1. Organizational Structure and Controls

2. The Strategic Management Process Strategy Formulation
Strategic Intent
External
Environment
Internal Environment
Strategic Mission
The Strategic
Management
Process
Strategic
Outcomes
Actions
Strategic
Inputs
Strategy Formulation
Strategy Implementation
Business-level Strategy
Competitive Dynamics
Corporate-Level Strategy
International Strategy
Corporate Governance
Structure & Control
Strategic
Competitiveness
Above Average
Returns
Feedback 10

3. Structure and Controls Definitions
Organizational Structure
Organizational structure specifies the firm’s formal reporting relationships, procedures, controls, and authority and decision-making processes
It is critical to match organizational structure to the firm’s strategy
Organizational Controls
Guide the use of strategy
Indicate how to compare actual results with expected results
Suggest corrective actions to take when the difference between actual and expected results is unacceptable
When properly matched with the strategy for which they were intended, structure and controls can be a competitive advantage.
Strategic controls (largely subjective criteria) and financial controls (largely objective criteria) are the two types of organizational controls used to successfully implement the firm’s chosen strategy. Both types of controls are critical, although their degree of emphasis varies based on individual matches between strategy and structure.

4. 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:
Change strategy – change structure
Functional Structure
Multi-divisional Structure (M-form)
Simple Structure 5

5. Strategy & Structure Growth Patterns Multidivisional Structure
Sales Growth Coordination & Control Problems
Efficient implementation
of formulated strategy
Functional
Structure
Sales Growth Coordination & Control Problems
Key driver to this evolution is Sales growth which eventually result in coordination and control problems.
Efficient implementation
of formulated strategy
Simple
Structure 5

6. 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 6

7. Functional Structure First stage beyond a Simple Structure
Appropriate for single or dominant-business firms
Allows specialization of tasks
* Production
* Finance
* Engineering
* Accounting
* Sales & Marketing
* 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 17

8. Chief Executive Officer
Functional Structure
Chief Executive Officer
Production
Finance
Engineering
Accounting
Sales &
Marketing
Human
Resources
Corporate Finance
Corporate R&D
Corporate Marketing
Corporate Human
Resources
Strategic Planning
MATCHES BETWEEN BUSINESS-LEVEL STRATEGIES AND THE FUNCTIONAL STRUCTURE
Different forms of the functional organizational structure are used to support implementation of the cost leadership, differentiation, and integrated cost leadership/differentiation strategies. The differences in these forms are accounted for primarily by different uses of three important structural characteristics or dimensions—specialization (concerned with the type and number of jobs required to complete work), centralization (the degree to which decision-making authority is retained at higher managerial levels), and formalization (the degree to which formal rules and procedures govern work).
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NOTE: Rather than a functional structure organized around functions, the firm may organize around “products” 18

9. Functional Structure for Cost Leadership Strategy
Office of the President
Marketing
Engineering
Operations
Personnel
Accounting
Operations is main function
Process engineering is emphasized rather than new product R&D
Formalized procedures allow for low-cost culture
Structure is mechanical; job roles are highly structured
Relatively large centralized staff coordinates functions
Centralized
Staff 10

10. Functional Structure for Differentiation Strategy
President and
Limited Staff
Marketing
New Product R&D
Operations
Human
Resources
Finance
R&D
The functional structure is most appropriate for an integrated low-cost/differentiation strategy.
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 10

11. 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
The goal is to maximize overall firm performance
Changes in strategy
Degree of diversification
Geographic scope
Nature of competition
Structure will evolve over time with: 34

12. Multi-Divisional Structure
Variations of the
Multi-Divisional Structure
Multi-Divisional
Structure
(M-form)
Strategic Business Unit
(SBU) Structure
Cooperative
Form
Competitive
Form
Related-Constrained
Strategy
Related-Linked
Strategy
Unrelated /Holding
Company Strategy 21

13. Related-Constrained Strategy
Cooperative Form
Related-Constrained Strategy
President
Government
Affairs
Legal
Affairs
Corporate R&D Lab
Strategic
Planning
CorporateHuman
Resources
Corporate
Finance
CorporateMarketing
Product Division
Product Division
Product Division
Product Division
Product Division
Structural integration devices create tight links among all divisions
Large corporate office with R&D likely to be centralized
Culture emphasizes cooperative sharing 35

14. SBU Form Related-Linked Strategy President Strategic Business Unit A
Corporate Finance
Corporate R&D
Corporate Marketing
Strategic Planning
Corporate Human
Resources
Division
Division
Strategic Business Unit A
Strategic Business Unit B
Strategic Business Unit C
Strategic Business Unit D
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 43

15. Unrelated /Holding Company Strategy
Competitive Form
Unrelated /Holding Company Strategy
President
Legal
Affairs
Finance
Auditing
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 36

16. Multi-Divisional Structure
The choice between centralization and decentralization is frequently based on the business-level strategy implemented in each division
Cost Leadership
Decentralization
Differentiation
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
Define strategic and financial controls:
Strategic controls are also used to evaluate the degree to which the firm is focusing on what is required to implement its strategies.
·      For a business-level strategy, the interest is to study primary and support activities to verify that those that are critical to successful execution of the chosen strategy are being properly emphasized and executed.
·      With related corporate-level strategies, strategic controls are used to verify that intended levels of sharing of relevant strategic factors such as knowledge, markets, technologies and so forth are taking place. When evaluating related diversification strategies, executives must have a deep understanding of each unit’s business-level strategy. Extensive diversification often requires that financial controls be emphasized.
Note: The use of strategic controls—which are behavioral in nature—requires high levels of cognitive diversity among the firm’s top-level managers. Cognitive diversity is a term that captures differences among top-level executives regarding their beliefs about cause-and-effect relationships and outcome-related preferences.
Financial controls are largely objective criteria used to measure the firm’s performance against previously established quantitative standards, and these include accounting-based (e.g., return on investment; return on assets) and market-based (e.g., Economic Value Added) measures.
Both strategic and financial controls are important aspects of each organizational structure; thus, any structure’s effectiveness is determined by using a combination of strategic and financial controls.
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Multi-Divisional structure firms use a combination of:
Financial Controls
Strategic Controls 48

17. Attributes of Various Structural Forms
Structural Characteristics
Degree of
Centralization
Use of
Integrating
Mechanisms
Divisional
Performance
Appraisal
Incentive
Compensation
Type of
Strategy
Cooperative M-Form
SBU
M-Form
Competitive M-Form
Related-
Constrained
Related
Linked
Unrelated
Centralized at
Corporate Office
Centralized
in SBUs
Decentralized
to Division
Extensive
Synergies
Moderate
Nonexistent
The underlying premise of the balanced scorecard is that firms disadvantage their future performance possibilities when financial controls are emphasized at the expense of strategic controls, in that financial controls provide feedback about outcomes achieved from past actions, but do not communicate the drivers of the firm’s future performance. Thus, an overemphasis on financial controls could promote organizational behavior that has a net effect of sacrificing the firm’s long-term value creating potential for short-term performance gains
Financial
Criteria
Strategic &
Subjective/
Strategic
Linked to
Corporate
Performance
Corporation,
Division & SBU
Divisional 76

18. Corporate-Level International Strategies Need for Global Integration
When is each strategy appropriate?
Need for Global Integration
Need for Local Market Responsiveness
Low
High
Global
Strategy
Trans-
national
Multi-
Domestic
Type of Corporate Strategy selected will have an impact on the selection and implementation of the business-level strategies 53

19. Evolution of Multi-Divisional Structure
Chief Executive Officer
Corporate Office (Staff)
North America
Australia
Europe
Asia
Latin America
Africa
Product A
Product B
Product C
Product D
Product A 40

20. Chief Executive Officer Corporate Office (Staff)
Evolution of Multi-Divisional Structure Multi-Domestic International Strategy
Chief Executive Officer
Corporate Office (Staff)
North America
Latin America
Europe
Asia
Africa
Australia
Product A
Product B
Product C
Product D
Product A
A Structural evolution based on Geographic lines usually implies a Multi-Domestic International Strategy 41

21. Implementation of a Multidomestic Strategy
Worldwide
Geographic
Area
Structure
Multinational
Headquarters
Asia
United
States
Latin
America
Europe
Australia
Middle
East/
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 76

22. Evolution of Multi-Divisional Structure
Chief Executive Officer
Corporate Office (Staff)
Product A
Product B
Product C
Product D
A Structural evolution based on Product lines usually implies a Global International Strategy 39

23. Implementation of a Global Strategy
Worldwide
Product
Divisional
Structure
Multinational
Headquarters
Worldwide
Products
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 76

24. Evolution of Multi-Divisional Structure
A Transnational International Strategy is likely to utilize a structure that results in emphasis on both geographic and product structures 42

25. 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 82

26. A Strategic Network
Strategic
Center
Firm
Network Firms 88

27. Strategic Center Firm’s Critical Functions
Strategic Outsourcing
Capability Development
Strategic
Center
Firm
Technology Sharing
Note: The strategic center is charged directly with increasing sales, although, the outcome of the above practices should result in an increase in sales.
Building Linkages to Facilitate Learning 83

28. Building Linkages to Facilitate Learning
Strategic
Center
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
100

29. A Distributed Strategic Network
Main
Strategic
Center
Firm
Distributed Strategic Center Firms
International Cooperative Strategies often require more complex networks
Many large multinational firms form distributed strategic networks with multiple regional strategic centers to manage their array of cooperative arrangements with partner firms
Breaking large networks into multiple manageably-sized networks helps to manage the complexity of maintaining many relationships
107