1. Chapter 11 – Organizational Structure & Controls

2. Agenda Introduction to Organizational Structure Simple Structure
Functional Structure
Multidivisional Structure
International

3. Organizational Structure
Organizational structure specifies:
The firm’s formal reporting relationships, procedures, controls, authority, and decision-making processes
The work to be done and how to do it, given the firm’s strategy or strategies
It is critical to match organizational structure to the firm’s strategy!

4. Organizational Controls
guide strategy,
compare actual with expected results, and
suggest corrective actions if necessary.
Strategic controls
Subjective assessment of the fit between what the firm might do (opportunities) and what it can do (competitive advantage)
Financial controls
Objective assessment of firm performance

5. Burgelman’s “Rubber Band Model”
What it Takes
to Win
Basis of Competitive Advantage in the Industry
Official Corporate Strategy
What We SAY
What We DO
Strategic Action
Internal Selection
Environment
CULTURE
The Rubber Band Model “focuses on the big picture. It helps examine strategy-making at the industry-company interface level of analysis, and the co-evolution of industry-level and company-level forces” (Strategy is Destiny pg. 8)
This tool helps you broadly look at whether your organization in in “strategic balance”
Does “What it takes to win” balance with “What We’ve Got”?
Does “What we say” match with the reality of “what we do”?
“During periods of strategic alignment, thre rubber bands are evenly stretched because the dynamic forces are in harmony. Over time, however, the dynamic forces tend to diverge. The rubber bands get stretched unevenly and harmony turns into disharmony.” (Strategy is Destiny pg. 364)
Top management can create an internal selection environment – a culture – that will help prevent the rubber bands from snapping. Such an internal environment has the following four attributes:
1-Resource Allocation (regulate the company’s resources to strategic action)
2- Internal debate (must value dissent and controversy surrounding tough issues and strategic arguments)
3- Strategic recognition (the capacity of management to appreciate the strategic importance of new developments before unequivocal environment feedback about their strategic importance is available)
4- Strategic leadership (surmise how the new equilibrium of forces in the industry will look and what the new winning strategy will be)
(Strategy is Destiny pg.366)
Distinctive Competence
of the Firm
Source: Burgelman, Robert A., Strategy is Destiny: How Strategy Making Shapes a Company’s Future, The Free Press, 2002.
What We’ve Got

6. Relationships between Strategy and Structure
Strategy and structure have a reciprocal relationship:
Structure follows the selection of the firm’s strategy, but…
…once in place, structure can influence current strategic actions as well as choices about future strategies

7. Evolutionary Patterns of Strategy and Structure
Firms grow in predictable patterns:
First by volume
Then by geography
Then integration (vertical, horizontal)
And finally through product/business diversification
A firm’s growth patterns determine its structural form

8. Evolutionary Patterns of Strategy and Structure – cont’d
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:
Simple structure
Functional structure
Multidivisional structure (M-form)

9. Agenda Introduction to Organizational Structure Simple Structure
Functional Structure
Multidivisional Structure
International

10. Simple Structure Owner-manager Makes all major decisions directly
Monitors all activities
Staff
Serves as an extension of the manager’s supervisor authority
Matched with focus strategies and business-level strategies
Commonly compete by offering a single product line in a single geographic market

11. Simple Structure: Growth Problems
Growth creates:
Complexity
Managerial and structural challenges
Owner-managers
Commonly lack organizational skills and experience
Become ineffective in managing the specialized and complex tasks involved with multiple organizational functions

12. Agenda Introduction to Organizational Structure Simple Structure
Functional Structure
Multidivisional Structure
International

13. Functional Structure Chief Executive Officer (CEO)
Limited corporate staff
Functional line managers in dominant organizational areas of:
Manufacturing  Marketing  Engineering
Accounting  R&D  Human resources
Supports use of business-level strategies and some corporate-level strategies
Single or dominant business with low levels of diversification

14. Functional Structure for Cost Leadership Strategy
Notes: • Operations is the main function • Process engineering is emphasized rather than new product R&D • Relatively large centralized staff coordinates functions • Formalized procedures allow for emergence of a low-cost culture • Overall structure is mechanical; job roles are highly structured

15. Functional Structure: Assessment
Differences in orientation among organizational functions can:
Facilitate career paths and professional development in specialized functional areas
Impede communication and coordination
Cause functional-area managers to focus on local versus overall company strategic issues
Increase the need for CEO to integrate decisions and actions of business functions

16. Agenda Introduction to Organizational Structure Simple Structure
Functional Structure
Multidivisional Structure
International

17. Variations of Multidivisional Structure
Synergies
Competition between units

18. Multidivisional Structure: Benefits
Three Major Benefits:
Corporate officers are able to more accurately monitor the performance of each business, which simplifies the problem of control
Facilitates comparisons between divisions, which improves the resource allocation process
Stimulates managers of poorly performing divisions to look for ways of improving performance

19. Cooperative Form of Multidivisional Structure
Related-constrained
strategy!

20. SBU Form of Multidivisional Structure
Related-linked
strategy!

21. Competitive Form of Multidivisional Structure
Unrelated
strategy!

22. International Strategy (IS) &Worldwide (WW) Structure (Cont’d)
Three (3) Primary International Strategies:
1. WW geographic area structure to implement the multidomestic strategy
Multidomestic Strategy: international strategy in which strategic and operating decisions are decentralized to the strategic business-unit (SBU) in each country to allow the units to tailor products to local markets
Worldwide (WW) Geographic Area Structure: organizational structure emphasizing national interests and facilitates efforts to satisfy local or cultural differences (used to implement the multidomestic strategy)

23. Worldwide Geographic Area Structure for Implementing a Multidomestic Strategy

24. International Strategy (IS) &Worldwide (WW) Structure (Cont’d)
Three (3) Primary International Strategies:
2. WW product divisional structure to implement global strategy
Global Strategy: International strategy whereby firm offers standardized products across country markets, with the competitive strategy being dictated by the home office
Worldwide Product Divisional Structure: Organizational structure with centralized decision-making authority in the WW division headquarters to coordinate and integrate decisions and actions among divisional business units (used to implement the global strategy)

25. Worldwide Product Divisional Structure for Implementing a Global Strategy

26. International Strategy (IS) &Worldwide (WW) Structure (Cont’d)
Three (3) Primary International Strategies:
3. Combination structure to implement transnational strategy
Transnational Strategy: International strategy through which the firm seeks to achieve both global efficiency and local responsiveness; usually implemented through global matrix structure and hybrid global design
Combination Structure: Organizational structure in which characteristics and mechanisms are drawn from both the worldwide geographic area structure and the worldwide product divisional structure (used to implement transnational strategy)

27. Hybrid Form of the Combination Structure for Implementing a Transnational Strategy