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Chapter Ten
Implementing Strategy:Creating Effective
Organizational Designs
CHAPTER 10McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights
reserved.
STRATEGIC MANAGEMENT Gregory G. Dess and G. T. Lumpkin
After studying this chapter, you should have a good understanding of:
• The importance of organizational structure and the concept of the “boundary-less” 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 boundary-less organizations—barrier-free, modular, and virtual—and their relative advantages and disadvantages
Learning Objectives
TRANSPARENCY-84
CHAPTER 10McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights
reserved.
STRATEGIC MANAGEMENT Gregory G. Dess and G. T. Lumpkin
Exhibit 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 integration (backward
and/or forward)Structure: 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 integration (backward
and/or forward)Structure: 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
TRANSPARENCY-85
CHAPTER 10McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights
reserved.
STRATEGIC MANAGEMENT Gregory G. Dess and G. T. Lumpkin
Functional Structure: Advantages and Disadvantages
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 10.2TRANSPARENCY-86
CHAPTER 10McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights
reserved.
STRATEGIC MANAGEMENT Gregory G. Dess and G. T. Lumpkin
Divisional Structure: Advantages and Disadvantages
Chief Executive Officer or President
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 10.3TRANSPARENCY-87
CHAPTER 10McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights
reserved.
STRATEGIC MANAGEMENT Gregory G. Dess and G. T. Lumpkin
Matrix Structures: Advantages and Disadvantages
Chief Executive Officer or President
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 10.4TRANSPARENCY-88
CHAPTER 10McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights
reserved.
STRATEGIC MANAGEMENT Gregory G. Dess and G. T. Lumpkin
Functional, Divisional, and Matrix Structures: Advantages and Disadvantages
Advantages Disadvantages
• Pooling of specialists enhances coordination and control• Centralized decision making enhances an organizational perspective
across functions• Efficient use of managerial and technical talent• Career paths and professional development in specialized areas are
facilitated
• Differences in functional area orientation impede communication and coordination
• Tendency for specialists to develop short-term perspective and overly narrow functional orientation
• Functional area conflicts may overburden top level decision makers
• Difficult to establish uniform performance standards
Functional Structure
Exhibit 10.5
Advantages Disadvantages
• Increases strategic and operational control, permitting corporate-level executives to address strategic issues
• Quick response to environmental changes• Increased focus on products and markets• Minimizes problems associated with sharing resources across
functional areas• Facilitates development of general managers
• Increased costs incurred through duplication of personnel, operations, and investment
• Dysfunctional competition among divisions may detract from overall corporate performance
• Difficulty in maintaining uniform corporate image• Overemphasis on short-term performance
Divisional Structure
Advantages Disadvantages
• Increases market responsiveness through collaboration and synergies among professional colleagues
• Allows more efficient utilization of resources• Improves flexibility, coordination, and communication• Increases professional development through broader range of
responsibility
• 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 human
resources duplicated• Excessive reliance on group processes and teamwork may impede
timely decision making
Matrix Structure
TRANSPARENCY-89
CHAPTER 10McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights
reserved.
STRATEGIC MANAGEMENT Gregory G. Dess and G. T. Lumpkin
Pros and Cons of the Barrier-Free Structures
Pros Cons• 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.
• Difficult to overcome political and authority boundaries both 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
Exhibit 10.6TRANSPARENCY-90
CHAPTER 10McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights
reserved.
STRATEGIC MANAGEMENT Gregory G. Dess and G. T. Lumpkin
Pros and Cons Of Modular Structures
Pros Cons• 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
• Inhibits common vision through reliance on outsiders
• Diminishes future competitive advantages if critical technologies or other competences are outsourced
• Increases the difficulty of bringing 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
Exhibit 10.7 TRANSPARENCY-91
CHAPTER 10McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights
reserved.
STRATEGIC MANAGEMENT Gregory G. Dess and G. T. Lumpkin
Pros and Cons of Virtual Structure
Pros Cons• 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
• 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
Exhibit 10.8TRANSPARENCY-92