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Chapter

Chapter 11
11

Organizational Structure
and Controls

Michael
Michael A.
A. Hitt
Hitt
R.
R. Duane
Duane Ireland
Ireland
Robert
Robert E.
E. Hoskisson
Hoskisson

©2000 South-Western College Publishing


Ch11
Structure Types
All organizations require some form of organizational
structure to implement and manage their strategies

Firms frequently alter their structure as they grow in


size and complexity

Three basic structure types:


Simple Structure
Functional Structure
Multi-divisional Structure (M-form)

Ch11
Multidivisional
Strategy & Structure Multidivisional
Structure
Structure
Growth Patterns
Sales
Sales Growth
Growth Coordination
Coordination
and
and Control
Control Problems
Problems

Efficient
Efficient implementation
implementation
of
of formulated
formulated strategy
strategy

Functional
Functional
Structure
Structure

Sales
Sales Growth
Growth Coordination
Coordination
and
and Control
Control Problems
Problems

Efficient
Efficient implementation
implementation
of
of formulated
formulated strategy
strategy

Simple
Simple
Structure
Structure
Ch11
Simple Structure
Owner / Manager

Owner/Manager makes all major decisions


directly and monitors all activities

Difficult to maintain this structure as


the firm grows in size and complexity

Ch11
Functional Structure
First stage beyond a Simple Structure
Appropriate for single or dominant-business firms
Allows specialization of tasks
* Production * Engineering * Sales & Marketing
* Finance * Accounting * Human Resources

Overcomes information processing limits of


single owner/manager
Functional department heads report to Chief
Executive Officer who integrates decisions and
actions from a company-wide point of view
Risks conflicts between myopic function managers
Ch11
Functional Structure

Chief Executive Officer

Corporate
Corporate Corporate Strategic Corporate
Human
R&D Finance Planning Marketing
Resources

Sales & Human


Finance Production Engineering Accounting
Marketing Resources

Ch11
Functional
Functional Structure
Structure for
for
Cost
Cost Leadership
Leadership Strategy
Strategy
Office of the President
• Operations is main function
• Process engineering is Relatively large
emphasized rather than new centralized staff
product R&D Centralized coordinates
functions
• Formalized procedures allow Staff
for low-cost culture
• Structure is mechanical; job
roles are highly structured

Engineering Marketing Operations Personnel Accounting


Ch11
Functional
Functional Structure
Structure for
for
Differentiation
Differentiation Strategy
Strategy
President and
Limited Staff

R&D Marketing

New Human Finance


Marketing Operations
Product Resources
R&D
• Marketing is the main function for tracking new product ideas
• New product R&D is emphasized
• Most functions are decentralized
• Formalization is limited to foster change and promote new ideas
• Overall structure is organic; job roles are less structured Ch11
Multi-Divisional Structure
Each division is operated as a separate business
Appropriate for related-diversified businesses
Key task of corporate managers is exploiting synergies
among divisions
Managers use a combination of strategic controls and
financial controls

Managers try to strike a balance between:


Competing among divisions for scarce capital resources
Creating opportunities for cooperation to develop synergies

The goal is to maximize overall firm performance


Ch11
Multi-Divisional Structure

The decision-making of managers in a Multi-


Divisional structure may be:
Centralized or Decentralized
Bureaucratic or Non-bureaucratic

Balance on these dimensions may change over time

Structure will evolve over time with:


Changes in strategy
Degree of diversification
Geographic scope
Nature of competition
Ch11-
Multi-Divisional Structure

Chief Executive Officer

Corporate
Corporate Corporate Strategic Corporate
Human
R&D Finance Planning Marketing
Resources

Division Division Division Division

Sales & Human


Finance Production Engineering Accounting
Marketing Resources
Ch11-
SBU Form
Related-Linked Strategy

President
President

Corporate
Corporate Corporate Strategic Corporate
Human
R&D Finance Planning Marketing
Resources

Strategic Strategic Strategic Strategic


Business Business Business Business
Unit A Unit B Unit C Unit D

Division Division Division Division Division Division

• Structural integration exists among divisions within SBUs, but not across SBUs
• Each SBU may have its own budget for staff to foster integration
• Corporate headquarters staff serve as consultants to SBUs and divisions
Ch11-
Competitive Form
Unrelated /Holding Company Strategy

President
President

Legal Finance Auditing


Affairs

Division Division Division Division Division

• Corporate headquarters has a small staff


• Finance and auditing are the most prominent functions in the headquarters
• Divisions are independent and separate for financial evolution purposes
• Divisions retain strategic control, but cash is managed by the corporate office
• Divisions compete for corporate resources Ch11-
Multi-Divisional Structure
The choice between centralization and decentralization
is frequently based on the business-level strategy
implemented in each division
Differentiation Decentralization
Cost Leadership Centralization

Complex Multi-Divisional structure firms may be


simultaneously centralized and decentralized ,
depending upon the various business-level strategies
employed throughout the firm’s individual businesses

Multi-Divisional structure firms use a combination of:


Strategic Controls
Financial Controls Ch11-
Evolution of Multi-Divisional Structure
Chief
Chief Executive
Executive Officer
Officer

Corporate
Corporate Office
Office (Staff)
(Staff)

North Latin
Europe Asia Africa Australia
America America

Product A Product B Product C Product D

A Structural evolution based on Geographic lines usually


implies a Multi-Domestic International Strategy
Ch11-
Implementation of a Multidomestic Strategy
Worldwide
United
United
Geographic Asia
Asia States
States
Area
Structure

Latin
Latin Multinational
Multinational Europe
America Europe
America Headquarters
Headquarters

Middle
Middle
Australia
Australia East/
East/
Africa
Africa

• Green circles indicate decentralization of operations


• Emphasis is on differentiation by local demand to fit a culture
• Corporate headquarters coordinates financial resources among
independent subsidiaries
• The organization is like a decentralized federation Ch11-
Evolution of Multi-Divisional Structure
Chief
Chief Executive
Executive Officer
Officer

Corporate
Corporate Office
Office (Staff)
(Staff)

Product A Product B Product C Product D

A Structural evolution based on Product lines


usually implies a Global International Strategy

Ch11-
Implementation of a Global Strategy
Worldwide Worldwide Worldwide
Worldwide Worldwide
Product Products
Products Products
Products
Division
Division Division
Division
Divisional
Structure
Worldwide
Worldwide Multinational Worldwide
Worldwide
Products
Products
Multinational Products
Products
Division
Division Headquarters
Headquarters Division
Division

Worldwide
Worldwide Worldwide
Worldwide
Products
Products Products
Products
Division
Division Division
Division

• Green circle indicates centralization to coordinate information


flow among worldwide products
• Headquarters uses many intercoordination devices to facilitate
global economies of scale and scope
• Headquarters also allocates financial resources cooperatively
• The organization is like a centralized federation Ch11-
Strategic Networks
A Strategic Network is a grouping of organizations
that has been formed to create value through
participation in an array of cooperative arrangements,
such as a strategic alliance

A Strategic Center Firm often manages the network

The Strategic Center Firm identifies actions that


increase the opportunity for each firm to achieve
success through its participation in the network

The Strategic Center Firm creates incentives that


reduce the probability of any single firm taking
advantage of its network partners
Ch11-
A Strategic Network

Strategic
Strategic
Network Firms Center
Center
Firm
Firm

Ch11-
Strategic Center Firm’s Critical Functions
Strategic
Strategic
Strategic Outsourcing Center
Center
Firm
Firm

Capability Development

Technology Sharing

Building Linkages to
Facilitate Learning

Ch11-
Strategic Outsourcing

Strategic
Strategic
Center
Center
Firm
Firm

Center firm coordinates outsourcing among partners,


initiates actions and coordinates problem solving
Ch11-
Strategic Center Firm’s Critical Functions

Strategic Outsourcing

Capability Development
Strategic
Strategic
Center
Center
Firm
Firm
Technology Sharing

Building Linkages to
Facilitate Learning

Ch11-
Capability and Technology

Strategic
Strategic
Center
Center
Firm
Firm

Center firm attempts to develop each partner’s core


competencies and provides incentives for network firms to
share their capabilities and competencies with partners

Strategic center firm manages the development and sharing


technology-based ideas among network partners
Ch11-
Strategic Center Firm’s Critical Functions

Strategic Outsourcing

Capability Development

Technology Sharing

Strategic
Strategic
Building Linkages to Center
Center
Facilitate Learning Firm
Firm

Ch11-
Building Linkages to Facilitate Learning

Strategic
Strategic
Center
Center
Firm
Firm

Strategic center firm emphasizes to partners the need to build


linkages between value chains and networks of value chains.
The strategic network seeks to develop a competitive
advantage in primary or support activities
Ch11-

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