Copyright © 2004 South-Western. All rights reserved.11–1 Figure 1.1 Copyright © 2004 South-Western. All rights reserved. The Strategic Management Process

Copyright © 2004 South-Western. All rights reserved. 11–1

Figure 1.1Figure 1.1

Copyright © 2004 South-Western. All rights reserved.

The Strategic

Management Process


Chapter 11: Organizational Structure (and Controls)

• Components of internal strategic fit• Role of organizational structure in strategy

implementation• Basic forms of organizational structure;

advantages/disadvantages of each

- simple

- functional

- multi-divisional (M-Form) - 3 types


Chapter 11: Organizational Structure(and Control)

• Strategic control; financial control• Strategy-structure “fit”• Contemporary forms of organizational

structure

- matrix structure

- strategic alliances, networks, virtual

organizations (Chapter 9)

- creative/experimental forms


Components of Internal Strategic Fit(Froelich Model)

Environment

Strategy

Structure

Systems

Resources/Capabilities

Organizational Culture


Organizational Structure

• Organizational structure specifies:

The firm’s formal reporting relationships, procedures, controls, and authority and

decision-making processes

• It is critical to match organizational structure to the firm’s strategy


Organization structure - Why so important? • Bounds day-to-day behaviors; it directs daily

actions of individuals and groups• Includes authority relationships, which are huge

influences on workplace behaviors• Has resource allocation and control implications• Involves pragmatic operational issues related to

efficiency and effectiveness• Structural decisions are more common than

strategic decisions• Structure expertise is undeveloped


Relationships between Strategy and Structure

• Strategy and structure have a reciprocal relationship:

Structure flows from or follows the selection of the firm’s strategybut …

Once in place, structure can influence current strategic actions as well as choices about future strategies


Strategy and Structure Growth Pattern


Efficient implementation of formulated strategy

Efficient implementation of formulated strategy

• As firms grow larger and become more complex, structural challenges emerge

• Firms’ larger sizes dictate the need for more sophisticated workflows and integrating mechanismsSimpleFunctionalMultidivisional


Strategy and Structure: Simple Structure• Owner-manager

Makes all major decisions directlyMonitors all activities

• StaffAn extension of manager’s supervisor authority

• Matched with focus (or niche) strategies and small single business strategiesCommonly compete by offering a single product

line in a single geographic market


Simple Structure (cont’d)

Advantages? Disadvantages?


Strategy and Structure: Functional Structure• Chief Executive Officer (CEO)

Limited corporate staff

• Functional line managers in needed organizational areas, possibly:Manufacturing Marketing EngineeringAccounting R&D HRM

• Supports use of business-level strategies and some corporate-level strategies (larger) Single or dominant business with low levels

of diversificationFacilitates centralization/company-wide

coordination


Functional Structure for Implementation of a Differentiation Strategy


Notes:• Marketing is the main function for keeping track of new product ideas• New product R&D is emphasized• Most functions are decentralized, but R&D and marketing may have centralized staffs that work closely with each other• Formalization is limited so that new product ideas can emerge easily and change is more readily accomplished• Overall structure is organic; job roles are less structured


Functional Structure under a Differentiation Strategy

• Marketing is the main function for tracking new product ideas

New product R&D is emphasized

Most functions are decentralized

Formalization is limited to foster change and promote new ideas

Overall structure is organic

Job roles are less structured


Functional Structure for Cost Leadership Strategy

Notes: • Operations is the main function• Process engineering is emphasized rather than new product R&D• Relatively large centralized staff coordinates functions• Formalized procedures allow for emergence of a low-cost culture• Overall structure is mechanical; job roles are highly structured Figure 11.2Figure 11.2


Functional Structure under a Cost Leadership Strategy

• Operations is typically the main functionProcess engineering is emphasized over

research and development

Large centralized staff oversees activities

Formalized procedures guide actions

Structure is mechanical

Job roles are highly structured


Implementing an Integrated Cost Leadership/Differentiation Strategy

• The integrated form of the functional structure must have:

Decision-making patterns that are partially centralized and partially decentralized

Semi-specialized jobs

Rules and procedures that allow both formal and informal job behaviors

A hybrid form; no wonder it is hard to implement!


Functional Structure (cont’d)

• Differences in orientation among organizational functions can: Impede communication and coordination

Cause functional-area managers to focus on local versus overall company strategic issues

Increase the need for CEO to integrate decisions and actions of business functions

Facilitate career paths and professional development in specialized functional areas


Evolutionary Growth of the Firm leading to increased diversification

• A firm’s continuing success that leads to:Product diversification, orMarket diversification, orBoth product and market diversification

• Increasing diversification creates information processing and coordination problems that the functional structure can’t handle


Strategy and Structure: Multidivisional Structure

• Top corporate officer delegates responsibilities to division managers

For day-to-day operationsFor business-unit strategy

• Appropriate as a firm grows through diversification


Example of M-Form Structure

P rem iu mD rin ks

Q u ick S erviceR es tau ran ts

P rocessedF ood

D iag eo , P L C


Multidivisional Structure (cont’d)

• Major Benefits

Corporate officers are more detached as they monitor and compare performance of divisions, facilitating resource allocation decisions

Stimulates divisional managers to optimize performance of their units

Provides for faster reaction to change and a stronger customer focus at division level

Development of “general management” expertise within the firm


Multidivisional Structure (con’t)

• Major Disadvantages

Increased complexity of the firm overallDifficulties coordinating and sharing expertise

across divisionsDuplication of resourcesTendency to rely on financial controls rather than

strategic controls


Organizational Controls

• “Subjective” (strategically relevant) CriteriaPhilosophy of the “balanced scorecard”

Evaluate the degree to which the firm accomplishes key tasks related to success of the particular strategy being implemented

Examples = market share, innovation lead time, image, location advantages, product mix

requires in-depth knowledge/insight in market

OrganizationalOrganizationalControlsControls

StrategicStrategicControlsControls


Organizational Controls

• “Objective” financial criteriaEnables comparisons of differing divisions using

“standardized financial measures, such as:

. . . . . .

Requires less strategic understanding

Use with caution - do not tell the whole story!

OrganizationalOrganizationalControlsControls

StrategicStrategicControlsControls

FinancialFinancialControlsControls


Matching Control to StrategyMatching Control to Strategy

• Relative use of controls varies by type of strategy

Large diversified firms using a cost leadership strategy tend to emphasize financial controls

Companies and business units using a differentiation strategy typically emphasize strategic controls


Corporate-Level Strategies and the Multidivisional Structure (cont’d)

• Diversification strategy requires firm to change from functional structure to a multidivisional structure

• Different levels of diversification create the need for implementation of a unique form of the multidivisional structure


Variations of the Multidivisional Structure



Cooperative Form of Multidivisional Structure: Related-Constrained Strategy

Notes • Structural integration devices create tight links among all divisions• Corporate office emphasizes centralized strategic planning, human resources, and marketing to foster cooperation between divisions• R&D is likely to be centralized•

• Rewards are subjective and tend to emphasize overall corporateperformance in addition to divisional performance

• Culture emphasizes cooperative sharingFigure 11.5Figure 11.5


Multidivisional Structure: Cooperative Form• Development of integrating mechanisms to

bring about cooperation among divisions

• Goals = activity sharing/skill transfer

• HQ involved in centralized strategic planning, HRM, marketing, and possibly other functions with synergistic potential

• R&D is likely centralized

• Greater use of strategic control measures

Related-Constrained StrategyRelated-Constrained Strategy


Cooperative Form (cont’d)

• Rewards consider overall corporate performance in addition to division performance

• A more cooperative culture is nurtured

• A more complex management task compared to the competitive M-Form

• Companies need to better figure out/understand how to do this!

Related-Constrained StrategyRelated-Constrained Strategy


Competitive Form of Multidivisional Structure:Unrelated Strategy


Notes • Corporate headquarters has a small staff• Finance and auditing are the most prominent functions in the headquarters office to manage cash flow and assure the accuracy of performance data coming from divisions

• The legal affairs function becomes important when the firm acquires or divests assets• Divisions are independent and separate for financial evaluation purposes• Divisions retain strategic control, but cash is managed by the corporate office• Divisions compete for corporate resources


Multidivisional Structure: Competitive Form• A structure in which there is independence among

the firm’s divisions

Divisions do not share common strengths, so integrating mechanisms are not employed

Corporate HQ has a small staff; strategy is delegated to divisions, but resource allocation among divisions is centralized

Financial controls predominate

Prominent functions are finance, auditing; plus legal is acquisitions/divestitures are frequent

Culture of competition rather than cooperation between divisions

Unrelated StrategyUnrelated Strategy


Even More Structures !!!

• Structures for international strategies

• (Network) structures for cooperative strategies

• Matrix structures to facilitate innovation

• Creative and experimental structures


Worldwide Geographic Area Structure: Multi-domestic Strategy

Notes: • The perimeter circles indicate decentralization of operations• Emphasis is on differentiation by local demand to

fit an area or country culture• Corporate headquarters coordinates financial resources among independent subsidiaries• The organization is like a decentralized federation



Worldwide Product Divisional Structure: Global Strategy

Notes • The headquarters’ circle indicates centralization to coordinate information flow among worldwide products• Corporate headquarters uses many intercoordination devices to facilitate global economies of scale and scope• Corporate headquarters also allocates financial resources in a cooperative way• The organization is like a centralized federation Figure 11.9Figure 11.9


Matrix Organizational Form

• Simultaneous use of functional departments and project teams

• To facilitate and speed strategies relying on innovation

• Seldom used for structuring an entire organization; rather, used in particular areas of the organization as needed


Matrix Structure

Advantages Disadvantages


Creative/Experimental Structural Forms . . .• “Organizational ecosystem” concept of

overlapping teams - to facilitate innovation and high employee commitment

• Bottom-up structures - to emphasize importance of customers and staff

• Non-hierarchical structures - to focus on organizational mission/shared values

• . . . . .


Creative and Experimental Structures,(con’t)• think about - is the new structure really cutting

edge, or merely a wasteful fad?

• BEWARE of the “latest and greatest” consultant’s products!

• be pragmatic -

- does the structure fit your strategy?

- are employee relationships clear and

workable?

- is the structure adequately efficient?


A Strategic Network - for elaborate cooperative strategies (Chapter 9)

StrategicStrategicCenterCenterFirmFirm

Adapted from Adapted from Figure 11.10Figure 11.10


Strategic Center Firm

• Is the foundation for the strategic network’s structureManages the complex, cooperative interactions

among network partners

• Is more obvious in stable and vertically arranged networks, but less obvious in horizontally arranged and dynamic networks


The “best” organizational structure =


Conclusions about organizational structure:•

• Structure must facilitate the necessary tasks to accomplish the organization’s strategy.

• Structure is a major “ingredient” in successful strategy implementation.

• Change in strategy requires change in structure

Documents

Copyright © 2004 South-Western. All rights reserved.11–1 Figure 1.1 Copyright © 2004 South-Western. All rights reserved. The Strategic Management Process