Ch11-1 Chapter 11 Organizational Structure and Controls Organizational Structure and Controls

Ch11-1

Chapter 11Chapter 11

Organizational Structure and Controls

Organizational Structure and Controls

Ch11-2

Structure Types

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:

Functional Structure

Multi-divisional Structure (M-form)

Simple Structure

Ch11-3

Strategy & StructureGrowth Patterns

Sales Growth Coordinationand Control Problems


Efficient implementationof formulated strategy


MultidivisionalStructure

MultidivisionalStructure







Simple StructureSimple

Structure

Ch11-4

Simple Structure

Owner / Manager

Owner/Manager makes all major decisions directly and monitors all activities

Difficult to maintain this structure as the firm grows in size and complexity

Ch11-5

* Production

* Finance

* Engineering

* Accounting

* Sales & Marketing

* Human Resources


First stage beyond a Simple Structure

Appropriate for single or dominant-business firms

Allows specialization of tasks

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

Ch11-6

ProductionFinance Engineering AccountingSales &

MarketingHuman

Resources


Chief Executive Officer

Corporate Finance

Corporate R&D

Corporate Marketing

Corporate Human

Resources

Strategic Planning

Ch11-7

MarketingEngineering Operations Personnel Accounting

Functional Structure forCost Leadership StrategyFunctional Structure forCost Leadership Strategy

Office of the President

CentralizedStaff

•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

Ch11-8

MarketingNew Product R&D Operations

HumanResources

Finance

R&D Marketing

Functional Structure forDifferentiation Strategy

Functional Structure forDifferentiation Strategy

President andLimited Staff

•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

Ch11-9

Multi-Divisional Structure

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 resourcesCreating opportunities for cooperation to develop synergies

The goal is to maximize overall firm performance

Ch11-10


Balance on these dimensions may change over time

The decision-making of managers in a Multi-Divisional structure may be:

Centralized or DecentralizedBureaucratic or Non-bureaucratic

Changes in strategyDegree of diversificationGeographic scope

Nature of competition

Structure will evolve over time with:

Ch11-11

Division Division Division Division

ProductionFinance Engineering AccountingSales &

MarketingHuman

Resources


Chief Executive Officer

Corporate Finance

Corporate R&D

Corporate Marketing

Strategic Planning

Corporate Human

Resources

Ch11-12

PresidentPresident

Strategic Business Unit A

SBU FormRelated-Linked Strategy

Corporate Finance

Corporate R&D

Corporate Marketing

Strategic Planning

Corporate Human

Resources

DivisionDivisionDivision

Strategic Business Unit C

DivisionDivisionDivision

Strategic Business Unit B

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

Ch11-13

Competitive FormUnrelated /Holding Company Strategy

PresidentPresident

LegalAffairs

Finance

•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

Auditing

DivisionDivisionDivisionDivision Division

Ch11-14

Cost LeadershipDecentralizationDifferentiation

Centralization


The choice between centralization and decentralization is frequently based on the business-level strategy implemented in each division

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:

Financial ControlsStrategic Controls

Ch11-15

A Structural evolution based on Geographic lines usually implies a Multi-Domestic International Strategy

Evolution of Multi-Divisional Structure

North America

AustraliaEurope AsiaLatin

AmericaAfrica

Product A Product B Product C Product D

Chief Executive OfficerChief Executive Officer

Corporate Office (Staff)Corporate Office (Staff)

Ch11-16

Implementation of a Multidomestic Strategy

WorldwideGeographic

AreaStructure

MultinationalHeadquartersMultinationalHeadquarters

AsiaAsia UnitedStates

UnitedStates

LatinAmerica

LatinAmerica EuropeEurope

AustraliaAustraliaMiddleEast/

Africa

MiddleEast/

Africa

•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

Ch11-17

Product A Product B Product C Product D

A Structural evolution based on Product lines usually implies a Global International Strategy

Evolution of Multi-Divisional Structure

Chief Executive OfficerChief Executive Officer

Corporate Office (Staff)Corporate Office (Staff)

Ch11-18

Implementation of a Global Strategy

WorldwideProduct

DivisionalStructure

•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

MultinationalHeadquartersMultinationalHeadquarters

WorldwideProductsDivision












Ch11-19

Strategic Networks

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

Ch11-20

A Strategic Network

StrategicCenterFirm

StrategicCenterFirm

Network Firms

Ch11-21

StrategicCenterFirm

StrategicCenterFirm

Strategic Center Firm’s Critical Functions

Strategic Outsourcing

Capability Development

Technology Sharing

Building Linkages to Facilitate Learning

Ch11-22

StrategicCenterFirm

StrategicCenterFirm


Center firm coordinates outsourcing among partners, initiates actions and coordinates problem solving

Ch11-23

StrategicCenterFirm

StrategicCenterFirm




Technology Sharing


Ch11-24

Strategic center firm manages the development and sharing technology-based ideas among network partners

Capability and Technology

StrategicCenterFirm

StrategicCenterFirm

Center firm attempts to develop each partner’s core competencies and provides incentives for network firms to share their capabilities and competencies with partners

Ch11-25

StrategicCenterFirm

StrategicCenterFirm




Technology Sharing


Ch11-26

StrategicCenterFirm

StrategicCenterFirm


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

Documents

Ch11-1 Chapter 11 Organizational Structure and Controls Organizational Structure and Controls