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Strategy Implementation What must we do to put the strategy in

place, execute it proficiently, and produce good results?

Creating FITS between strategy and external environment and creating FITS inside the organization

Control, coordination, and motivation issues

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Components of the Strategy Execution/Implementation Process

The Action Agenda for

Implementing Strategy

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The Strategic Management Process

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Chapter 11: Organizational Structure (OS) and Controls

Overview: Define organizational structure and controls Describe the relationship between strategy & structure Describe the functional structures for business- level strategies Describe three versions of the multi-divisional (M-form)

structure for different diversification strategies Describe structures implementing three international

strategies Describe the differences between strategic, financial and

behavioral controls

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Organizational Structure & Controls

Organizational structure and controls provide framework within which strategies are used

Different structures and controls are required to effectively implement different strategies

Must match structure and controls to strategy and strategy implementation

Fit between strategy and structure affects above average returns and performance

Better fit = Better performance

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Organizational Structure & Controls

Organizational Structure Specifies the firm’s formal reporting relationships, procedures,

controls, authority, and decision-making processes In other words, specifies work to be done and how to do it Effective use of firm’s strategies facilitated when structure is

properly aligned Structure should allow for both

Structural stability: Capacity firm requires to consistently and predictably manage its daily work routines

Structural flexibility: Opportunity to explore competitive advantages firm will need to be successful in the future

Structure is a critical component of effective strategy implementation

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Organizational Structure & Controls

Some structural characteristics defined Specialization

Concerned with the type and number of jobs required to complete work

Centralization Degree to which decision-making authority is retained at higher

managerial levels Formalization

Degree to which formal rules and procedures govern work Other structural characteristics

Authority, Responsibility, Degree of Integration, how Coordination is achieved, Reporting relationships, Standardization

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The Relationship Between Strategy and Structure

Modifying current strategy or selecting a new one calls for changes to organizational structure

Reciprocal relationship - change to one causes change in the other

No one structure is superior to the others No best or optimal structure for all firms

Strategy-structure fit can lead to a competitive advantage and above average returns

Structure must match strategy Structural choice should be based on control, coordination,

and motivation issues Several structure forms can be used to implement

strategies

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Strategy and Structure

Three major types of organizational structures Simple

Owner-manager makes all major decisions and monitors all activities

Informal relationships, few rules, limited task specialization Matched with focus strategies and business-level strategies As firm grows more complex, need to add layers and controls

Functional Multidivisional (M-form)

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Strategy and Structure

Growth Pattern

11

Functional Structure for Implementing a Cost Leadership Strategy

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Functional Structure for Implementing a Differentiation Strategy

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Three Variations of the Multidivisional Structure

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Cooperative Form of the Multidivisional Structure for Implementing a Related Constrained Strategy

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SBU Form of the Multidivisional Structure for Implementing a Related Linked Strategy

•Structural integration among divisions within SBUs, but independence across SBUs•Strategic planning may be the most prominent function in headquarters for managing the strategic planning approval process of SBUs for the president•Each SBU may have its own budget for staff to foster integration•Corporate headquarters staff serve as consultants to SBUs and divisions, rather than having direct input to product strategy, as in the cooperative form

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Competitive Form of the Multidivisional Structure for Implementing an Unrelated Strategy

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Additional Characteristics of the Multidivisional Structure (Table 11.1)

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Worldwide Geographic Area Structure for Implementing a Multidomestic Strategy

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Worldwide Product Divisional Structure for Implementing a Global Strategy

•The HQ circle indicates centralization to coordinate information flow among worldwide divisions•Corporate HQ uses many intercoordination devices to facilitate global economies of scale and scope•Corporate HQ also allocates financial resources in a cooperative way•High formalization, global integration

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Hybrid Form of the Combination Structure for Implementing a Transnational Strategy

Assets and operations may be centralized/decentralized Functions may be integrated/nonintegrated Relationships may be formal/informal Coordination mechanisms may leverage efficiency/flexibility Mandates to subsidiaries may be global/specialized-contribution/ localized-implementation There are competing objectives

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Matches between Cooperative Strategies and Strategic Network Structures

Network strategy: Partners form several alliances in order to improve the performance of the alliance network itself through cooperative endeavors

Strategic network: Group of firms that form [around core] to create value to participating in multiple cooperative arrangements Business-level

complementary alliances Vertical and Horizontal

CSAs Used to facilitate product &

market diversification Franchising

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Organizational Structure & Controls

Organizational Controls Guide the use of strategy, indicate how to compare actual

results with expected results, and suggest corrective actions to take when the difference is unacceptable

Are an important aspect of structure Help managers recognize when it is time to adjust structure Firms use strategic, financial, and behavioral controls to

support their strategies The relative use of these types of controls varies by type of

strategy Must properly balance the use of them

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Organizational Structure & Controls

Strategic Controls: largely subjective criteria intended to verify that the firm is using appropriate strategies for the conditions in the external environment and the company’s competitive advantages Concerned with fit between what firm might do vs. what it can do Used to evaluate degree to which firm focuses on the requirements

to implement its strategies Help the firm understand what it takes to be successful Focus on the content of strategic actions Emphasized by firms pursuing differentiation at business level,

related diversification at corporate level, and using a multidomestic international strategy

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Organizational Structure & Controls

Financial Controls: largely objective criteria used to measure firm’s performance against previously established quantitative standards Usually accounting or market-based measures

ROI, ROA, economic value added Involves comparison of current performance with past

performance and with industry averages and competitors’ performance

Focus on short-term financial outcomes Emphasized by firms pursuing low cost strategy at

business level, unrelated diversification at corporate level, and using a global international strategy

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Organizational Structure & Controls

Behavioral Controls: the regulation of activities and behaviors within organizations Used to adjust or bring about conformity to

specifications or objectives Can be achieved through the use of culture, structure,

rewards, and policies/procedures Includes controlling ethical behavior