2. Organizational Design: Structure, Culture, and Control
B189
Simon Rodan

3. Organizational structure
Simple (unstructured)
Everyone “mucks in”, few clear role divisions
U-form (functional based organization)
Departments organized around jobs (sales, marketing, manufacturing, accounting, R&D…)
M-form
Separate divisions, often profit centers
Related diversification
Conglomerate
Small home office
Divisions are quasi-independent firms

4. Simple unstructured

5. Production Operations
U-Form
Functional based organization
Departments organized around jobs (sales, marketing, manufacturing, accounting, R&D…)
CEO
Finance
Purchasing
R&D
Sales & Marketing
Production Operations
Customer support
Accounting HR

6. M-Form Separate Business units, Often “profit centers” CEO BU 2 BU 1
Finance
Purchasing
R&D
Sales & Marketing
Production Operations
Customer support
Accounting HR
BU 2
Finance
Purchasing
R&D
Sales & Marketing
Production Operations
Customer support
Accounting HR

7. M-Form (large) Separate divisions
Each division has many business units
Related diversification
Corporate
Division A
BU 1
BU 3
BU 2
BU 4
Division B
BU 5
BU 7
BU 6
BU 8

8. Matrix organization
Units may report directly within a geography (region, country)
But ‘dotted-line’ to a ‘global’ manager
Corporate
Country A
Sales 1
R&D
Sales 2
Mfact
Prod dev
Industry Marketing
Country B
Sales 5
Sales 7
Sales 6
Sales 8

9. “Structure Follows Strategy”
Mechanistic structure:
Rules, procedures, systems, hierarchy, division of labor and responsibility
Centralized control and decision making
Tight control, knowledge embedded in process and systems
Efficient
Inflexible
“Fit” but vulnerable to change

10. “Structure Follows Strategy”
Organic structures
Flexibility and adaptability
Devolved decision making
Flatter hierarchy
Culture and values in place of rules and procedures
Requires
Allows and encourages experimentation
Education, training and socialization
Is not fool-proof
Is more costly (less efficient)

11. “Strategy Follows Structure”
Structure of Industries
Influences firm conduct
Structure of firm
Influences decision making and thus conduct

12. Controls and Incentives
Process (input) controls
Budgets
Policies, procedures, systems
Outcome controls
Piece-work
Sales commission
Stock options
Intrinsic vs. extrinsic motivation
Rigidity vs. flexibility
Money vs. recognition

13. Exploration / Exploitation
Exploitation (and incremental innovation) is efficient
Exploration (radical innovation) is costly
“Exploiters” will driver out “Explorers” in a stable environment
Balancing exploration with exploitation matters – “ambidexterity”

14. Culture Provides an aid to decision making and action
“The HP way”, “the IBM way”
Logic of appropriateness
Sustained through socialization
Training, myths and stories
Founder imprinting
Institutionalization – something valued for itself, not what it accomplishes
Hard to change