1. Organizational Structure and Controls
Chapter 11
Organizational Structure
and Controls 1

2. 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 5

3. Strategy & Structure Growth Patterns Multidivisional Structure
Sales Growth Coordination
and Control Problems
Efficient implementation
of formulated strategy
Functional
Structure
Sales Growth Coordination
and Control Problems
Efficient implementation
of formulated strategy
Simple
Structure 5

4. 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

5. 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

6. 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 18

7. 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

8. Functional Structure for 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
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

9. Multi-Divisional Structure
Each division is 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
Managers try to strike a balance between:
Competing among divisions for scarce capital resources
Creating opportunities for cooperation to develop synergies
The goal is to maximize overall firm performance 27

10. 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
Changes in strategy
Degree of diversification
Geographic scope
Nature of competition
Structure will evolve over time with: 34

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

12. 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

13. 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

14. 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
Multi-Divisional structure firms use a combination of:
Financial Controls
Strategic Controls 48

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

16. 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

17. 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

18. 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

19. 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

20. A Strategic Network
Strategic
Center
Firm
Network Firms 88

21. Strategic Center Firm’s Critical Functions
Strategic Outsourcing
Capability Development
Technology Sharing
Building Linkages to Facilitate Learning 83

22. Strategic Outsourcing
Center
Firm
Center firm coordinates outsourcing among partners, initiates actions and coordinates problem solving 90

23. Strategic Center Firm’s Critical Functions
Strategic Outsourcing
Capability Development
Strategic
Center
Firm
Technology Sharing
Building Linkages to Facilitate Learning 83

24. Capability and Technology
Strategic
Center
Firm
Center firm attempts to develop each partner’s core competencies and provides incentives for network firms to share their capabilities and competencies with partners
Strategic center firm manages the development and sharing technology-based ideas among network partners 96

25. Strategic Center Firm’s Critical Functions
Strategic Outsourcing
Capability Development
Technology Sharing
Strategic
Center
Firm
Building Linkages to Facilitate Learning 83

26. 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