Learning Objectives Understand the dimensions of organizational structure and how they are important Select an appropriate business-level structure

Learning ObjectivesLearning Objectives Understand the dimensions of organizational Understand the dimensions of organizational

structure and how they are importantstructure and how they are important Select an appropriate business-level structureSelect an appropriate business-level structure Select an appropriate corporate-level structure for Select an appropriate corporate-level structure for

firms with more than one business unitfirms with more than one business unit Develop a comprehensive strategic control Develop a comprehensive strategic control

systemsystem Understand the characteristics of accident-prone Understand the characteristics of accident-prone

organizations and how to avoid themorganizations and how to avoid them

Dimensions of Organizational Dimensions of Organizational StructureStructure

Hierarchy of AuthorityHierarchy of Authority Degree of CentralizationDegree of Centralization ComplexityComplexity SpecializationSpecialization FormalizationFormalization ProfessionalismProfessionalism

Functional StructureFunctional StructureFunctional StructureFunctional Structure

General Manager

Marketing Finance Operations HR R&D/Eng

Functional StructureFunctional StructureFunctional StructureFunctional Structure Organizing FrameworkOrganizing Framework

Inputs such as marketing and productionInputs such as marketing and production Degree of CentralizationDegree of Centralization

High centralizationHigh centralization Competitive EnvironmentCompetitive Environment

Stable, demands for internal efficiency or Stable, demands for internal efficiency or functional specializationfunctional specialization

Growth StrategyGrowth Strategy Market penetrationMarket penetration

Organizing FrameworkOrganizing Framework Inputs such as marketing and productionInputs such as marketing and production

Degree of CentralizationDegree of Centralization High centralizationHigh centralization

Competitive EnvironmentCompetitive Environment Stable, demands for internal efficiency or Stable, demands for internal efficiency or

functional specializationfunctional specialization Growth StrategyGrowth Strategy

Market penetrationMarket penetration

Functional StructureFunctional StructureFunctional StructureFunctional Structure StrengthsStrengths

Economies of scaleEconomies of scale Functional expertise and specializationFunctional expertise and specialization Best if few products or servicesBest if few products or services

WeaknessesWeaknesses Slow response timeSlow response time Hierarchy overloadHierarchy overload Sometimes poor coordination across departmentsSometimes poor coordination across departments Can restrict view or broader organizational goalsCan restrict view or broader organizational goals

StrengthsStrengths Economies of scaleEconomies of scale Functional expertise and specializationFunctional expertise and specialization Best if few products or servicesBest if few products or services

WeaknessesWeaknesses Slow response timeSlow response time Hierarchy overloadHierarchy overload Sometimes poor coordination across departmentsSometimes poor coordination across departments Can restrict view or broader organizational goalsCan restrict view or broader organizational goals

Product/Market StructureProduct/Market StructureProduct/Market StructureProduct/Market StructureGeneral Manager

Marketing Operations

Product A

Administrative DepartmentsAdministrative Departments


Product B


Market A


Market B

General Manager

Administrative DepartmentsAdministrative Departments

Product/Market StructureProduct/Market StructureProduct/Market StructureProduct/Market Structure Organizing FrameworkOrganizing Framework

Outputs such as product groups or marketsOutputs such as product groups or markets Degree of CentralizationDegree of Centralization

DecentralizedDecentralized Competitive EnvironmentCompetitive Environment

Dynamic with pressure to satisfy particular Dynamic with pressure to satisfy particular market needs very wellmarket needs very well

Growth StrategyGrowth Strategy Market and/or product developmentMarket and/or product development

Organizing FrameworkOrganizing Framework Outputs such as product groups or marketsOutputs such as product groups or markets

Degree of CentralizationDegree of Centralization DecentralizedDecentralized

Competitive EnvironmentCompetitive Environment Dynamic with pressure to satisfy particular Dynamic with pressure to satisfy particular

market needs very wellmarket needs very well Growth StrategyGrowth Strategy

Market and/or product developmentMarket and/or product development

Product/Market StructureProduct/Market StructureProduct/Market StructureProduct/Market Structure StrengthsStrengths

Suited to fast change in an unstable environmentSuited to fast change in an unstable environment High levels of client satisfactionHigh levels of client satisfaction High coordination across functionsHigh coordination across functions Best in larger organizations with several products or marketsBest in larger organizations with several products or markets

WeaknessesWeaknesses Loss of economies of scale within functional areasLoss of economies of scale within functional areas Some redundancy of functionsSome redundancy of functions Loss of in-depth functional specializationLoss of in-depth functional specialization May lead to poor coordination across product lines or marketsMay lead to poor coordination across product lines or markets

StrengthsStrengths Suited to fast change in an unstable environmentSuited to fast change in an unstable environment High levels of client satisfactionHigh levels of client satisfaction High coordination across functionsHigh coordination across functions Best in larger organizations with several products or marketsBest in larger organizations with several products or markets

WeaknessesWeaknesses Loss of economies of scale within functional areasLoss of economies of scale within functional areas Some redundancy of functionsSome redundancy of functions Loss of in-depth functional specializationLoss of in-depth functional specialization May lead to poor coordination across product lines or marketsMay lead to poor coordination across product lines or markets

Project Matrix StructureProject Matrix StructureProject Matrix StructureProject Matrix StructureGeneral Manager

Support FunctionsSupport Functions

ProjectManager A

ProjectManager A

ProjectManager A

MarketingManager

R&DManager

OperationsManager

Project Matrix StructureProject Matrix StructureProject Matrix StructureProject Matrix Structure Organizing FrameworkOrganizing Framework

Inputs and outputsInputs and outputs

Degree of CentralizationDegree of Centralization Decentralization with shared authorityDecentralization with shared authority

Competitive EnvironmentCompetitive Environment Responds well to internal pressure for efficiency or Responds well to internal pressure for efficiency or

specialization AND external market pressure to satisfy specialization AND external market pressure to satisfy particular market needs or customersparticular market needs or customers

Growth StrategyGrowth Strategy Frequent changes to products and markets (allows Frequent changes to products and markets (allows

flexible use of human resource)flexible use of human resource)

Organizing FrameworkOrganizing Framework Inputs and outputsInputs and outputs

Degree of CentralizationDegree of Centralization Decentralization with shared authorityDecentralization with shared authority

Competitive EnvironmentCompetitive Environment Responds well to internal pressure for efficiency or Responds well to internal pressure for efficiency or

specialization AND external market pressure to satisfy specialization AND external market pressure to satisfy particular market needs or customersparticular market needs or customers

Growth StrategyGrowth Strategy Frequent changes to products and markets (allows Frequent changes to products and markets (allows

flexible use of human resource)flexible use of human resource)

Project Matrix StructureProject Matrix StructureProject Matrix StructureProject Matrix Structure StrengthsStrengths

Achieves coordinationAchieves coordination Flexible use of human resourcesFlexible use of human resources Works well in medium-sized firms with multiple productsWorks well in medium-sized firms with multiple products

WeaknessesWeaknesses Dual authority can cause frustration and confusionDual authority can cause frustration and confusion Excellent interpersonal skills neededExcellent interpersonal skills needed Additional training can be expensiveAdditional training can be expensive Time consuming, frequent meetingsTime consuming, frequent meetings Great effort to maintain power balanceGreat effort to maintain power balance

StrengthsStrengths Achieves coordinationAchieves coordination Flexible use of human resourcesFlexible use of human resources Works well in medium-sized firms with multiple productsWorks well in medium-sized firms with multiple products

WeaknessesWeaknesses Dual authority can cause frustration and confusionDual authority can cause frustration and confusion Excellent interpersonal skills neededExcellent interpersonal skills needed Additional training can be expensiveAdditional training can be expensive Time consuming, frequent meetingsTime consuming, frequent meetings Great effort to maintain power balanceGreat effort to maintain power balance

Network StructureNetwork StructureNetwork StructureNetwork Structure

InformationCenter

Network StructureNetwork StructureNetwork StructureNetwork Structure Organizing FrameworkOrganizing Framework

OutputsOutputs Degree of CentralizationDegree of Centralization

Very decentralizedVery decentralized Competitive EnvironmentCompetitive Environment

Conditions vary from region to regionConditions vary from region to region Growth StrategyGrowth Strategy

Market penetration or market developmentMarket penetration or market development

Organizing FrameworkOrganizing Framework OutputsOutputs

Degree of CentralizationDegree of Centralization Very decentralizedVery decentralized

Competitive EnvironmentCompetitive Environment Conditions vary from region to regionConditions vary from region to region

Growth StrategyGrowth Strategy Market penetration or market developmentMarket penetration or market development

Network StructureNetwork StructureNetwork StructureNetwork Structure StrengthsStrengths

Units can focus on specific needs of marketsUnits can focus on specific needs of markets High levels of client satisfactionHigh levels of client satisfaction Works well in larger organizations with highly Works well in larger organizations with highly

differentiated marketsdifferentiated markets

WeaknessesWeaknesses Loss of economies of scaleLoss of economies of scale Duplication of resourcesDuplication of resources Hard to coordinate units when coordination is Hard to coordinate units when coordination is

necessary or desirablenecessary or desirable Can be confusing to customers with locations in Can be confusing to customers with locations in

multiple regions where the firm operatesmultiple regions where the firm operates

StrengthsStrengths Units can focus on specific needs of marketsUnits can focus on specific needs of markets High levels of client satisfactionHigh levels of client satisfaction Works well in larger organizations with highly Works well in larger organizations with highly

differentiated marketsdifferentiated markets

WeaknessesWeaknesses Loss of economies of scaleLoss of economies of scale Duplication of resourcesDuplication of resources Hard to coordinate units when coordination is Hard to coordinate units when coordination is

necessary or desirablenecessary or desirable Can be confusing to customers with locations in Can be confusing to customers with locations in

multiple regions where the firm operatesmultiple regions where the firm operates

Corporate Structures -- MultidivisionalCorporate Structures -- MultidivisionalCorporate Structures -- MultidivisionalCorporate Structures -- Multidivisional

Few businesses compared to the other corporate structuresFew businesses compared to the other corporate structures Moderate/low relatedness across divisionsModerate/low relatedness across divisions Moderate/low need for coordination across divisionsModerate/low need for coordination across divisions Financial synergy may be available across divisions and some Financial synergy may be available across divisions and some

operational synergy (although limited) only to the extent that the operational synergy (although limited) only to the extent that the divisions are related to each otherdivisions are related to each other

Few businesses compared to the other corporate structuresFew businesses compared to the other corporate structures Moderate/low relatedness across divisionsModerate/low relatedness across divisions Moderate/low need for coordination across divisionsModerate/low need for coordination across divisions Financial synergy may be available across divisions and some Financial synergy may be available across divisions and some

operational synergy (although limited) only to the extent that the operational synergy (although limited) only to the extent that the divisions are related to each otherdivisions are related to each other

CEO

Corporate Staff

Division VP Division VP Division VP

Corporate Structures -- Strategic Business UnitCorporate Structures -- Strategic Business UnitCorporate Structures -- Strategic Business UnitCorporate Structures -- Strategic Business Unit

Many businesses, some of which are related to each otherMany businesses, some of which are related to each other Groups (SBUs) of related businessesGroups (SBUs) of related businesses Coordination needed within each SBU; low need for Coordination needed within each SBU; low need for

coordination across SBUscoordination across SBUs Financial synergy across SBUs, potential exists for Financial synergy across SBUs, potential exists for

operational synergy within SBUsoperational synergy within SBUs

Many businesses, some of which are related to each otherMany businesses, some of which are related to each other Groups (SBUs) of related businessesGroups (SBUs) of related businesses Coordination needed within each SBU; low need for Coordination needed within each SBU; low need for

coordination across SBUscoordination across SBUs Financial synergy across SBUs, potential exists for Financial synergy across SBUs, potential exists for

operational synergy within SBUsoperational synergy within SBUs

CEO

Corporate Staff

SBU Manager SBU Manager SBU Manager

Related Divisions Related Divisions Related Divisions

SBU Staff SBU Staff SBU Staff

Corporate Structures -- MatrixCorporate Structures -- MatrixCorporate Structures -- MatrixCorporate Structures -- Matrix

Any number of businessesAny number of businesses Highly related businesses so people can easily transferHighly related businesses so people can easily transfer Very high level of coordination is requiredVery high level of coordination is required Many opportunities exist for operational synergies (for Many opportunities exist for operational synergies (for

innovation, to reduce costs, or serve multiple markets well)innovation, to reduce costs, or serve multiple markets well)

Any number of businessesAny number of businesses Highly related businesses so people can easily transferHighly related businesses so people can easily transfer Very high level of coordination is requiredVery high level of coordination is required Many opportunities exist for operational synergies (for Many opportunities exist for operational synergies (for

innovation, to reduce costs, or serve multiple markets well)innovation, to reduce costs, or serve multiple markets well)

CEO and Staff

Marketing

Division 2Division 1

Operations

R&D

Corporate Structures -- TransnationalCorporate Structures -- TransnationalCorporate Structures -- TransnationalCorporate Structures -- Transnational

Many businesses in different nationsMany businesses in different nations Highly related businesses (similar to corporate matrix)Highly related businesses (similar to corporate matrix) Very high level of coordination is requiredVery high level of coordination is required Many opportunities exist for operational synergies on a Many opportunities exist for operational synergies on a

world wide scale (for innovation, to reduce costs, or world wide scale (for innovation, to reduce costs, or serve multiple markets well)serve multiple markets well)

Many businesses in different nationsMany businesses in different nations Highly related businesses (similar to corporate matrix)Highly related businesses (similar to corporate matrix) Very high level of coordination is requiredVery high level of coordination is required Many opportunities exist for operational synergies on a Many opportunities exist for operational synergies on a

world wide scale (for innovation, to reduce costs, or world wide scale (for innovation, to reduce costs, or serve multiple markets well)serve multiple markets well)

U.S.A.U.S.A.

AsiaAsia

EuropeEurope

Marketing Operations R&DMarketing Operations R&D

Product Group 1Product Group 1



Steps in Developing a Steps in Developing a Feedback Control SystemFeedback Control System

Determine Broad GoalsDetermine Broad Goals Establish Links Between Broad Goals and Establish Links Between Broad Goals and

Resource Areas or Activities of the OrganizationResource Areas or Activities of the Organization Create Measurable Operating Goals for Each Create Measurable Operating Goals for Each

Resource Area or ActivityResource Area or Activity Assign Responsibility for Goal AccomplishmentAssign Responsibility for Goal Accomplishment Develop Specific Action PlansDevelop Specific Action Plans Allocate ResourcesAllocate Resources Follow UpFollow Up

Key Result Areas and Possible MeasuresKey Result Areas and Possible Measures

CustomersCustomers Sales $ and volumeSales $ and volume New customersNew customers New customer New customer

contactscontacts

CustomersCustomers Growth in salesGrowth in sales Turnover of Turnover of

customer basecustomer base Ability to control Ability to control

priceprice

Near-Term MeasuresNear-Term Measures Long-term MeasuresLong-term Measures


SuppliersSuppliers Cost of materialsCost of materials Delivery timeDelivery time InventoryInventory Availability of Availability of

materialsmaterials

SuppliersSuppliers Growth rate of Growth rate of

material cost, material cost, delivery time or delivery time or inventoryinventory

New ideas from New ideas from supplierssuppliers



Financial Financial CommunityCommunity EPSEPS Stock PriceStock Price Number of “buy” Number of “buy”

listslists ROEROE

Financial Financial CommunityCommunity Ability to convince Ability to convince

Wall Street of Wall Street of strategystrategy

Growth in ROE, Growth in ROE, EPS, or stock priceEPS, or stock price


EmployeesEmployees Number of Number of

suggestionssuggestions ProductivityProductivity Number of Number of

grievancesgrievances

EmployeesEmployees Number of internal Number of internal

promotionspromotions TurnoverTurnover

Key Result Areas and Possible MeasuresKey Result Areas and Possible MeasuresNear-Term MeasuresNear-Term Measures Long-term MeasuresLong-term Measures

CongressCongress New legislation New legislation

affecting firmaffecting firm Access to key Access to key

members and staffmembers and staff

CongressCongress Number of new Number of new

regulations that affect regulations that affect industryindustry

Ratio of “cooperative” Ratio of “cooperative” vs. “competitive” vs. “competitive” encountersencounters


Consumer Consumer AdvocatesAdvocates Number of meetings, Number of meetings,

hostile encounters, hostile encounters, coalitions formed or coalitions formed or legal actionslegal actions

Consumer Consumer AdvocatesAdvocates Number of Number of

changes in policy changes in policy due to CAdue to CA

Number of CA-Number of CA-initiated “calls for initiated “calls for help”help”


EnvironmentalistsEnvironmentalists Number of meetings, Number of meetings,

hostile encounters, hostile encounters, coalitions formed, coalitions formed, EPA complaints or EPA complaints or legal actionslegal actions

EnvironmentalistsEnvironmentalists Number of changes in Number of changes in

policy due to policy due to environmentalistsenvironmentalists

Number of Number of environmentalist “calls environmentalist “calls for help”for help”


Feedback ControlsFeedback Controls

PerformancePerformanceFeedbackFeedback

EstablishEstablishStrategicStrategicDirectionDirection

Formulate Formulate BasicBasic

StrategiesStrategies

ImplementationImplementationStrategies and Strategies and

ControlsControls

Goals and Goals and ObjectivesObjectives

Feedback ControlFeedback Control

OrganizationalOrganizational OutcomesOutcomes

TTIIMMEE

Compare Compare Goals to Goals to

OutcomesOutcomes

Feedforward ControlsFeedforward Controls

Business Business IntelligenceIntelligence

Establish Establish StrategicStrategicDirectionDirection

Formulate Formulate BasicBasic

StrategiesStrategies

ImplementationImplementationStrategies & Strategies &

ControlsControls

Analyze BroadAnalyze BroadEnvironmentEnvironment

Analyze Analyze OperatingOperating

Environment Environment

Analyze Analyze ResourcesResources

& Strategies& Strategies

Feedforward ControlFeedforward Control

Behavioral, Process and Behavioral, Process and Accounting ControlsAccounting Controls

Establish Establish StrategicStrategicDirectionDirection

Formulate BasicFormulate Basic StrategiesStrategies

ImplementationImplementationStrategies and Strategies and

ControlsControls

Behavioral ControlsBehavioral ControlsBureaucracyBureaucracy Socialization Socialization

processes (clan)processes (clan)Human resources Human resources

systemssystems

Process ControlsProcess ControlsUsed to guide daily Used to guide daily

processes and processes and work activities; work activities;

oftenoftentechnology basedtechnology based

Accounting ControlsAccounting ControlsSystems to ensure the Systems to ensure the accurate collection and accurate collection and

reporting of financial reporting of financial informationinformation

How Control Elements Fit TogetherHow Control Elements Fit Together

Business IntelligenceBusiness Intelligence

Establish StrategicEstablish StrategicDirectionDirection

Formulate BasicFormulate Basic StrategiesStrategies

Create ImplementationCreate ImplementationStrategies and ControlsStrategies and Controls

Information used to guide firm Information used to guide firm strategies and manage resources strategies and manage resources

and stakeholder relationships and stakeholder relationships (includes performance feedback)(includes performance feedback)

Analyze BroadAnalyze BroadEnvironmentEnvironment

Analyze OperatingAnalyze OperatingEnvironment Environment

Analyze ResourcesAnalyze Resources and Strategiesand Strategies

Goals and ObjectivesGoals and Objectives

Specific targets set; shouldSpecific targets set; shouldbe mission drivenbe mission driven

Organizational OutcomesOrganizational OutcomesGrowthGrowth

Stakeholder satisfactionStakeholder satisfactionProfitabilityProfitability

Level of innovationLevel of innovationOther outcomesOther outcomes TT

IIMMEE

Compare Goals Compare Goals to Outcomesto Outcomes

Behavioral ControlsBehavioral ControlsBureaucracyBureaucracy

Socialization processes (clan)Socialization processes (clan)Human resources systemsHuman resources systems

Process ControlsProcess ControlsUsed to guide daily processes Used to guide daily processes

and work activities; oftenand work activities; oftentechnology basedtechnology based

Accounting ControlsAccounting ControlsSystems to ensure the accurate Systems to ensure the accurate

collection and reporting of collection and reporting of financial informationfinancial information

Feedforward ControlFeedforward ControlFeedback

Control

Feedback

Control

Behavioral, Process and Accounting ControlsBehavioral, Process and Accounting Controls

The Five Phases of Crisis The Five Phases of Crisis ManagementManagement

Signal DetectionSignal Detection Preparation / PreventionPreparation / Prevention Containment / Damage Containment / Damage

LimitationLimitation RecoveryRecovery LearningLearning

Preventing and Controlling CrisesPreventing and Controlling Crises

Strategic ActionsStrategic Actions Technical and Structural ActionsTechnical and Structural Actions Evaluation and Diagnostic Evaluation and Diagnostic

ActionsActions Communication ActionsCommunication Actions Psychological and Cultural Psychological and Cultural

ActionsActions

Documents

Learning Objectives Understand the dimensions of organizational structure and how they are important Select an appropriate business-level structure