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Chapter 11

Chapter 11. Organizational Structure and Controls. All organizations require some form of organizational structure to implement and manage their strategies. Firms frequently alter their structure as they grow in size and complexity. Three basic structure types:. Simple Structure.

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Chapter 11

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  1. Chapter 11 Organizational Structure and Controls

  2. All organizations require some form of organizational structure to implement and manage their strategies Firms frequently alter their structure as they grow in size and complexity Three basic structure types: Simple Structure Functional Structure Multi-divisional Structure (M-form) Structure Types

  3. Multidivisional Structure Strategy & Structure Growth Patterns Sales Growth Coordination and Control Problems Efficient implementation of formulated strategy Functional Structure Sales Growth Coordination and Control Problems Efficient implementation of formulated strategy Simple Structure

  4. Owner / Manager Simple Structure Owner/Manager makes all major decisions directly and monitors all activities Difficult to maintain this structure as the firm grows in size and complexity

  5. First stage beyond a Simple Structure Appropriate for single or dominant-business firms Allows specialization of tasks * Production * Engineering * Sales & Marketing * Finance * Accounting * Human Resources Overcomes information processing limits of single owner/manager Functional department heads report to Chief Executive Officer who integrates decisions and actions from a company-wide point of view Risks conflicts between myopic function managers Functional Structure

  6. Chief Executive Officer Corporate Human Resources Corporate R&D Corporate Finance Strategic Planning Corporate Marketing Sales & Marketing Human Resources Finance Production Engineering Accounting Functional Structure

  7. Functional Structure for Cost Leadership Strategy Office of the President Centralized Staff Accounting Engineering Marketing Operations Personnel • Operations is main function • Process engineering is emphasized rather than new product R&D • Formalized procedures allow for low-cost culture • Structure is mechanical; job roles are highly structured Relatively large centralized staff coordinates functions

  8. Functional Structure for Differentiation Strategy President and Limited Staff R&D Marketing New Product R&D Human Resources Finance Marketing Operations • 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

  9. Each division is operated as a separate business Appropriate for related-diversified businesses Key task of corporate managers is exploiting synergies among divisions Managers use a combination of strategic controls and financial controls Managers try to strike a balance between: Competing among divisions for scarce capital resources Creating opportunities for cooperation to develop synergies The goal is to maximize overall firm performance Multi-Divisional Structure

  10. The decision-making of managers in a Multi-Divisional structure may be: Centralized or Decentralized Bureaucratic or Non-bureaucratic Balance on these dimensions may change over time Structure will evolve over time with: Changes in strategy Degree of diversification Geographic scope Nature of competition Multi-Divisional Structure

  11. Chief Executive Officer Corporate Human Resources Corporate R&D Corporate Finance Strategic Planning Corporate Marketing Sales & Marketing Human Resources Division Division Division Division Finance Production Engineering Accounting Multi-Divisional Structure

  12. Corporate Human Resources Corporate R&D Corporate Finance Strategic Planning Corporate Marketing Division Division Division Division Division Division SBU Form Related-Linked Strategy President Strategic Business Unit A Strategic Business Unit B Strategic Business Unit C Strategic Business Unit D • Structural integration exists among divisions within SBUs, but not across SBUs • Each SBU may have its own budget for staff to foster integration • Corporate headquarters staff serve as consultants to SBUs and divisions

  13. Competitive Form Division Division Division Division Division Unrelated /Holding Company Strategy President Legal Affairs Finance Auditing • Corporate headquarters has a small staff • Finance and auditing are the most prominent functions in the headquarters • Divisions are independent and separate for financial evolution purposes • Divisions retain strategic control, but cash is managed by the corporate office • Divisions compete for corporate resources

  14. The choice between centralization and decentralization is frequently based on the business-level strategy implemented in each division Differentiation Decentralization Centralization Cost Leadership Complex Multi-Divisional structure firms may be simultaneously centralized and decentralized , depending upon the various business-level strategies employed throughout the firm’s individual businesses Multi-Divisional structure firms use a combination of: Strategic Controls Financial Controls Multi-Divisional Structure

  15. Evolution of Multi-Divisional Structure Chief Executive Officer Corporate Office (Staff) North America Latin America Europe Asia Africa Australia Product A Product B Product C Product D A Structural evolution based on Geographic lines usually implies a Multi-Domestic International Strategy

  16. Asia United States Multinational Headquarters Latin America Europe Australia Middle East/ Africa Implementation of a Multidomestic Strategy Worldwide Geographic Area Structure • Green circles indicate decentralization of operations • Emphasis is on differentiation by local demand to fit a culture • Corporate headquarters coordinates financial resources among independent subsidiaries • The organization is like a decentralized federation

  17. Evolution of Multi-Divisional Structure Chief Executive Officer Corporate Office (Staff) Product A Product B Product C Product D A Structural evolution based on Product lines usually implies a Global International Strategy

  18. Worldwide Products Division Worldwide Products Division Multinational Headquarters Worldwide Products Division Worldwide Products Division Worldwide Products Division Worldwide Products Division Implementation of a Global Strategy Worldwide Product Divisional Structure • Green circle indicates centralization to coordinate information flow among worldwide products • Headquarters uses many intercoordination devices to facilitate global economies of scale and scope • Headquarters also allocates financial resources cooperatively • The organization is like a centralized federation

  19. A Strategic Network is a grouping of organizations that has been formed to create value through participation in an array of cooperative arrangements, such as a strategic alliance A Strategic Center Firm often manages the network The Strategic Center Firm identifies actions that increase the opportunity for each firm to achieve success through its participation in the network The Strategic Center Firm creates incentives that reduce the probability of any single firm taking advantage of its network partners Strategic Networks

  20. A Strategic Network Strategic Center Firm Network Firms

  21. Strategic Outsourcing Capability Development Technology Sharing Building Linkages to Facilitate Learning Strategic Center Firm’s Critical Functions Strategic Center Firm

  22. Strategic Outsourcing Strategic Center Firm Center firm coordinates outsourcing among partners, initiates actions and coordinates problem solving

  23. Strategic Outsourcing Capability Development Technology Sharing Building Linkages to Facilitate Learning Strategic Center Firm’s Critical Functions Strategic Center Firm

  24. Capability and Technology Center firm attempts to develop each partner’s core competencies and provides incentives for network firms to share their capabilities and competencies with partners Strategic center firm manages the development and sharing technology-based ideas among network partners Strategic Center Firm

  25. Strategic Outsourcing Capability Development Technology Sharing Building Linkages to Facilitate Learning Strategic Center Firm’s Critical Functions Strategic Center Firm

  26. Strategic center firm emphasizes to partners the need to build linkages between value chains and networks of value chains. The strategic network seeks to develop a competitive advantage in primary or support activities Building Linkages to Facilitate Learning Strategic Center Firm

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