CREATING EFFECTIVE ORGANIZATIONAL DESIGNS STRATEGIC MANAGEMENT BUAD 4980

CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Organizational Structure The formalized patterns of interactions that link a firm’s tasks, technologies, and people STRATEGIC MANAGEMENT – BUAD 4980 2 2

CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Organizational Structure Organizational structures vary by the size, functional needs and complexity of each firm As firms grow more complex and diverse, their organizational structure must change to allow the firms to remain effective and efficient STRATEGIC MANAGEMENT – BUAD 4980 3 3

CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Organizational Structure Types of organizational structures Simple Functional Divisional and SBU Matrix International STRATEGIC MANAGEMENT – BUAD 4980 4 4

CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Organizational Structure STRATEGIC MANAGEMENT – BUAD 4980 5 5

CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Simple Structure Simple Structure An organizational form in which the owner-manager makes most of the decisions and controls activities, and the staff serve as an extension of the top executive STRATEGIC MANAGEMENT – BUAD 4980 6 6

CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Simple Structure Advantages Coordination of tasks by direct supervision (usually a single manager / owner) Highly centralized control, immediate response Informal policies, procedures and performance review system Fosters creativity STRATEGIC MANAGEMENT – BUAD 4980 7 7

CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Simple Structure Disadvantages Informality and individualism may lead to organizational conflict Employees may act in self-interest, rather than the organization as a whole Lack of controls may lead to misuse of resources Retention based on loyalty rather than opportunities for advancement STRATEGIC MANAGEMENT – BUAD 4980 8 8

CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Functional Structure Functional Structure Organizational form in which the major functions of the firm, such as production, marketing, R&D, and accounting, are grouped internally Single or related products Volume-based production Some vertical integration STRATEGIC MANAGEMENT – BUAD 4980 9 9

CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Functional Structure STRATEGIC MANAGEMENT – BUAD 4980 10 10

CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Functional Structure Advantages Enhanced coordination and control Centralized decision making Organizational-level perspective More efficient use of managerial and technical talent Facilitates career paths and development in specialized areas STRATEGIC MANAGEMENT – BUAD 4980 11 11

CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Functional Structure Disadvantages More complicated organizational dynamics and personality conflict Communication barriers between functional areas Short-term, functional thinking Difficult to establish uniform performance standards STRATEGIC MANAGEMENT – BUAD 4980 12 12

CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Divisional Structure Divisional Organizational Structure An organizational form in which products, projects, or product markets are grouped internally into divisions Also called multidivisional structure or M-Form Each division has its own functional structure Divisions are largely autonomous, with accountability to corporate management STRATEGIC MANAGEMENT – BUAD 4980 13 13

CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Divisional Structure STRATEGIC MANAGEMENT – BUAD 4980 14 14

CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Divisional Structure Advantages Strategic business unit (SBU) structure Separation of strategic and operating control Quick response to important changes in external environment Minimal problems of sharing resources across functional departments Development of general management talent is enhanced STRATEGIC MANAGEMENT – BUAD 4980 15 15

CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Divisional Structure Disadvantages Expensive – duplication of resources across divisions Dysfunctional competition can occur between divisions Difficult to achieve standardization of company image, values and quality across divisions Focus on short-term performance STRATEGIC MANAGEMENT – BUAD 4980 16 16

Strategic Business Unit Structure CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Strategic Business Unit Structure Strategic Business Unit (SBU) Structure Organizational form in which products, projects, or product market divisions are grouped into homogeneous units Usually found in extensive multi-product, multi-market organizations Each SBU operates as a profit center STRATEGIC MANAGEMENT – BUAD 4980 17 17

Strategic Business Unit Structure CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Strategic Business Unit Structure Advantages Facilitates planning and control by corporate management Individual businesses can react more quickly to important environmental changes SBU’s are “homogeneous” in nature – more likely to share resources and limit divisional competition within SBU STRATEGIC MANAGEMENT – BUAD 4980 18 18

Strategic Business Unit Structure CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Strategic Business Unit Structure Disadvantages Difficult to achieve synergies across different SBU’s Limited incentive to share technologies or expertise across SBU’s Additional level of management increases overhead expenses Increases organizational distance between divisional operations and corporate management STRATEGIC MANAGEMENT – BUAD 4980 19 19

CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Holding Company Structure Organizational form in which the divisions have a high degree of autonomy both from other divisions and from corporate headquarters Also known as a Conglomerate Portfolio of businesses within the corporation have little in common as a result of unrelated diversification Small corporate management and staff organization Autonomous, independent businesses STRATEGIC MANAGEMENT – BUAD 4980 20 20

CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Holding Company Structure Advantages Lower corporate overhead and fewer managerial levels Increased motivation for autonomous divisional executives Quick response capability to environmental changes STRATEGIC MANAGEMENT – BUAD 4980 21 21

CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Holding Company Structure Disadvantages Lack of corporate control Dependency by corporate management on expertise of divisional management Limited staff capabilities or managerial bench strength to support divisions STRATEGIC MANAGEMENT – BUAD 4980 22 22

Matrix Organizational Structure CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Matrix Organizational Structure Matrix Organizational Structure Organizational form in which there are multiple lines of authority and some individuals report to at least two managers Functional departments are combined with product groups on a project by project basis Can combine geographic market focus and product line focus STRATEGIC MANAGEMENT – BUAD 4980 23 23

Matrix Organizational Structure CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Matrix Organizational Structure STRATEGIC MANAGEMENT – BUAD 4980 24 24

Matrix Organizational Structure CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Matrix Organizational Structure Advantages Facilitates the use and sharing of specialized personnel, equipment and facilities Avoids divisional duplication of specialized resources Resource sharing and collaboration enable effective response to changing environmental needs Provides professionals with a broader range of responsibility and experience Sharing innovative / new technology or systems STRATEGIC MANAGEMENT – BUAD 4980 25 25

Matrix Organizational Structure CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Matrix Organizational Structure Disadvantages Uncertainty relating to dual-reporting relationships Power struggles between key managers and conflict over use of resources Complicated working relationships Group decision-making and reliance on teamwork may slow decision time and efficiency STRATEGIC MANAGEMENT – BUAD 4980 26 26

International Organizational Structures CREATING EFFECTIVE ORGANIZATIONAL DESIGNS International Organizational Structures Three major contingencies influence structure adopted by firms with international operations Type of strategy driving the firm’s foreign operations Product diversity Extent to which the firm is dependent on foreign sales STRATEGIC MANAGEMENT – BUAD 4980 27 27

International Organizational Structures CREATING EFFECTIVE ORGANIZATIONAL DESIGNS International Organizational Structures Structures used to manage international operations International Division Geographic-Area Division Worldwide Functional Worldwide Product Division Worldwide Matrix STRATEGIC MANAGEMENT – BUAD 4980 28 28

International Organizational Structures CREATING EFFECTIVE ORGANIZATIONAL DESIGNS International Organizational Structures Structures used to manage international operations International Division – International operations are managed as a separate division from domestic divisions Geographic-Area Division – Operations in distinct geographical regions are grouped together as divisions Worldwide Functional – Global markets for multiple products in a common functional form are homogeneous Worldwide Product Division – Global markets for a single product are homogeneous Worldwide Matrix – Matrix structure applied to global operations STRATEGIC MANAGEMENT – BUAD 4980 29 29

CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Global Start-Ups Global Start-Up Business organization that, from inception, seeks to derive significant competitive advantage from the use of resources and the sale of outputs in multiple countries STRATEGIC MANAGEMENT – BUAD 4980 30 30

CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Global Start-Ups Criteria for Going Global Required human resources are globally dispersed Foreign financing may be less costly, easier to obtain or more appropriately structured Target customers are located internationally Entry timing requires immediate global presence to avoid imitation by foreign competitors The volume necessary to cover development and other fixed costs requires access to global markets STRATEGIC MANAGEMENT – BUAD 4980 31 31

Corporate Strategy and Organizational Structure CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Corporate Strategy and Organizational Structure Strategy vs. Structure The type of strategy the corporation follows usually dictates the appropriate divisional structure The ability to change strategy may be limited by existing organizational structures Expense and complexity of changing an in-place organizational structure STRATEGIC MANAGEMENT – BUAD 4980 32 32

Organizational Structure – Reward and Evaluation Systems CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Organizational Structure – Reward and Evaluation Systems STRATEGIC MANAGEMENT – BUAD 4980 33 33

CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Organizational Boundaries Types of Organizational Boundaries Vertical boundaries between levels in the organization’s hierarchy Horizontal boundaries between functional areas External boundaries between the firm and its customers, suppliers, and regulators Geographic boundaries between locations, cultures and markets STRATEGIC MANAGEMENT – BUAD 4980 34 34

CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Organizational Boundaries Boundaryless Organizational Designs Organizations in which the boundaries, including vertical, horizontal, external, and geographic boundaries, are permeable STRATEGIC MANAGEMENT – BUAD 4980 35 35

CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Boundaryless Organizations Barrier-Free Organizations Organizational design in which firms bridge real differences in culture, function, and goals to find common ground that facilitates information sharing and other forms of cooperative behavior Internal problem solving teams Emphasis on resource sharing Getting close to customers and developing customer solution partnerships STRATEGIC MANAGEMENT – BUAD 4980 36 36

Barrier-Free Organizations – Pros and Cons CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Barrier-Free Organizations – Pros and Cons STRATEGIC MANAGEMENT – BUAD 4980 37 37

CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Modular Organizations Organization in which non-vital functions are outsourced, which uses the knowledge and expertise of outside suppliers while retaining strategic control Outsources nonvital functions to “best-in-class” suppliers or producers STRATEGIC MANAGEMENT – BUAD 4980 38 38

CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Modular Organizations Modular Organization Advantages Lower overall costs Hire suppliers with more talent and knowledge than exists within the company Avoid production management issues Capacity balancing Inventory control Technological obsolescence Focus scarce resources where needed to maintain competitive advantage STRATEGIC MANAGEMENT – BUAD 4980 39 39

Modular Organizations – Pros & Cons CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Modular Organizations – Pros & Cons STRATEGIC MANAGEMENT – BUAD 4980 40 40

CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Virtual Organizations Continually evolving network of independent companies that are linked together to share skills, costs, and access to one another’s markets Formal or informal partnerships or alliances Pool talent and resources that any single organization does not possess, or would be difficult to assemble STRATEGIC MANAGEMENT – BUAD 4980 41 41

Virtual Organizations – Pros & Cons CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Virtual Organizations – Pros & Cons STRATEGIC MANAGEMENT – BUAD 4980 42 42

Effective Boundaryless Organizations CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Effective Boundaryless Organizations Combine different organizational concepts to create effective boundaryless organizations Outsource parts of the value chain to reduce cost / increase quality Enter into partnerships or alliances to develop or access technology and to enter new markets Eliminate barriers within the organization to enhance problem-solving, shorten response time, expand core competencies and improve performance STRATEGIC MANAGEMENT – BUAD 4980 43 43

Boundaryless Organizations – Success Factors CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Boundaryless Organizations – Success Factors Common Culture and Shared Values Shared goals Mutual objectives Trust STRATEGIC MANAGEMENT – BUAD 4980 44 44

Boundaryless Organizations – Success Factors CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Boundaryless Organizations – Success Factors Horizontal Organizational Structures Group similar or related business units under common management control Facilitate sharing resources and support systems to exploit synergies Consistent training and development Cross-functional teams and decision-making groups STRATEGIC MANAGEMENT – BUAD 4980 45 45

Boundaryless Organizations – Success Factors CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Boundaryless Organizations – Success Factors Horizontal Systems and Processes Common organizational systems, policies and procedures across functional divisions Quality, safety, training and human resource systems Process control systems, JIT, Six-sigma, statistical quality control, Class A practices STRATEGIC MANAGEMENT – BUAD 4980 46 46

Boundaryless Organizations – Success Factors CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Boundaryless Organizations – Success Factors Communications and Information Technology Cross-functional communication systems to enhance decision-making, sharing and avoid costly travel Common management information and enterprise resource planning systems Integration of systems to customers and suppliers to increase speed, supply chain efficiency and information accuracy STRATEGIC MANAGEMENT – BUAD 4980 47 47

Ambidextrous Organization Designs CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Ambidextrous Organization Designs Ambidextrous Organizational Designs Organization designs that attempt to simultaneously pursue modest, incremental innovations as well as more dramatic, breakthrough innovations Achieve adaptability in approaching volatile markets and alignment of value-creating activities Requires strong and participative management, clearly championing objectives and vision and regulating resource allocations Breakthrough teams work independent of traditional functional teams, but share skills and knowledge in a controlled way STRATEGIC MANAGEMENT – BUAD 4980 48 48