Chapter 11

Organizational Structure and Controls

Strategic Inputs

Chapter 2 External Environment Strategic Intent Chapter 3 Internal Environment Strategic Mission

The Strategic Management Process

Strategy Implementation
Chapter 10 Corporate Governance
Chapter 12 Strategic Leadership Chapter 11 Structure & Control Chapter 13
Entrepreneurship

Strategy Formulation
Chapter 4 Business-Level Strategy Chapter 5 Competitive Dynamics Chapter 8 International Strategy Chapter 6 Corporate-Level Strategy Chapter 9 Cooperative Strategies

Strategic Actions

Chapter 7 Acquisitions & Restructuring

& Innovation

Outcomes

Strategic

Feedback

Strategic Competitiveness Above Average Returns

Organization Structure (OS): Overview Effective OSs Evolution of OSs (Chandlers Thesis) OSs for Single/Dominant Businesses OSs for Related-Constrained Diversifiers OSs for Related-Linked Diversifiers OSs for Unrelated Diversifiers OSs for Global Strategies OSs for Multidivisional Strategies OSs for Cooperative Strategies

Organization Structures (OS)

Used to Implement strategies Allocate/Leverage R&Cs Define Reporting Relationships Create Accountability Effective OSs: Organizing Divisions: Discrete Units Interdependent Activities Unit Managers Authority Rewards

Chandlers Thesis: OS Evolution

Stage I

Simple Structure

Stage II

Functional Structure

Stage III

Multidivisional Structure

Simple Structure

Owner / Manager (OM)

OM makes all major decisions

Little Specialization
Little Formalization Single products/single markets Focus Strategies

Simple Structure
Owner/Manager

Employee

Employee

Employee

Employee

Employee

Employee

Functional Structure
First stage after Simple Structure

Single or dominant-business firms

Specialization / Learning Curve Overcomes limits of owner/manager Functional mgrs report to CEO who makes company-wide decisions. Risk: Myopic function managers

Functional Structure
Chief Executive Officer

Finance

Production

R&D

Accounting

Sales & Marketing

Human Resources

Functional Structure
Chief Executive Officer
Low Cost Business-level strategy usually employs a centralized structure and emphasizes Process R&D and Operations

Differentiation Businesslevel strategy usually employs a decentralized structure and emphasizes Product R&D and Sales & Marketing

Finance

Production

R&D

Accounting

Sales & Marketing

Human Resources

A Process-Oriented Functional Structure

General Manager

Foundry & Castings

Screw Machining

Inspection

Customer Service

Milling & Grinding

Finishing & Heat Treating

Loading & Shipping

Billing & Accounting

Transparency 11-11

Evolution of Multi-Divisional Structure

Chief Executive Officer Corporate Office (Staff)

Product A

Product B

Transparency 11-12

Evolution of Multi-Divisional Structure

Chief Executive Officer Corporate Office (Staff)

Product A

Product B

Finance

Production Engineering

Accounting

Sales & Marketing

Human Resources

Transparency 11-13

Evolution of Multi-Divisional Structure

Chief Executive Officer Corporate Office (Staff)

Product A

Product B

Finance

Production Engineering

Accounting

Sales & Marketing

Human Resources

Finance

Production Engineering

Accounting

Sales & Marketing

Human Resources

Transparency 11-14

Evolution of Multi-Divisional Structure

Chief Executive Officer Corporate Office (Staff)

Product A

Product B

Product C

Product D

North America

Europe

Asia

Finance

Production Engineering

Accounting

Sales & Marketing

Human Resources

Transparency 11-15

Multi-Divisional Corporate Structures (MDS)

MDS Cooperative Form

Corp. Strategy Related-Constrained Related-Linked Unrelated /Holding Company

Strategic Business Unit (SBU) Structure Competitive Form

Cooperative Form MDS (Related-Constrained Strategy)

Headquarters President
Govt Affairs Legal Affairs

Corp. R&D

Strategic Planning

Corp. HRM

Corp. Mktg

Corp. Finance

Product Division

Product Division

Product Division

Product Division

Product Division

Options for Supplementing the Basic Organization Structure

Cross-functional task forces Self-contained work teams Special project teams Venture team approach Process teams Contact managers Relationship managers

A Matrix Organization Structure

President

Head R&D

Head Manufacture
Production Specialists Production Specialists

Head Marketing
Marketing Specialists Marketing Specialists

Head Finance
Finance Specialists Finance Specialists

Venture Manager 1
Venture Manager 2 Venture Manager 3 Venture Manager 4
Transparency 11-19

R&D Specialists R&D Specialists

R&D Specialists R&D Specialists

Production Specialists Production Specialists

Marketing Specialists Marketing Specialists

Finance Specialists Finance Specialists

SBUs Help to Solve Complexity Issues

Chief Executive Officer Corporate Office (Staff)

Strategic Business Unit A

Strategic Business Unit B

Strategic Business Unit C

Strategic Business Unit D

Division

Division

Division

Strategic Business Units (SBUs) are used to organize related businesses into groups for strategy development

Competitive Form MDS (Unrelated Strategy)

Headquarters President

Legal Affairs

Corp. Auditing

Corp. Finance

Division

Division

Division

Division

Division

Transparency 11-21

Attributes of Various Structural Forms

Structural Characteristics Cooperative M-Form SBU M-Form Competitive M-Form

Type of Strategy

RelatedConstrained

Mixed Related or Unrelated

Unrelated
Decentralized to Division Nonexistent Synergies Financial Criteria

Degree of Centralized Centralized at Centralization Corporate Office in SBUs

Use of Integrating Mechanisms

Divisional Performance Appraisal Divisional Incentive Compensation

Extensive Synergies Subjective/ Strategic Criteria

Moderate Synergies

Strategic & Financial Criteria

Linked to Linked to Linked to Corporate Corporation, Divisional Performance Division & SBU Performance

International Multi-Divisional Structures

Chief Executive Officer Corporate Office (Staff)

Product A

Product B

Product C

Product D

A Structure based on Product lines implies a Global International Strategy

International Multi-Divisional Structures

Chief Executive Officer Corporate Office (Staff)

North America

Europe

Asia

Latin America

Africa

Australia

Product A

Product B

Product C

Product D

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

Strategic Networks

Critical Functions of Strategic Center Firm (SCF):

Strategic Outsourcing Capability Development Technology Sharing Building Linkages to Facilitate Learning

A Strategic Network

Network Firms (NF)

Strategic Center Firm (SFF)

A Strategic Network

Network Firms

SCF

SCF Manages Strategic Outsourcing

Strategic Networks

Strategic Center Firms function:

Technology Sharing (TS) Manage development and sharing of TS among partners

Capability Development & Learning (CDL) Develop CDL and promote sharing among partners

A Strategic Network

SCF Promotes TS & CDL

A Strategic Network

A Distributed Strategic Network

Main Strategic Center Firm

Distributed Strategic Center Firms

A Distributed Strategic Network

A Distributed Strategic Network

Main SCF