential loss of operational control among partners  Results in loss of strategic control over emerging technology  Requires new and difficult-to- acquire managerial skills Source: R. E. Miles and C. C. Snow, “Organizations: New Concepts for New Forms,” California Management Review,” Spring 1986, pp. 62-73; R. E. Miles and C. C. Snow, “Causes of Failure in Network Organizations,” California Management Review, Summer 1999, pp. 53-72; and H. Bahrami, “The Emerging Flexible Organization: Perspectives from Silicon Valley,” California Management Review, Summer 1991, pp. 33-52. Adapted from Exhibit 10.9 Pros and Cons of Virtual Structures

26. 10-26 Boundaryless Organizations: Making Them Work McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  Factors facilitating effective coordination and integration of key activities  Common culture and shared values  Horizontal organization structures  Horizontal systems and processes  Communications and information technologies  Human resource practices