Implementing Strategy: Creating Effective Organizational Designs Chapter Ten Implementing Strategy: Creating Effective Organizational Designs

After studying this chapter, you should have a good understanding of: TRANSPARENCY-84 Learning Objectives After studying this chapter, you should have a good understanding of: The importance of organizational structure and the concept of the “boundary-less” organization in implementing strategies The growth patterns of major corporations and the relationship between a firm’s strategy and its structure Each of the traditional types of organizational structure—simple, functional, divisional, and matrix The relative advantages and disadvantages of traditional organizational structures The implications of a firm’s international operations for organizational structure The different types of boundary-less organizations—barrier-free, modular, and virtual—and their relative advantages and disadvantages

Growth Patterns of Large Corporations TRANSPARENCY-85 Growth Patterns of Large Corporations Exhibit 10.1 Phase 1 Strategy: Low revenue base; simple product-market scope Structure: Simple Phase 2 Strategy: Increase in revenues; engage in vertical integration (backward and/or forward) Structure: Functional Phase 3 Strategy: Expand into new, related product-markets and/or geographical areas Structure: Divisional Phase 4 Strategy: Expand into international markets Structure: International Division, Geographic Area, Worldwide Product Division, Worldwide Functional, or Worldwide Matrix

Functional Structure: Advantages and Disadvantages TRANSPARENCY-86 Exhibit 10.2 Functional Structure: Advantages and Disadvantages Chief Executive Officer or President Manager Production Manager Engineering Manager Marketing Manager R&D Manager Personnel Manager Accounting Lower-level managers, specialists, and operating personnel

Divisional Structure: Advantages and Disadvantages TRANSPARENCY-87 Exhibit 10.3 Divisional Structure: Advantages and Disadvantages Chief Executive Officer or President Corporate Staff Division A General Manager Division B Division C Manager Production Manager Engineering Manager Marketing Manager R&D Manager Personnel Manager Accounting Organized similarly to Division 1 Lower-level managers, specialists, and operating personnel

Matrix Structures: Advantages and Disadvantages TRANSPARENCY-88 Matrix Structures: Advantages and Disadvantages Exhibit 10.4 Chief Executive Officer or President Corporate Staff Manager Administration and Human Resources Manager Projects Manager Manufacturing Manager Engineering Manager Marketing Manager Public Relations Project A Project B Project C Project D

TRANSPARENCY-89 Functional, Divisional, and Matrix Structures: Advantages and Disadvantages Exhibit 10.5 Functional Structure Advantages Disadvantages Pooling of specialists enhances coordination and control Centralized decision making enhances an organizational perspective across functions Efficient use of managerial and technical talent Career paths and professional development in specialized areas are facilitated Differences in functional area orientation impede communication and coordination Tendency for specialists to develop short-term perspective and overly narrow functional orientation Functional area conflicts may overburden top level decision makers Difficult to establish uniform performance standards Divisional Structure Advantages Disadvantages Increases strategic and operational control, permitting corporate-level executives to address strategic issues Quick response to environmental changes Increased focus on products and markets Minimizes problems associated with sharing resources across functional areas Facilitates development of general managers Increased costs incurred through duplication of personnel, operations, and investment Dysfunctional competition among divisions may detract from overall corporate performance Difficulty in maintaining uniform corporate image Overemphasis on short-term performance Matrix Structure Advantages Disadvantages Increases market responsiveness through collaboration and synergies among professional colleagues Allows more efficient utilization of resources Improves flexibility, coordination, and communication Increases professional development through broader range of responsibility Dual reporting relationships can result in uncertainty regarding accountability Intense power struggles may lead to increased levels of conflict Working relationships may be more complicated and human resources duplicated Excessive reliance on group processes and teamwork may impede timely decision making

Pros and Cons of the Barrier-Free Structures TRANSPARENCY-90 Exhibit 10.6 Pros and Cons of the Barrier-Free Structures Pros Cons Leverages the talents of all employees Enhances cooperation, coordination, and information-sharing among functions, divisions, SBUs, and external constituencies Enables a quicker response to market changes through a single-goal focus Can lead to coordinated “win-win” initiatives with key suppliers, customers, and alliance partners. Difficult to overcome political and authority boundaries both inside and outside the organization Lacks strong leadership and common vision which can lead to coordination problems. Time-consuming and difficult-to-manage democratic processes Lacks high levels of trust which can impede performance

Pros and Cons Of Modular Structures TRANSPARENCY-91 Exhibit 10.7 Pros and Cons Of Modular Structures Pros Cons Directs a firm’s managerial and technical talent to the most critical activities Maintains full strategic control over most critical activities—core competencies Achieves “best in class” performance at each link in the value chain Leverages core competencies by outsourcing with smaller capital commitment Encourages information sharing and accelerates organizational learning Inhibits common vision through reliance on outsiders Diminishes future competitive advantages if critical technologies or other competences are outsourced Increases the difficulty of bringing back into the firm activities that now add value due to market shifts May lead to an erosion of cross-functional skills Decreases operational control and potential loss of control over a supplier

Pros and Cons of Virtual Structure TRANSPARENCY-92 Exhibit 10.8 Pros and Cons of Virtual Structure Pros Cons Enables the sharing of costs and skills Enhances access to global markets Increases market responsiveness Creates a “best of everything” organization since each partner brings core competencies to the alliance Encourages both individual and organizational knowledge-sharing and accelerates organizational learning Harder to determine where one company ends and another begins due to close interdependencies among players Leads to potential loss of operational control among partners Results in loss of strategic control over emerging technology Requires new and difficult-to-acquire managerial skills