1. Organizational Structure and Controls©
Chapter Twelve:
Organizational Structure and Controls
Chapter Three:
The External Environment
Chapter Three:
The External Environment
Hitt, Ireland, Hoskission, Rowe & Sheppard
Strategic
Management
N o t e s
Competitiveness & Globalization

2. The Strategic Management Process
Ch. 1: Strat. Mgmt. & Com-petitiveness
Ch. 2: Strat. Mgmt . & Performance
Chapter 3:
The External Environment
Chapter 4:
The Internal Environment
Strategic Competitiveness
Strategic Mission & Strategic Intent
Strategic Objectives & Inputs
Chapter 11:
Corporate Governance
Ch. 12: Org. Structure & Controls
Chapter 13:
Strategic Leadership
Chapter 14:
Org. Renewal & Innovation
Strategy Implementation
Strategic
Actions
Chapter 5:
Bus.-Level Strategy
Chapter 6:
Competitive Dynamics
Chapter 7:
Corp.-Level Strategy
Chapter 8:
Acquisition & Restructuring
Chapter 9:
International Strategy
Chapter 10:
Cooperative Strategy
Strategy Formulation
Ch. 12: Org. Structure & Controls

3. Organizational Structure & Controls
Knowledge objectives:
Discuss organizational structure & controls & the difference between the two.
Note the relationship between strategy & structure.
Discuss the functional structures used to implement business-level strategies.
See how 3 kinds of multidivisional (M-Form structure help implement different diversification strategies.
Discuss the organizational structures used to implement three international strategies.
Define strategic networks & strategic centre firms.

4. (With David Lee Roth as your guide)
B O N U S
Van Halen
(With David Lee Roth as your guide)
Audio source is a cover at:
Van Halen's contract contained a provision calling for them to be provided with a bowl of M&Ms with all the brown ones removed.
First Mover / Blue Ocean Strategy:
“Van Halen was the first band to take huge productions into tertiary, third-level markets.”
Implementation Problems:
“We'd pull up with nine 18-wheeler trucks, full of gear, where the standard was 3 trucks… there were many technical errors - whether it was the girders couldn't support the weight, or the flooring would sink in, or the doors weren’t big enough…”
Solution: Test to see if compliments spotted details:
“…if I saw a brown M&M… line-check the entire production. Guaranteed you're going to arrive at a technical error. They didn't read the contract. Guaranteed you'd run into a problem. Sometimes… literally, life-threatening.”

5. Organizational Structure
Organizational structure & the controls that are a part of it affect firm’s performance.
When strategy is not matched with appropriate structure & controls, performance declines.
Structure specifies formal reporting relationships, procedures & authority decision making process.
Influences how managers work & the decisions resulting from that work.
Specifies the work to be done & how to do it given the firm’s strategy or strategies.
Provides stability needed to successfully implement its strategies & maintain its competitive advantage.
Organization Structure

6. Organizational Structure
Structural Stability: Provides
the capacity the firm needs
to consistently & predictably
manage daily work routines.
Structural Flexibility: Provides the
opportunity to explore competitive
possibilities & allocate resources
These go into activities that shape
the competitive advantages of the
firm that it will need to be
successful in the future.
Organization Structure

7. Organizational Controls
Guide the use of strategy.
Indicate how to compare actual with expected results.
Suggest corrective action when the difference between actual & expected results are unacceptable.
Concerned with examining the fit between
what the firm might do and what it can do.
Evaluate the degree to which the firm focuses
on the requirements to implement its strategies.
Controls

8. Strategic Controls
The conditions in the external environment &
The company’s competitive advantages.
Subjective criteria to verify a firm is using appropriate strategies for:
Conditions in the external environment &
System to monitor product market / operational data with open communication among corp. & divisional managers.
A high level of interaction among divisions & evaluation by corp. managers with an in-depth knowledge of divisions.
Long-term view willing to accept risk, & share resources, capabilities, core competencies & info among divisions.
Employees evaluated on a basis of open, subjective appraisal of what was done to achieve results.
More spending on R&D, personnel & market research.
Controls

9. Financial Controls
Largely objective financial criteria used to measure the firm’s performance against previously established quantitative standards.
Least-cost behaviour approach with capital funds going to divisions that yield higher financial returns.
Competition among divisions & evaluation by corp. managers with superficial knowledge of operations.
A short-term focus on cash flow, revenue growth, ROI, market share & risk avoidance used for evaluation.
Relatively less spending on R&D, personnel training, equipment, market research.
Controls

10. 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:
Functional Structure;
Multi-divisional Structure (M-form).
Simple Structure;
Structural Types 5

11. Strategy & Structure Growth Patterns
Simple Structure
Efficient implementation of formulated strategy.
Sales Growth / Coordination & Control Problems
Functional Structure
Efficient implementation of formulated strategy.
Sales Growth / Coordination & Control Problems
Multidivisional Structure
Structural Types 5

12. 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.
Simple Structure 6

13. Functional Structure * Production * Finance * Engineering * Accounting
First stage beyond a Simple Structure.
Fine for single or dominant-business firms.
Allows specialization of tasks:
* Production
* Finance
* Engineering
* Accounting
* Sales & Marketing
* Human Resources
Functional department heads report to Chief Executive Officer who integrates decisions & actions from a company-wide point of view.
Overcomes information processing limits of single owner/manager.
Risks conflict between myopic functional managers.
Functional Structure 17

14. 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
Functional Structure 18

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

16. for a Differentiation Strategy
Functional Structure
for a Differentiation Strategy
President and
Limited Staff
Marketing
New Product R&D
Operations
Human
Resources
Finance
R&D
Marketing is the main function for tracking new product ideas.
Most functions are decentralized / New product R&D is emphasized.
Limited formalization to foster change & promote new ideas.
Overall structure is organic; job roles are less structured.
Functional Structure 10

17. Multi-Divisional Structure
Each div. operated as a separate business.
Appropriate for related-diversified businesses.
Key task of corporate managers is exploiting synergies among divisions.
Managers use a combination of strategic controls and financial controls.
Competing among divisions for scarce capital resources
Creating opportunities for cooperation for synergies.
Managers try to strike a balance between:
and
The goal is to maximize overall firm performance.
Multi-Div. Structure 27

18. Multi-Divisional Structure
The decision-making of managers in a Multi-Divisional structure may be:
Centralized or Decentralized
Bureaucratic or Non-bureaucratic
Balance of these dimensions changes over time.
Structure will evolve over time with:
Changes in strategy,
Degree of diversification,
Geographic scope,
Nature of competition.
Multi-Div. Structure 34

19. Multi-Divisional Structure
Corp. Head-quarters
Chief Executive Officer
Corporate Finance
Corporate R&D
Corporate Marketing
Strategic Planning
Corporate Human
Resources
Division
Production
Finance
Engineering
Accounting
Sales &
Marketing
Human
Resources
Multi-Div. Structure 18

20. Three Variations of the Multi-Divisional Structure
(M-form)
Strategic Business Unit
(SBU) Structure
Competitive
Form
Cooperative
Form
Related-Constrained
Strategy
Related-Linked Strategy
Unrelated /Holding Co. Strategy
Multi-Div. Organization 21

21. Multi-Divisional Cooperative Form
Related-Constrained Strategy
President
Corp. Headquarters
Legal
Affairs
Government
Strategic
Planning
Corporate R&D Lab
Corp. Human
Resources
Corporate Marketing
Corporate
Finance
Corporate R&D Lab
Product Division
Culture emphasizes cooperative sharing.
Large corporate office with R&D likely to be emphasized.
Structural integration devices create tight divisional links.
Multi-Div. Organization 35

22. Multi-Divisional SBU Form
Related-Linked Strategy
Corporate Headquarters
President
Strat. Business Unit A
Strat. Business Unit C
Strat. Business Unit B
Strat. Business Unit D
Corporate Finance
Corporate R&D
Corporate Marketing
Strategic Planning
Corp. Human
Resources
Division
Division
Structural integration among divisions within but not across SBUs.
Each SBU may have its own budget for staff to foster integration.
Corporate staff serve as consultants to SBUs & divisions.
Multi-Div. Organization 43

23. Multi-Divisional Competitive Form
Unrelated /Holding Company Strategy
President
Legal
Affairs
Finance
Auditing
Division
Corp. Headquarters
Finance
Auditing
Corporate headquarters (HQ) has a small staff.
Finance & auditing are the most prominent functions in the HQ.
Divisions are independent & separate for financial evaluation.
Divisions retain strategic control; cash is managed by corp. office.
Divisions compete for corporate resources.
Multi-Div. Organization 36

24. Multi-Divisional Attributes of Diversification Strategies
Structural Characteristics
Centralization
Of Operations
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
Financial
Criteria
Strategic &
Subjective/
Strategic
Linked to
Corporate
Performance
Corporation,
Division & SBU
Divisional
Multi-Div. Organization 76

25. Worldwide Geographic Area Structure
Products tailored to local tastes.
Isolated from global competition:
Multi-
national
H.Q.s
Europe
Latin
America
Asia
North
Japan
China
Multi-domestic Strategy
Establish protected market
positions in local industry.
Segments shaped by variations
among local countries.
Prod.s standardized x-countries.
Economies of scope & scale.
Global
Corporate
Worldwide
Products
Division
Global Strategy
Outsource some activities to world’s best providers.
Decision-making authority centralized global H.Q.s.
Worldwide Product Divisional Structure
Worldwide Geographic Area Structure
Worldwide Product Divisional Structure
Global
Corporate
H.Q.s
Worldwide
Products
Division
Global Strategy
Multi-
national
H.Q.s
Europe
Latin
America
Asia
North
Japan
China
Multi-domestic Strategy
Products tailored to local tastes.
Isolated from global competition:
Prod.s standardized x-countries.
Economies of scope & scale.
Establish protected market
positions in local industry.
Segments shaped by variations
among local countries.
Outsource some activities to world’s best providers.
Decision-making authority centralized global H.Q.s.
Multi-Div. Organization

26. Product & Functional Matrix
Each Unit reports to Functional AND Project Managers
Senior Management
2 Dimensions 1. 2.
Product Functional
Product & Functional
Units
Operations
Marketing
Finance
People
Manager
Product A
Product B
Product C
Operations
Unit
Marketing
Finance
People
Operations
Unit
Marketing
Finance
People
Operations
Unit
Marketing
Finance
People
Multi-Div. Organization

27. Strategic Networks
A Strategic Network is a grouping of organizations that has been formed to create value via participation in a set of cooperative arrangements (e.g. a strategic alliance).
A Strategic Centre firm often manages the network.
The Strategic Centre firm identifies actions to increase opportunities for each firm to achieve success via its participation in the network.
The Strategic Centre firm creates incentives that reduce the probability of any single firm taking advantage of its network partners.
Network Structures 82

28. A Strategic Network Centre firm is engaged in 4 primary tasks:
Strategic Outsourcing: Outsourcing & partnering with more firms than the other network firms.
Competencies: Seeks ways to support members efforts to develop core competencies that can benefit the network.
Technology: Responsible for managing development & sharing of tech. based ideas among network members.
Race to Learn: Guides participants in efforts to form network-specific competitive advantages.
Network Structures 90

29. A Distributed Strategic Network
Distributed Strategic Centre Firms
A Distributed Strategic Network
Main
Strategic
Centre
Firm
International Coop Strategies often require complex networks.
Large multinationals form distributed strategic networks with multiple regional centres to manage cooperative partners.
Breaking big networks into multiple manageably-sized ones helps manage complexity of so many relationships.
Network Structures
107

30. The Strategic Management Process
Ch. 1: Strat. Mgmt. & Com-petitiveness
Ch. 2: Strat. Mgmt . & Performance
Chapter 3:
The External Environment
Chapter 4:
The Internal Environment
Strategic Competitiveness
Strategic Mission & Strategic Intent
Strategic Objectives & Inputs
Chapter 11:
Corporate Governance
Ch. 12: Org. Structure & Controls
Chapter 13:
Strategic Leadership
Chapter 14:
Org. Renewal & Innovation
Strategy Implementation
Strategic
Actions
Chapter 5:
Bus.-Level Strategy
Chapter 6:
Competitive Dynamics
Chapter 7:
Corp.-Level Strategy
Chapter 8:
Acquisition & Restructuring
Chapter 9:
International Strategy
Chapter 10:
Cooperative Strategy
Strategy Formulation
Ch. 12: Org. Structure & Controls