Ch11-1
Chapter 11Chapter 11
Organizational Structure and Controls
Organizational Structure and Controls
Michael A. HittR. Duane Ireland
Robert E. Hoskisson
Michael A. HittR. Duane Ireland
Robert E. Hoskisson
©2000 South-Western College Publishing©2000 South-Western College Publishing
Ch11-2
CompetitivenessCompetitiveness
Chapter 3Chapter 3InternalInternal
EnvironmentEnvironment
Chapter 2Chapter 2ExternalExternal
EnvironmentEnvironmentThe StrategicThe StrategicManagementManagement
ProcessProcess
The StrategicThe StrategicManagementManagement
ProcessProcess
Strategic IntentStrategic Intent
Strategic MissionStrategic Mission
StrategicStrategicCompetitivenessCompetitivenessAbove AverageAbove Average
ReturnsReturnsFeedback
Strategy FormulationStrategy Formulation
Chapter 4Chapter 4Business-LevelBusiness-Level
StrategyStrategy
Chapter 5Chapter 5CompetitiveCompetitiveDynamicsDynamics
Chapter 6Chapter 6Corporate-LevelCorporate-Level
StrategyStrategy
Chapter 8Chapter 8InternationalInternational
StrategyStrategy
Chapter 9Chapter 9CooperativeCooperative
StrategiesStrategies
Chapter 7Chapter 7Acquisitions &Acquisitions &RestructuringRestructuring
Strategy ImplementationStrategy Implementation
Chapter 10Chapter 10CorporateCorporate
GovernanceGovernance
Chapter 11Chapter 11StructureStructure& Control& Control
Chapter 12Chapter 12StrategicStrategic
LeadershipLeadership
Chapter 13Chapter 13Entrepreneurship & InnovationEntrepreneurship & Innovation
Str
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Str
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Str
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Ch11-3
Structure TypesStructure Types
All organizations require some form of organizational All organizations require some form of organizational structure to implement and manage their strategiesstructure to implement and manage their strategies
Firms frequently alter their structure as they grow in Firms frequently alter their structure as they grow in size and complexitysize and complexity
Three basic structure types:Three basic structure types:
Functional StructureFunctional Structure
Multi-divisional Structure (M-form)Multi-divisional Structure (M-form)
Simple StructureSimple Structure
Ch11-4
Strategy & StructureStrategy & StructureGrowth PatternsGrowth Patterns
Sales Growth CoordinationSales Growth Coordinationand Control Problemsand Control Problems
Sales Growth CoordinationSales Growth Coordinationand Control Problemsand Control Problems
Efficient implementationEfficient implementationof formulated strategyof formulated strategy
Efficient implementationEfficient implementationof formulated strategyof formulated strategy
MultidivisionalMultidivisionalStructureStructure
MultidivisionalMultidivisionalStructureStructure
Efficient implementationEfficient implementationof formulated strategyof formulated strategy
Efficient implementationEfficient implementationof formulated strategyof formulated strategy
Sales Growth CoordinationSales Growth Coordinationand Control Problemsand Control Problems
Sales Growth CoordinationSales Growth Coordinationand Control Problemsand Control Problems
Functional Functional StructureStructure
Functional Functional StructureStructure
Simple Simple StructureStructureSimple Simple
StructureStructure
Ch11-5
Simple StructureSimple Structure
Owner / ManagerOwner / Manager
Owner/Manager makes all major decisions Owner/Manager makes all major decisions directly and monitors all activitiesdirectly and monitors all activities
Difficult to maintain this structure as Difficult to maintain this structure as the firm grows in size and complexitythe firm grows in size and complexity
Ch11-6
* Production* Production
* Finance* Finance
* Engineering* Engineering
* Accounting* Accounting
* Sales & Marketing* Sales & Marketing
* Human Resources* Human Resources
Functional StructureFunctional Structure
First stage beyond a Simple StructureFirst stage beyond a Simple Structure
Appropriate for single or dominant-business firmsAppropriate for single or dominant-business firms
Allows specialization of tasksAllows specialization of tasks
Overcomes information processing limits of Overcomes information processing limits of single owner/managersingle owner/manager
Functional department heads report to Chief Functional department heads report to Chief Executive Officer who integrates decisions and Executive Officer who integrates decisions and actions from a company-wide point of viewactions from a company-wide point of view
Risks conflicts between myopic function managersRisks conflicts between myopic function managers
Ch11-7
ProductionProductionFinanceFinance EngineeringEngineering AccountingAccountingSales & Sales &
MarketingMarketingHuman Human
ResourcesResources
Functional StructureFunctional Structure
Chief Executive OfficerChief Executive Officer
Corporate Corporate FinanceFinance
Corporate Corporate R&DR&D
Corporate Corporate MarketingMarketing
Corporate Corporate Human Human
ResourcesResources
Strategic Strategic PlanningPlanning
Ch11-8
MarketingMarketingEngineeringEngineering OperationsOperations PersonnelPersonnel AccountingAccounting
Functional Structure forFunctional Structure forCost LeadershipCost Leadership Strategy StrategyFunctional Structure forFunctional Structure forCost LeadershipCost Leadership Strategy Strategy
Office of the PresidentOffice of the President
CentralizedCentralizedStaffStaff
• Operations is main functionOperations is main function
• Process engineering is Process engineering is emphasized rather than new emphasized rather than new product R&Dproduct R&D
• Formalized procedures allow Formalized procedures allow for low-cost culturefor low-cost culture
• Structure is mechanical; job Structure is mechanical; job roles are highly structuredroles are highly structured
Relatively large Relatively large centralized staff centralized staff coordinates coordinates functionsfunctions
Ch11-9
MarketingMarketingNew New Product Product R&DR&D
OperationsOperationsHumanHuman
ResourcesResourcesFinanceFinance
R&DR&D MarketingMarketing
Functional Structure forFunctional Structure forDifferentiationDifferentiation Strategy Strategy
Functional Structure forFunctional Structure forDifferentiationDifferentiation Strategy Strategy
President andPresident andLimited StaffLimited Staff
• Marketing is the main function for tracking new product ideasMarketing is the main function for tracking new product ideas• New product R&D is emphasizedNew product R&D is emphasized• Most functions are decentralizedMost functions are decentralized• Formalization is limited to foster change and promote new ideasFormalization is limited to foster change and promote new ideas• Overall structure is organic; job roles are less structuredOverall structure is organic; job roles are less structured
Ch11-10
Multi-Divisional StructureMulti-Divisional Structure
Each division is operated as a separate businessEach division is operated as a separate business
Appropriate for related-diversified businessesAppropriate for related-diversified businesses
Key task of corporate managers is exploiting synergies Key task of corporate managers is exploiting synergies among divisionsamong divisions
Managers use a combination of strategic controls and Managers use a combination of strategic controls and financial controlsfinancial controls
Managers try to strike a balance between:Managers try to strike a balance between:Competing among divisions for scarce capital resourcesCompeting among divisions for scarce capital resourcesCreating opportunities for cooperation to develop synergiesCreating opportunities for cooperation to develop synergies
The goal is to maximize overall firm performanceThe goal is to maximize overall firm performance
Ch11-11
Multi-Divisional StructureMulti-Divisional Structure
Balance on these dimensions may change over timeBalance on these dimensions may change over time
The decision-making of managers in a Multi-The decision-making of managers in a Multi-Divisional structure may be:Divisional structure may be:
Centralized or DecentralizedCentralized or DecentralizedBureaucratic or Non-bureaucraticBureaucratic or Non-bureaucratic
Changes in strategyChanges in strategy
Degree of diversificationDegree of diversificationGeographic scopeGeographic scope
Nature of competitionNature of competition
Structure will evolve over time with:Structure will evolve over time with:
Ch11-12
DivisionDivision DivisionDivision DivisionDivision DivisionDivision
ProductionProductionFinanceFinance EngineeringEngineering AccountingAccountingSales & Sales &
MarketingMarketingHuman Human
ResourcesResources
Multi-Divisional StructureMulti-Divisional Structure
Chief Executive OfficerChief Executive Officer
Corporate Corporate FinanceFinance
Corporate Corporate R&DR&D
Corporate Corporate MarketingMarketing
Strategic Strategic PlanningPlanning
Corporate Corporate Human Human
ResourcesResources
Ch11-13
CooperativeCooperativeFormForm
CooperativeCooperativeFormForm
Strategic Business UnitStrategic Business Unit(SBU) Structure(SBU) Structure
Strategic Business UnitStrategic Business Unit(SBU) Structure(SBU) Structure
CompetitiveCompetitiveFormForm
CompetitiveCompetitiveFormForm
Variations of theVariations of theMulti-Divisional StructureMulti-Divisional Structure
Multi-DivisionalMulti-DivisionalStructureStructure(M-form)(M-form)
Multi-DivisionalMulti-DivisionalStructureStructure(M-form)(M-form)
Related-ConstrainedRelated-ConstrainedStrategyStrategy
Related-LinkedRelated-LinkedStrategyStrategy
Unrelated /HoldingUnrelated /HoldingCompany StrategyCompany Strategy
Ch11-14
Product Product DivisionDivision
Product Product DivisionDivision
Product Product DivisionDivision
Product Product DivisionDivision
Product Product DivisionDivision
StrategicStrategicPlanningPlanning
Corporate Corporate R&D LabR&D Lab
CorporateCorporateHumanHuman
ResourcesResources
LegalLegalAffairsAffairsLegalLegal
AffairsAffairs
CorporateCorporateMarketingMarketing
CorporateCorporateFinanceFinance
Cooperative FormCooperative Form
PresidentPresident
Related-Constrained StrategyRelated-Constrained Strategy
GovernmentGovernmentAffairsAffairs
GovernmentGovernmentAffairsAffairs
• Structural integration devices create tight links among all divisionsStructural integration devices create tight links among all divisions• Large corporate office with R&D likely to be centralizedLarge corporate office with R&D likely to be centralized• Culture emphasizes cooperative sharingCulture emphasizes cooperative sharing
Ch11-15
PresidentPresidentPresidentPresident
Strategic Strategic Business Business Unit AUnit A
SBU FormSBU FormRelated-Linked StrategyRelated-Linked Strategy
Corporate Corporate FinanceFinance
Corporate Corporate R&DR&D
Corporate Corporate MarketingMarketing
Strategic Strategic PlanningPlanning
Corporate Corporate Human Human
ResourcesResources
DivisionDivisionDivisionDivisionDivisionDivision
Strategic Strategic Business Business Unit CUnit C
DivisionDivisionDivisionDivisionDivisionDivision
Strategic Strategic Business Business Unit BUnit B
Strategic Strategic Business Business Unit DUnit D
• Structural integration exists among divisions within SBUs, but not across SBUsStructural integration exists among divisions within SBUs, but not across SBUs• Each SBU may have its own budget for staff to foster integrationEach SBU may have its own budget for staff to foster integration• Corporate headquarters staff serve as consultants to SBUs and divisionsCorporate headquarters staff serve as consultants to SBUs and divisions
Ch11-16
Competitive FormCompetitive FormUnrelated /Holding Company StrategyUnrelated /Holding Company Strategy
PresidentPresidentPresidentPresident
LegalLegalAffairsAffairs
FinanceFinance
• Corporate headquarters has a small staffCorporate headquarters has a small staff• Finance and auditing are the most prominent functions in the headquartersFinance and auditing are the most prominent functions in the headquarters• Divisions are independent and separate for financial evolution purposesDivisions are independent and separate for financial evolution purposes• Divisions retain strategic control, but cash is managed by the corporate officeDivisions retain strategic control, but cash is managed by the corporate office• Divisions compete for corporate resourcesDivisions compete for corporate resources
AuditingAuditing
DivisionDivisionDivisionDivisionDivisionDivisionDivisionDivision DivisionDivision
Ch11-17
Cost LeadershipCost LeadershipDecentralizationDecentralizationDifferentiationDifferentiation
CentralizationCentralization
Multi-Divisional StructureMulti-Divisional Structure
The choice between centralization and decentralization The choice between centralization and decentralization is frequently based on the business-level strategy is frequently based on the business-level strategy implemented in each divisionimplemented in each division
Complex Multi-Divisional structure firms may be Complex Multi-Divisional structure firms may be simultaneously centralized and decentralized , simultaneously centralized and decentralized , depending upon the various business-level strategies depending upon the various business-level strategies employed throughout the firm’s individual businessesemployed throughout the firm’s individual businesses
Multi-Divisional structure firms use a combination of:Multi-Divisional structure firms use a combination of:
Financial ControlsFinancial ControlsStrategic Controls Strategic Controls
Ch11-18
Attributes of Various Structural FormsAttributes of Various Structural Forms
Structural Structural CharacteristicsCharacteristics
Degree ofDegree ofCentralizationCentralization
Use ofUse ofIntegratingIntegratingMechanismsMechanisms
DivisionalDivisionalPerformancePerformance
AppraisalAppraisal
DivisionalDivisionalIncentive Incentive
CompensationCompensation
Type of Type of StrategyStrategy
Cooperative Cooperative M-FormM-Form
SBUSBU M-FormM-Form
Competitive Competitive M-FormM-Form
Centralized atCentralized atCorporate OfficeCorporate Office
CentralizedCentralizedin SBUsin SBUs
DecentralizedDecentralizedto Divisionto Division
Linked to Linked to CorporateCorporate
PerformancePerformance
Linked toLinked toCorporation,Corporation,
Division & SBUDivision & SBU
Linked toLinked toDivisionalDivisional
PerformancePerformance
ExtensiveExtensiveSynergiesSynergies
ModerateModerateSynergiesSynergies
NonexistentNonexistentSynergiesSynergies
FinancialFinancialCriteriaCriteria
Strategic &Strategic &FinancialFinancialCriteriaCriteria
Subjective/Subjective/StrategicStrategicCriteriaCriteria
Related-Related-ConstrainedConstrained
RelatedRelatedLinkedLinked
UnrelatedUnrelated
Ch11-19
North North AmericaAmerica AustraliaAustraliaEuropeEurope AsiaAsia
Latin Latin AmericaAmerica
AfricaAfrica
Product AProduct A Product BProduct B Product CProduct C Product DProduct D
Product AProduct A
Evolution of Multi-Divisional StructureEvolution of Multi-Divisional Structure
Chief Executive OfficerChief Executive OfficerChief Executive OfficerChief Executive Officer
Corporate Office (Staff)Corporate Office (Staff)Corporate Office (Staff)Corporate Office (Staff)
Ch11-20
A Structural evolution based on A Structural evolution based on GeographicGeographic lines usually lines usually implies a implies a Multi-DomesticMulti-Domestic International Strategy International Strategy
Evolution of Multi-Divisional StructureEvolution of Multi-Divisional Structure
North North AmericaAmerica AustraliaAustraliaEuropeEurope AsiaAsia
Latin Latin AmericaAmerica
AfricaAfrica
Product AProduct A Product BProduct B Product CProduct C Product DProduct D
Chief Executive OfficerChief Executive OfficerChief Executive OfficerChief Executive Officer
Corporate Office (Staff)Corporate Office (Staff)Corporate Office (Staff)Corporate Office (Staff)
Ch11-21
Implementation of a Implementation of a MultidomesticMultidomestic Strategy Strategy
WorldwideWorldwideGeographicGeographic
AreaAreaStructureStructure
MultinationalMultinationalHeadquartersHeadquartersMultinationalMultinationalHeadquartersHeadquarters
AsiaAsiaAsiaAsia UnitedUnitedStatesStates
UnitedUnitedStatesStates
LatinLatinAmericaAmerica
LatinLatinAmericaAmerica EuropeEuropeEuropeEurope
AustraliaAustraliaAustraliaAustraliaMiddleMiddleEast/East/
AfricaAfrica
MiddleMiddleEast/East/
AfricaAfrica
• Green circles indicate decentralization of operationsGreen circles indicate decentralization of operations
• Emphasis is on differentiation by local demand to fit a cultureEmphasis is on differentiation by local demand to fit a culture
• Corporate headquarters coordinates financial resources among Corporate headquarters coordinates financial resources among independent subsidiariesindependent subsidiaries
• The organization is like a decentralized federationThe organization is like a decentralized federation
Ch11-22
Product AProduct A Product BProduct B Product CProduct C Product DProduct D
A Structural evolution based on A Structural evolution based on ProductProduct lines lines
usually implies a usually implies a GlobalGlobal International Strategy International Strategy
Evolution of Multi-Divisional StructureEvolution of Multi-Divisional Structure
Chief Executive OfficerChief Executive OfficerChief Executive OfficerChief Executive Officer
Corporate Office (Staff)Corporate Office (Staff)Corporate Office (Staff)Corporate Office (Staff)
Ch11-23
Implementation of a Implementation of a GlobalGlobal Strategy Strategy
WorldwideWorldwideProductProduct
DivisionalDivisionalStructureStructure
• Green circle indicates centralization to coordinate information Green circle indicates centralization to coordinate information flow among worldwide productsflow among worldwide products
• Headquarters uses many intercoordination devices to facilitate Headquarters uses many intercoordination devices to facilitate global economies of scale and scopeglobal economies of scale and scope
• Headquarters also allocates financial resources cooperativelyHeadquarters also allocates financial resources cooperatively
• The organization is like a centralized federationThe organization is like a centralized federation
MultinationalMultinationalHeadquartersHeadquartersMultinationalMultinationalHeadquartersHeadquarters
WorldwideWorldwideProductsProductsDivisionDivision
WorldwideWorldwideProductsProductsDivisionDivision
WorldwideWorldwideProductsProductsDivisionDivision
WorldwideWorldwideProductsProductsDivisionDivision
WorldwideWorldwideProductsProductsDivisionDivision
WorldwideWorldwideProductsProductsDivisionDivision
WorldwideWorldwideProductsProductsDivisionDivision
WorldwideWorldwideProductsProductsDivisionDivision
WorldwideWorldwideProductsProductsDivisionDivision
WorldwideWorldwideProductsProductsDivisionDivision
WorldwideWorldwideProductsProductsDivisionDivision
WorldwideWorldwideProductsProductsDivisionDivision
Ch11-24
A Transnational International Strategy is likely A Transnational International Strategy is likely to utilize a structure and that results in emphasis to utilize a structure and that results in emphasis on both geographic and product structureson both geographic and product structures
Evolution of Multi-Divisional StructureEvolution of Multi-Divisional Structure
Ch11-25
Strategic NetworksStrategic Networks
A Strategic Network is a grouping of organizations A Strategic Network is a grouping of organizations that has been formed to create value through that has been formed to create value through participation in an array of cooperative arrangements, participation in an array of cooperative arrangements, such as a strategic alliancesuch as a strategic alliance
A Strategic Center Firm often manages the networkA Strategic Center Firm often manages the network
The Strategic Center Firm identifies actions that The Strategic Center Firm identifies actions that increase the opportunity for each firm to achieve increase the opportunity for each firm to achieve success through its participation in the networksuccess through its participation in the network
The Strategic Center Firm creates incentives that The Strategic Center Firm creates incentives that reduce the probability of any single firm taking reduce the probability of any single firm taking advantage of its network partnersadvantage of its network partners
Ch11-26
A Strategic NetworkA Strategic Network
StrategicStrategicCenterCenterFirmFirm
StrategicStrategicCenterCenterFirmFirm
Network FirmsNetwork Firms
Ch11-27
StrategicStrategicCenterCenterFirmFirm
StrategicStrategicCenterCenterFirmFirm
Strategic Center Firm’s Critical FunctionsStrategic Center Firm’s Critical Functions
Strategic OutsourcingStrategic Outsourcing
Capability DevelopmentCapability Development
Technology SharingTechnology Sharing
Building Linkages to Building Linkages to Facilitate LearningFacilitate Learning
Ch11-28
StrategicStrategicCenterCenterFirmFirm
StrategicStrategicCenterCenterFirmFirm
Strategic OutsourcingStrategic Outsourcing
Center firm coordinates outsourcing among partners, Center firm coordinates outsourcing among partners, initiates actions and coordinates problem solvinginitiates actions and coordinates problem solving
Ch11-29
StrategicStrategicCenterCenterFirmFirm
StrategicStrategicCenterCenterFirmFirm
Strategic Center Firm’s Critical FunctionsStrategic Center Firm’s Critical Functions
Strategic OutsourcingStrategic Outsourcing
Capability DevelopmentCapability Development
Technology SharingTechnology Sharing
Building Linkages to Building Linkages to Facilitate LearningFacilitate Learning
Ch11-30
Strategic center firm manages the development and sharing Strategic center firm manages the development and sharing technology-based ideas among network partnerstechnology-based ideas among network partners
Capability and TechnologyCapability and Technology
StrategicStrategicCenterCenterFirmFirm
StrategicStrategicCenterCenterFirmFirm
Center firm attempts to develop each partner’s core Center firm attempts to develop each partner’s core competencies and provides incentives for network firms to competencies and provides incentives for network firms to share their capabilities and competencies with partnersshare their capabilities and competencies with partners
Ch11-31
StrategicStrategicCenterCenterFirmFirm
StrategicStrategicCenterCenterFirmFirm
Strategic Center Firm’s Critical FunctionsStrategic Center Firm’s Critical Functions
Strategic OutsourcingStrategic Outsourcing
Capability DevelopmentCapability Development
Technology SharingTechnology Sharing
Building Linkages to Building Linkages to Facilitate LearningFacilitate Learning
Ch11-32
StrategicStrategicCenterCenterFirmFirm
StrategicStrategicCenterCenterFirmFirm
Building Linkages to Facilitate LearningBuilding Linkages to Facilitate Learning
Strategic center firm emphasizes to partners the need to build Strategic center firm emphasizes to partners the need to build linkages between value chains and networks of value chains.linkages between value chains and networks of value chains.
The strategic network seeks to develop a competitive The strategic network seeks to develop a competitive advantage in primary or support activitiesadvantage in primary or support activities
Ch11-33
A Distributed Strategic NetworkA Distributed Strategic Network
MainMainStrategicStrategicCenterCenterFirmFirm
MainMainStrategicStrategicCenterCenterFirmFirm
Distributed Strategic Center FirmsDistributed Strategic Center Firms
International Cooperative Strategies often require more complex networksInternational Cooperative Strategies often require more complex networks
Many large multinational firms form distributed strategic networks with Many large multinational firms form distributed strategic networks with multiple regional strategic centers to manage their array of cooperative multiple regional strategic centers to manage their array of cooperative arrangements with partner firmsarrangements with partner firms
Breaking large networks into multiple manageably-sized networks Breaking large networks into multiple manageably-sized networks helps to manage the complexity of maintaining many relationshipshelps to manage the complexity of maintaining many relationships