1. Organizational Design: Structure, Culture, and Control
Be sure to see experienced and newer versions of the Instructor’s Manual at 
Chapter 11
Organizational Design:
Structure, Culture, and Control

3. Chapter Outline
11.1 How to Organize for Competitive Advantage 11.2 Matching Strategy and Structure 11.3 Organizational Culture: Values, Norms, and Artifacts 11.4 Strategic Control-and-Reward Systems 11.5 Implications for the Strategist

4. Zappos: Designed to Deliver Happiness
ChapterCase 11
Zappos: Designed to Deliver Happiness
Exceptional Customer Service → Core Competency
All customer service is done in-house.
No scripts or timed calls in the call centers
Keep its own stocked products… no drop-shipment
Flat Organizational Structure = Flexibility
Job rotation = widely trained talent
Internal promotion opportunities
Reorganized into 10 business units to manage growth
An independent subsidiary of Amazon since 2009
Instructors:
This brief case is designed to illustrate an organization designed to be consistent in its support of the firm’s strategy.
To achieve the strategic objective, Zappos developed a set of values and integrated them into the company’s culture. This culture can provide behavior guidelines once the employees internalize the culture. How does Zappos deliver WOW to customers? Zappos has a 365-day nohassle return policy, free upgrades to express shipping, and courteous and helpful customer representatives, all of which help make customers very happy.
Photo courtesy of Zappos and the Delivering Happiness Team

5. Exhibit 11.1 Zappos’ 10 Core Values
Instructors:
Ask the students to review Zappos’ values in Exhibit 11.1.
How specifically do these values support the strategy? Do they think that these values would be helpful in attracting the type of employee that Zappos needs to gain and sustain a competitive advantage?

6. STRUCTURE CULTURE CONTROL 
STRUCTURE
Determines how the work efforts of individuals and teams are orchestrated and how resources are distributed
CULTURE
Collectively shared values and norms of an organization’s members; a key building block of organizational design
CONTROL
Internal governance mechanisms to align the incentives of principals (shareholders) and agents (employees)

7. 11.1 How to Organize for Competitive Advantage
Organizational design
Goal is to translate strategies into realized ones
Structure, processes, and procedures
Implementation… the “graveyard of strategy”
Yahoo’s founder Jerry Yang was fired.
poor implementation….. lost 75% of market value
Structure follows strategies. (Alfred Chandler)
Therefore structure must be flexible.
INSTRUCTOR: An interactive video exercise is available on this portion of the text online through McGraw-Hill’s Connect, which is available with this textbook. It covers Learning Objective 11.1 and 11.2.
The chapter notes that changing an organizational culture is daunting and provides examples from Yahoo.
What other firms have attempted to change their culture in recent years? What techniques did they use for the transition? Was it successful? (thoughts from the IM).
A great example comes from the early 1990s, when Chrysler had terrible customer service and press relations, with a history of innovation but at present had outdated products. Its market share was falling, and its fixed costs and losses were high. Bob Lutz, then the president, wanted Chrysler to become the technology and quality leader in cars and trucks, which was a clear, globally applicable vision. A program of cultural change called Customer One was built around it. The results were impressive: overhead was cut by $4.2 billion in less than four years, the stock price quadrupled, and the company reversed its slide into bankruptcy and became profitable. A completely new and competitive line of cars or trucks has appeared each year since. New engines produce more fuel economy and power as new cars provide more comfort, performance, and space. They did this with the same people, but working in different ways, with a changed culture.
The IM also notes both Dell and Starbucks are a counter-example to Yahoo. The founder’s of each firm have come BACKto improve operations after previously retiring.

8. Organizational Inertia and the Failure of Established Firms
Resistance to change
Often leads to failure from environmental dynamics:
Competition, technology, strategy…etc.
Reality−A firm’s strategy often follows its structure.
Zappos, however, showed needed flexibility.
Restructured into 10 distinct business units
Instructors:
Why is it important for an organization to have alignment between its strategy and organizational structure?
Usually structure follows strategy. This is because strategy is dynamic in nature, and so the structure needs to reflect this dynamism. Structure provides stability and flexibility, which are of utmost importance when a firm is trying to implement strategies. Structure provides stability for strategy implementation in terms of division of labor, communication channels, and resource allocation. Structure provides flexibility for implementation in terms of real-time problem solving, learning capability, and a better chance to adapt to external environmental forces successfully.

9. Exhibit Organizational Inertia and the Failure of Established Firms When External or Internal Environments Shift
INSTRUCTOR: An interactive video exercise is available on this portion of the text online through McGraw-Hill’s Connect, which is available with this textbook. It covers Learning Objective 11.1 and 11.2.

10. The Key Elements of Organizational Structure
Defines how jobs and tasks are divided and integrated
Delineates the reporting relationships up and down the hierarchy
Defines formal communication channels
Prescribes how individuals and teams coordinate their work efforts
The key building blocks of structure are: specialization, formalization, centralization, and hierarchy.
Instructors:
The four key elements of organizational structure are specialization, formalization, centralization, and hierarchy.
Instructors may use examples to facilitate student learning. In terms of specialization, the U.S. military can be used as an example here because it has the Air Force, Army, Navy, and Marines, and all of them have their own specialties. Instructors can use McDonald’s as the example for formalization because of the standardized operation process. British Petroleum can be used for centralization because of the Gulf Oil Leak crisis which indicated that the strategic decision making authority of top management leads to a slow response to environmental changes. Every government has a hierarchical structure and it can be used as the example here for hierarchy.

11. The Key Elements of Organizational Structure (cont’d)
Specialization: degree to which a task is divided
Division of labor
Example: an accountant…
Large firm may specialize (e.g., internal audit)
Small firm may have an accountant be more of a generalist and take on different roles
Formalization: codified rules and formal procedures
Detailed written rules and policies
Examples: McDonald’s – 3 key priorities from the CEO
Airline pilots have a high degree of formalization.
Helps ensure safety and reliability
INSTRUCTOR: An interactive video exercise is available on this portion of the text online through McGraw-Hill’s Connect, which is available with this textbook. It covers Learning Objective 11.2 and 11.3.

12. W. L. Gore & Associates: Informality and Innovation
Strategy Highlight 11.1
W. L. Gore & Associates: Informality and Innovation
1958 – Founder Bill Gore articulated four core values that still guide the company today.
W. L. Gore is an informal and decentralized organization.
Empowered employees (no job titles, no job descriptions, informal team organization, soft reporting lines)
Face-to-face communication
All associates are shareholders of the company.
Gore: one of the largest privately held firms
10,000 employees and over $2.5 billion in revenues
Instructors:
Below are some class discussion ideas from the IM.
What are the key structural elements that you can observe in this case?
There is a low degree of formalization and decentralization in W. L. Gore and the organizational structure seems to be flat. It is because the company empowers the employee to make real-time decisions to fix the problem and to quickly satisfy customers that the company encourages face-to-face communication to keep channels open and smooth. Further, all the employees are the shareholders of the company, so it promotes a tighter structure and employees will do their best for the company due to the fact that everyone is the “boss.”
Go to the firm’s website ( and review the company’s product scope. What commonalities across the products would likely be enhanced by flexible cross-functional teams?
The results of R&D can be considered cross-functional. R&D departments want to collaborate with marketing departments for a better understanding of how to design better products to satisfy customers. It also can be done with the manufacturing department to gain knowledge about how to improve product quality and features.

13. The Key Elements of Organizational Structure (cont’d)
Centralization: where the decision is made
Centralized decision making
Slow response time and reduced customer satisfaction
Example: BP’s Gulf Oil spill
Centralization – top-down strategic planning (see Ch. 2)
Decentralization – planned emergence (see Ch. 2)
Hierarchy: formal, position-based reporting lines
Tall structure vs. flat structure
Tall structure-higher degree of centralization
Flat structure-lower degree of centralization
Span of control − number of direct reports to a manager
INSTRUCTOR: An interactive video exercise is available on this portion of the text online through McGraw-Hill’s Connect, which is available with this textbook. It covers Learning Objective 11.2 and 11.3.

14. Assembling the Pieces: Mechanistic vs. Organic Organizations
Low degree of specialization and formalization
Flat structure
Decentralized decision making
Uses virtual teams due to information technology
Examples: Zappos and W. L. Gore
Mechanistic organizations
High degree of specialization and formalization
Tall hierarchy
Centralized decision making
Example: McDonald’s−Hamburger U in Chicago & China
Instructors:
Zappos and W. L. Gore are given as examples of organic organizations. McDonald’s and Walmart are given as examples for a mechanistic organization.
Within one industry Google is an organic organization, while Microsoft is more mechanistic.
Pixar is a more organic structure than the theme park organization is, both within Disney. Ask students to identify other firms they know of that are mechanistic or organic and connect the choice of structure to the firm’s need for greater reliability or greater innovation.

15. Exhibit 11. 3 Mechanistic vs
Exhibit Mechanistic vs. Organic Organizations: The Building Blocks of Organizational Structure
Instructors:
Discussion Idea from the IM.
Ask students to pair up and compare the two firms that they work for (or the university if they are not employed) on each of the criteria listed in Exhibit Then ask each team to share with the class one point in the format of “Jane’s firm is more mechanistic than Joseph’s firm in a number of ways, but particularly because it has twice as many layers of hierarchy.”.

16. 11.2 Matching Strategy and Structure
Simple Structure
Functional Structure
Multidivisional Structure
Matrix Structure
INSTRUCTOR: An brief case analysis exercise is available on this portion of the text online through McGraw-Hill’s Connect, which is available with this textbook. It covers Learning Objective 11.5.
From the IM---
Understanding that structure follows strategy is crucial for students to have a better understanding of the AFI framework.
First, effective structure provides stability and flexibility. The stability is needed when a firm is actually implementing the strategy because it implies the capacity required to consistently and predictably manage daily work routines when actualizing strategy. The flexibility provides for the opportunity to explore competitive possibilities and the allocation of resources to activities that shape needed competitive advantages. Those two characteristics are critical for implementing strategy. Further, structure follows strategy also implies that organizational structure can be dynamic because strategy is dynamic in nature. Firms need to find an appropriate structure for the time being when initiating strategic change. In sum, strategy and structure have a reciprocal relationship.

17. Simple Structure Small firms with low complexity
Founders make all important strategic decisions
Low degree of formalization and specialization
A basic organizational structure
Examples: Facebook in 2004 and small professional service firms
INSTRUCTOR: An interactive exercise is available on this portion of the text online through McGraw-Hill’s Connect, which is available with this textbook. It covers Learning Objective 11.5.

18. Exhibit 11.4 Changing Organizational Structures and Increasing Complexity as Firms Grow

19. Functional Structure
Groups of employees with distinct functional areas
The areas of expertise correspond to distinct stages in the company’s value chain activities.
Examples: College of Business Administration, strong CEO organizations
Recommended with limited diversification
Matches well with business-level strategy
Cost leadership Mechanistic organization
Differentiation Organic organization
Integration strategy Ambidextrous organization

20. Exhibit 11.5 Typical Functional Structure

21. Exhibit 11.6 Matching Business-Level Strategy and Structure
INSTRUCTOR: An brief case analysis exercise is available on this portion of the text online through McGraw-Hill’s Connect, which is available with this textbook. It covers Learning Objective 11.5.

22. USA Today: Leveraging Ambidextrous Organizational Design
Strategy Highlight 11.2
USA Today: Leveraging Ambidextrous Organizational Design
USA Today: one of the biggest print circulations in U.S.
Used an ambidextrous organizational design to successfully reintegrate its independent online unit
USA Today.com created as an in-house startup
Has large cultural differences and is separated from the print biz
Starved for corporate resources despite initial success
USA Today and USA Today.com then integrated,
Leveraging synergies and changing senior team incentives.
General managers key to finding synergies.
Instructors:
The USA Today integration of USA Today.com was an attempt to build an ambidextrous organization by balancing exploitation and exploration. Exploitation is the enhancement of the company’s current operations or routines. In this case, it is USA Today’s printed circulations, and exploration, which is finding newness in terms of market opportunities as well as new services/products—in this case, it is USA Today.com. By integrating them together, it promotes cross-functional collaboration and coordination with the hope of creating synergies.
What forced the firm to integrate USA Today and USA Today.com?
Due to the uneven resource allocation for USA Today.com, it lost some key editorial talent. This forced the integration of USA Today and USA Today.com to reconcile the resource allocation. This approach encourages cross- functional collaboration, thus helping the organization be “ambidextrous.”

23. FUNCTIONAL STRUCTURE: DRAWBACKS
Facilitates rich and extensive communication between members of the same department
It frequently lacks effective communication channels across departments.
A firm can set up cross-functional teams to improve this problem.
With growth, cannot effectively address a higher level of diversification

24. Multidivisional Structure
Consists of several distinct SBUs
Each SBU is independent and led by a CEO.
Each CEO of SBU reports to the corporate office.
Examples:
Zappos is an SBU under Amazon.
W. L. Gore has four product divisions.
Companies using M-form structure
GE, Honda
M-form is a widely adopted organizational structure, as most large firms are diversified to some extent.
Instructors:
From the IM.
The multidivisional structure centers on the use of separate businesses or profit centers. The M-form is used by many organizations that compete in the global economy. General Electric is an example of a company that uses this structure. Each unit is operated as a separate business with its own corporate staff, including its President. Some parent companies do little more than provide capital and guide units to an organization-wide strategy. The overall goal is to maximize the organization’s performance. In order to accomplish this, managers at the parent company use a combination of strategic and financial controls to ensure the function across divisions.

25. Exhibit 11.7 Typical Multidivisional (M-Form) Structure
(Note that SBU 2 uses a functional structure and SBU 4 uses a matrix structure.)

26. Multidivisional Structure (cont’d)
Use with various corporate strategies
Related diversification
Co-opetition among SBUs
Transfer core competences across SBUs
Centralized decision making
Unrelated diversification
Decentralized decision making
Competing for resources

27. Exhibit 11.8 Matching Corporate-Level Strategy and Structure
INSTRUCTOR: An brief case analysis exercise is available on this portion of the text online through McGraw-Hill’s Connect, which is available with this textbook. It covers Learning Objective 11.5.

28. Matrix Structure A combination of functional and M-form structure
Creation of dual line of authority and reporting lines
Each SBU receives support both horizontally and vertically
Very versatile
Enhanced learning from different SBUs
Shortcomings
Difficult to implement
Complexity increases when expanding, especially globally
Unclear reporting structure causes confusion and delays
Instructors:
The matrix structure can be pretty controversial. We ask in the class what type of organizational structures our students are familiar with. Some of them have worked in matrix organizations. The feeling of having “two bosses” is a common problem with this structure. Ask them how the tension between their responsibilities affects their effectiveness and motivation at work.

29. Exhibit 11.9 Typical Matrix Structure with Geographic and SBU Divisions
Instructors:
The IM has several good examples and linked videos that can be discussed in class here. Below is one example.
Exhibit 11.9 in particular can be useful to make the connection for the students between the content of this chapter and that of Chapter 10. You can use whichever case examples you used while discussing global strategy and ask the students to explain which organization structure would be the best fit for that firm.
Post-bankruptcy, GM has been trying to change its culture to become more organic and to break down silos between organizational units. “GM Chief Labors to Get Rebuilt Car Maker into Gear” from The Wall Street Journal (6/12/12) identifies some of the challenges in trying to push cultural change down from the top in a very large firm.
Article link HERE: ?KEYWORDS=GM+chief+labors+to+get+rebuilt

30. Growing with computerized collaboration tools
NETWORK STRUCTURE
Growing with computerized collaboration tools
Benefits from communities of practice
Learning and knowledge management
Need corporate support in terms of procedures and policies

31. Exhibit 11.10 Matching Global Strategy and Structure
Instructors:
If you started students paired discussions for Exhibit 11.3 then you can continue these pairings with a somewhat different set of questions. (see notes on that exhibit 11.3 page).
Ask students to pair up and compare the two firms that they work for (or the university if they are not employed) on how well the firm’s structure matches its strategy, using Exhibits 11.6, 11.8, and Then, ask each team to share with the class one point in the format of “Chris’ firm’s structure is better matched to its structure than Deepak’s firm in a number of ways, but particularly because of Deepak’s firm’s highly centralized decision-making, despite its differentiation strategy.”

32. STRUCTURE CULTURE CONTROL 
STRUCTURE
Determines how the work efforts of individuals and teams are orchestrated and how resources are distributed
CULTURE
Collectively shared values and norms of an organization’s members; a key building block of organizational design
CONTROL
Internal governance mechanisms to align the incentives of principals (shareholders) and agents (employees)

33. 11.3 Organizational Culture: Values, Norms, and Artifacts
Collectively shared values and norms
Value: what is considered important
Norms: appropriate employee behaviors and attitudes
Artifacts: expression of culture in items such as physical design, stories, and celebrations
Socialization
Internalize organization’s value and norms through interactions
Think of Zappos’ core values
INSTRUCTOR: An interactive video exercise is available on this portion of the text online through McGraw-Hill’s Connect, which is available with this textbook. It covers Learning Objective 11.6.

34. Exhibit 11.11 The Elements of Organizational Culture: Values, Norms, and Artifacts

35. Where Do Organizational Cultures Come From?
Founder imprinting
Founders defined and shaped the culture
Apple (Steve Jobs)
Microsoft (Bill Gates)
Harpo Productions (Oprah Winfrey)
Walmart’s “low cost” culture by Sam Walton
Recruit people that fit the culture
Zappos pays new hires if they want to…. quit!
Instructors: (suggestion from the IM)
If used as a classroom exercise, a good approach might be to use the culture of the student body in your business school.
Ask students to use Exhibit to step through how they learned the student culture at their school. Orientation programs might be a good example of the socialization process to embed the culture for new students. Students may also talk about the Greek system, student organizations, Honor Codes, and other methods for socializing new entrants to the organization’s artifacts, norms, and values. In terms of competitive advantage, ask students to what extent the student culture at the university influenced their decision to attend your school.

36. How Does Organizational Culture Change?
Culture can be a strong asset, yet also a great liability
Core competency core rigidity
Culture no longer has good fit with the environment
Cultural change is needed
Cultural change
Brings new leadership
Mergers and acquisitions
Instructors:
Students will likely have many examples of coaches as leaders. Some interesting contrasts between well-known coaches might be
Bobby Knight and Mike Krzyzewski (Coach K) who trained under Bobby Knight. An example of methods by which leaders communicate high ethical standards might be the "Coach K Teaching Character Through Sports" award. In addition to the focus on the leaders role in sports ethics, you might also move the discussion into the player’s role in creating and maintaining an ethical culture. Here you could discuss how player’s unions have worked to either cover up ethical lapses or un-sportsman-like actions or to self police their profession.

37. Organizational Culture and Competitive Advantage
Culture must be valuable, rare, inimitable, and non- substitutable (VRIO see Ch. 4)
Protected by causal ambiguity and social complexity
Culture affects behavior and firm performance:
Southwest Airlines (SWA)
SWA’s unique culture helps it keep costs low by turning around its planes faster, thus keeping them flying longer hours
Zappos
Zappos’ “WOW” customer experience is accomplished by “going the extra mile.” Long-term superior experience does increase the company’s perceived value and its economic value creation.
Instructors:
GM’s strong culture combined with its bureaucratic structure made it a liability to the company and caused it to fail recently. Enron’s culture and control was performance-driven and output-oriented. This lead to one of the biggest financial scandals in U.S. history. Fannie Mae suffered from its subprime mortgage approvals, which helped cause the financial market crash.

38. STRATEGIC CONTROL & REWARD SYSTEMS 
STRUCTURE
Determines how the work efforts of individuals and teams are orchestrated and how resources are distributed
CULTURE
Collectively shared values and norms of an organization’s members; a key building block of organizational design
STRATEGIC CONTROL & REWARD SYSTEMS
Internal governance mechanisms to align the incentives of principals (shareholders) and agents (employees)

39. 11.4 Strategic Control and Reward Systems
Internal governance mechanisms
Culture
Sanctions
Input controls
Budgets
Rules and standard operating procedures
Output controls
Result-oriented
ROWEs −3M; 15% work on own projects
Not directed from the top
Instructors:
Best Buy used to struggle to defend itself against the industry threat of “showrooming” behavior by consumers. It has now embraced “showrooming” as a strategic emphasis (see “Fear of showrooming fades,” The Wall Street Journal, 11/4/31). Link HERE: ?mod=WSJ_hps_LEFTTopStories
What changes to control-and-reward systems might be driven by this change in strategy? Output rewards may need to shift to recognize Internet sales on bestbuy.com as well as (or perhaps more strongly than) in-store sales. Sales representatives should perhaps be rewarded for completing product training.

40. 11.5 Implications for the Strategist
Formulating effective strategies
Necessary but not sufficient condition
To gain and sustain competitive advantage
Strategy execution is at least as important for success.
SWOT helps operationalize strategy implementation.
Strategy implementation requires managers to design and shape structure, culture, and control mechanisms.
Strategy formulation and implementation
Iterative and interdependent activities
From the IM:
Assume your group is brought in to a business unit, and your analysis shows a significant excess headcount in the accounting and purchasing departments. Your team is now responsible for developing a plan to lay off 25% of the employees in those departments. You have six months to identify who to lay off and to reduce the headcount. (If you have no personal experience with work- force reductions, use an Internet search engine and look up “successful layoffs” for some guidance.) How can you downsize the departments without hurting the morale of the remaining
workers?
Make sure there is strong leadership and frequent communication with (and education of) the employees so the concept and message will be delivered clearly. One tendency is for senior leadership to hide or “circle the wagons” during times of layoffs. This sends a very poor signal to those remaining workers. As tough as it is, managers must be especially visible and walking the halls to look their employees in the eye and be honest with them on their future and the future of the organization. Even if that future is uncertain…
What steps do you take to treat with dignity those employees forced to leave?
Well-designed benefit packages, courteous communication from top management, and using a face-to-face approach. You can ask students whether they have seen the movie Up in the Air. The movie describes a guy, Ryan, whose job is to “fire/lay off people on a company’s top executives’ behalf.” As one knows, firing people is usually a tough job for any manager. It needs to be handled personally by a manager and not handed off to some outsider.

41. Exhibit 11.12 Strategy Implementation: Turning a SWOT Analysis into Action

42. ChapterCase 11
Consider This…
What would you do if a programming error cost your firm $1.6 million?
Zappos put their money where their “WOW” is.
Zappos accidentally capped the price at $49.95 for all products sold on its subsidiary site at midnight, and the mistake was not discovered until 6 a.m.
Consistent with their “WOW” philosophy, Zappos honored all sales during this time period.
Instructors:
The IM has some discussion on the questions raised in the “consider this…” section of the text. Below are some highlights.
Which strategic control-and-reward system discussed in the chapter would be most appropriate for Zappos?
Output control seems to be the appropriate control mechanism for Zappos in this case. Customer satisfaction can be maximized, especially for a service-oriented company, by offering fast delivery, no-hassle returns, friendly and reasonable customer service, and product packaging.
Do you think Zappos’ decision to honor every sale, despite its explicit business terms and conditions that would allow it not to do so, was a sound one? Why or why not?
Apparently Zappos was able to transform this minor crisis (mislabeling the price tag) into a huge opportunity to maximize customer satisfaction and secure returning customers. Simply ask the students what they think about the way Zappos handled the situation. Do they like it or not? Most of them will like it. Why, because they
will answer the question from the customers’ perspective. That said, posting a $1.6 million dollar sales loss from six hours (from midnight to 6 a.m.!) of sales is a major financial hit for any firm. What if the mistake had not been discovered for a full 24 hours? The mistake could have been MUCH bigger and harder to resolve in this manner.
Photo courtesy of Zappos and the Delivering Happiness Team

43. Define organizational design and list its three components.
Take-Away Concepts
Organizational Design
Organizational design is the process of creating, implementing, monitoring, and modifying the structure, processes, and procedures of an organization.
Key Components
The key components of organizational design are structure, culture, and control.
Goal
The goal is to design an organization that allows managers to effectively translate their chosen strategy into a realized one.
LO 11-1
Define organizational design and list its three components.

44. Take-Away Concepts Organizational Inertia Firm Failure
Organizational inertia can lead to firm failure when a tightly coupled strategy/structure system experiences internal or external shifts.
Firm Failure
Firm failure happens through a dynamic, four-step process (see Exhibit 11.2).
LO 11-2
Explain how organizational inertia can lead established firms to failure.

45. Define organizational structure and describe its four elements.
Take-Away Concepts
Organizational Structure
An organizational structure determines how firms orchestrate employees’ work efforts and distribute resources.
It defines how firms divide and integrate tasks, delineates the reporting relationships up and down the hierarchy, defines formal communication channels, and prescribes how employees coordinate work efforts.
Four Building Blocks
The four building blocks of an organizational structure are specialization, formalization, centralization, and hierarchy (see Exhibit 11.3).
LO 11-3
Define organizational structure and describe its four elements.

46. Compare and contrast mechanistic versus organic organizations.
Take-Away Concepts
Organic Organizations
Organic organizations are characterized by a low degree of specialization and formalization, a flat organizational structure, and decentralized decision making.
Mechanistic Organizations
Mechanistic organizations are described by a high degree of specialization and formalization, and a tall hierarchy that relies on centralized decision making.
Comparative Effectiveness
The comparative effectiveness of mechanistic versus organic organizational forms depends on the context.
LO 11-4
Compare and contrast mechanistic versus organic organizations.

47. Take-Away Concepts LO 11-5
To gain and sustain competitive advantage, not only must structure follow strategy, but also the chosen organizational form must match the firm’s business strategy.
The strategy−structure relationship is dynamic, changing in a predictable pattern—from simple to functional structure, then to multidivisional (M-form) and matrix structure—as firms grow in size and complexity.
In a simple structure, the founder tends to make all the important strategic decisions, as well as run the day-to-day operations.
A functional structure groups employees into distinct functional areas based on domain expertise. Its different variations are matched with different business strategies: cost-leadership, differentiation, and integration (see Exhibit 11.6).
LO 11-5
Describe different organizational structures and match them with appropriate strategies.

48. Take-Away Concepts LO 11-5 (Cont’d)
Describe different organizational structures and match them with appropriate strategies.
The multidivisional (M-form) structure consists of several distinct SBUs, each with its own profit-and-loss responsibility. Each SBU operates more or less independently from one another, led by a CEO responsible for the business strategy of the unit and its day-to-day operations (see Exhibit 11.7).
The matrix structure is a mixture of two organizational forms: the M-form and the functional structure (see Exhibit 11.9).
Exhibits 11.8 and show how best to match different corporate and global strategies with respective organizational structures.

49. Take-Away Concepts LO 11-6
Describe the elements of organizational culture, and explain where organizational cultures can come from and how they can be changed.
Organizational culture describes the collectively shared values and norms of its members.
Values define what is considered important, and norms define appropriate employee attitudes and behaviors.
Corporate culture finds its expression in artifacts, which are observable expressions of an organization’s culture.

50. Compare and contrast different strategic control-and-reward systems.
Take-Away Concepts
Strategic control-and-reward systems are internal governance mechanisms put in place to align the incentives of principals (shareholders) and agents (employees).
Strategic control-and-reward systems allow managers to specify goals, measure progress, and provide performance feedback.
In addition to the balanced-scorecard framework, managers can use organizational culture, input controls, and output controls as part of the firm’s strategic control-and-reward systems.
Input controls define and direct employee behavior through explicit and codified rules and standard operating procedures.
Output controls guide employee behavior by defining expected results, but leave the means to those results open to individual employees, groups, or SBUs.
LO 11-7
Compare and contrast different strategic control-and-reward systems.