CHAPTER 10 STRATEGIC MANAGEMENT Gregory G. Dess and G. T. Lumpkin 10-1

CHAPTER 10STRATEGIC MANAGEMENT Gregory G. Dess and G. T. Lumpkin

10-1

McGraw-Hill/Irwin Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

Creating Effective Organizational

Designs

Chapter 10


10-3 After studying 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

• Each of the traditional types of organizational structure—simple, functional, divisional, and matrix

• The relative advantages and disadvantages of traditional organizational structures

• The implications of a firm’s international operations for organizational structure

• The different types of boundaryless organizations—barrier-free, modular, and virtual—and their advantages and disadvantages

Learning Objectives


10-4Exhibit 10.1 Growth Patterns of Large Corporations

Phase 1Strategy: Low revenue base; simple product-market scopeStructure: Simple

Phase 2Strategy: Increase in revenues; engage in vertical integrationStructure: Functional

Phase 3Strategy: Expand into new, related product-markets and/or geographical

areasStructure: Divisional

Phase 4Strategy: Expand into international marketsStructure: International Division, Geographic Area, Worldwide Product

Division, Worldwide Functional, or Worldwide Matrix

Phase 1Strategy: Low revenue base; simple product-market scopeStructure: Simple

Phase 2Strategy: Increase in revenues; engage in vertical integrationStructure: Functional

Phase 3Strategy: Expand into new, related product-markets and/or geographical

areasStructure: Divisional

Phase 4Strategy: Expand into international marketsStructure: International Division, Geographic Area, Worldwide Product

Division, Worldwide Functional, or Worldwide Matrix


10-5 Functional Structure

Chief Executive Officer or President

Manager Production

Manager Engineering

Manager Marketing

Manager R&D

Manager Personnel

Manager Accounting

Lower-level managers, specialists, and operating personnel

Exhibit 10.2


10-6 Functional Structure

Advantages Disadvantages• Pooling of specialists

enhances coordination and control

• Centralized decision making enhances an organizational perspective across functions

• Efficient use of talent• Career paths and

professional development in specialized areas are facilitated

• Differences in functional orientations impede communication and coordination

• Tendency for specialists to develop a short-term perspective and a narrow functional orientation

• Functional area conflicts may overburden top level decision makers

• Difficult to establish uniform performance standards


10-7Divisional Structure


Corporate Staff

Division A

General Manager

Division B

General Manager

Division C

General Manager

Manager Production

Manager Engineering

Manager Marketing

Manager R&D

Manager Personnel

Manager Accounting

Organized similarly to Division 1

Organized similarly to Division 1

Lower-level managers, specialists, and operating personnel

Exhibit 10.3


10-8 Divisional Structure Advantages Disadvantages

• Increases strategic and operational control, permits executives to address strategic issues

• Quick response to environmental changes

• Increased focus on products and markets

• Minimizes problems associated with sharing resources across functions

• Facilitates development of general managers

• Increased costs incurred through duplication of personnel, operations, and investment

• Dysfunctional competition among divisions may detract from corporate performance

• Difficulty in maintaining uniform corporate image

• Overemphasis on short-term performance


10-9Matrix Structure


Corporate Staff

Manager Administration

and Human Resources

Manager Projects

Manager Manufacturing

Manager Engineering

Manager Marketing

Manager Public Relations

Project A

Project B

Project C

Project D

Exhibit 10.4


10-10 Matrix Structure Advantages Disadvantages

• Increases market responsiveness through collaboration and synergies

• Allows more efficient utilization of resources

• Improves flexibility, coordination, and communication

• Increases professional development through broader responsibilities

• Dual reporting relationships can result in uncertainty regarding accountability

• Intense power struggles may lead to increased levels of conflict

• Working relationships may be more complicated and resources duplicated

• Excessive reliance on teamwork may impede timely decision making


10-11

A structure based on geographic lines usually implies a multi-domestic international strategy

The Multi-Divisional StructureThe Multi-Divisional Structure

North America

AustraliaEurope AsiaLatin

AmericaAfrica

Product A Product B Product C Product D

Chief Executive OfficerChief Executive OfficerChief Executive OfficerChief Executive Officer

Corporate Office (Staff)Corporate Office (Staff)Corporate Office (Staff)Corporate Office (Staff)


10-12

Product A Product B Product C Product D

A structure based on product lines usually implies a global international strategy


Chief Executive OfficerChief Executive OfficerChief Executive OfficerChief Executive Officer

Corporate Office (Staff)Corporate Office (Staff)Corporate Office (Staff)Corporate Office (Staff)


10-13

A Transnational International Strategyis likely to utilize a structure that results in

emphasis on both geographic and product structures



10-14 Boundaryless Organizational Designs

Barrier-Free -Under-defined -Fluid -Team-based

Modular -Value-Chain, not Hierarchy

-Specialization and Outsourcing

Virtual -The Organization as a Dynamic Network

-Strategic Alliances

-Networking


10-15 Pros and Cons of the Barrier-Free Organization

Pros Cons• Leverages the talents of all

employees• Enhances cooperation,

coordination, and information-sharing with internal and external constituencies

• Enables a quicker response to market changes

• Difficult to overcome political and authority boundaries both inside and outside the organization

• A lack of leadership and vision can lead to coordination problems.

• Time-consuming and difficult-to-manage democratic processes

• A lack of high levels of trust can impede performance

Exhibit 10.6


10-16 Pros and Cons Of the Modular Organization

Pros Cons• Directs a firm to its critical

activities• Maintains full strategic control

over most the critical activities—core competencies

• Achieves “best in class” performance throughout the value chain

• Leverages core competencies by outsourcing with smaller capital commitment

• Encourages information sharing and accelerates organizational learning

• Inhibits common vision through reliance on outsiders

• Diminishes future competitive advantages if critical technologies or competences are outsourced

• Increases the difficulty of bringing activities back into the firm

• May lead to an erosion of cross-functional skills

• Decreases operational control and potential loss of control over a supplier

Exhibit 10.7


10-17 Pros and Cons of the Virtual Organization

Pros Cons• Enables the sharing of costs,

skills, risks• Enhances access to global

markets• Increases market responsiveness• Creates a “best of everything”

organization since each partner brings their core competencies

• Encourages both individual and organizational knowledge-sharing and accelerates organizational learning

• Harder to determine where one company ends and another begins due to close interdependencies

• 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

Exhibit 10.8

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CHAPTER 10 STRATEGIC MANAGEMENT Gregory G. Dess and G. T. Lumpkin 10-1