1. Designing Organizations for Competitive Advantage By Robert Pitts & David Lei Slides prepared by John P. Orr Cameron University Chapter 10 Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 10-1

2. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 10-2 What you will learn… Slide 1 of 2 Why strategy implementation is important. How strategy implementation contributes to a firm’s competitive advantage. Why organizational issues are a significant part of strategy implementation.

3. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 10-3 What You Will Learn Slide 2 of 2 The broad types of organizational structures that companies are likely to use. Why no single type of organizational structure is likely to fit all companies.

4. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 10-4 Ford Motor Company: Post-World War II Structure Ford North America Ford Europe Corporate

5. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 10-5 Ford 2000 Revised Structure Automotive Division Automotive Division Small Cars Small Cars Midsized Cars Midsized Cars Luxury Cars Luxury Cars Development Centers SUVs Trucks

6. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 10-6 Ex. 10-1: Key Dimensions of Organizational Structure Slide 1 of 2 Specialization –Matching activities with people who are best able to perform them. –Found at all levels within an organization.

7. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 10-7 Ex. 10-1: Key Dimensions of Organizational Structure Slide 2 of 2 Standardization –Practices, procedures, and guidelines that provide the basis for consistent performance. –Focused on achieving internal order with a given structure. Centralization –Delegation of authority throughout the organization’s ranks.

8. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 10-8 Ex. 10-2: Diagram of a Typical Functional Structure Service Corporate Marketing Sales Research and Development Research and Development Production/ Operations Production/ Operations Each function is responsible for its own set of tasks and activities. Each function has its own set of goals and objectives that require coordination with other functions.

9. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 10-9 Ex. 10-3: Key Characteristics of a Functional Structure Slide 1 of 4 Advantages –Economies of scale in administrative costs/activities –Good for small-sized firms –East to identify talent –Fosters high centralization of decision- making –Promotes high task and activity specialization

10. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 10-10 Ex. 10-3: Key Characteristics of a Functional Structure Slide 2 of 4 Advantages (continued) –Supports a low-cost leadership strategy –Supports vertical integration in a business –Best for undiversified firms Marketing Production/ Operations Production/ Operations

11. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 10-11 Exhibit 9-3: Key Characteristics of a Functional Structure Slide 3 of 4 Disadvantages –Coordination difficulties arise when firm diversifies –Difficult for each function to accommodate needs of other functions –Divergent goals and objectives based on each function

12. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 10-12 Ex. 10-3: Key Characteristics of a Functional Structure Slide 4 of 4 Disadvantages –Inflexible with broad-based global or multidomestic strategies –Needs extensive modification to support differentiation strategies –Poor fit for highly-diversified firms Marketing Production/ Operations Production/ Operations

13. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 10-13 Fig. 10-4: Diagram of a Typical Product Division Structure Each division is self-contained and responsible for its own products/markets that it serves. Each division contains its own set of functions. Corporate Marketing Production/ Operations Production/ Operations R & D Sales Service Product 2 Product 3 Product 1

14. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 10-14 Exhibit 9-5: Key Characteristics of Product Division Structures Slide 1 of 4 Advantages –High autonomy of divisions for each product/business –Allows for specialization based on products/markets –Enhances and supports needed changes in products –Allows for easy measurement of financial performance

15. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 10-15 Ex. 10-5: Key Characteristics of Product Division Structures Slide 2 of 4 Advantages (continued) –Standardizes performance measurement –Cross-functional perspectives –Supports highly diversified strategies (related and unrelated)

16. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 10-16 Exhibit 9-5: Key Characteristics of Product Division Structures Slide 3 of 4 Disadvantages –Duplicates functions within each product division –Duplicates administrative and staff functions –Leads to short-term thinking if not carefully monitored –Promotes high internal competition between divisional managers

17. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 10-17 Ex. 10-5: Key Characteristics of Product Division Structures Slide 4 of 4 Disadvantages (continued) –May under-invest in firm’s core competence and skills; discourages company-wide “mega” projects

18. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 10-18 Ex. 10-6: Diagram of a Strategic Business Unit Structure Corporate The SBU Structure is a collection of product divisions that produce related or similar products. Supports related diversification because similar products that are grouped together share a common underlying technology, market, skill, or resource. SBU 2 SBU 3 SBU 1 Product 2 Product 3 Product 1

19. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 10-19 Ex. 10-7: Diagram of a Sector/Group Structure Sector or group structures tie together different SBUs that represent a common industry, technology, or critical skills. Sectors help senior management get a handle on broad-based, related diversification. They are, however, costly to operate because of several layers of management Corporate Sector 3 Sector 2 Sector 1 SBU 3 SBU 2 SBU 1 Product 1 Product 3 Product 2

20. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 10-20 Ex. 10-8: Diagram of a Conglomerate/Holding Company Structure Each business unit is managed independently of the others. Each business unit is also a company that can easily be sold off. Extremely lean corporate and administrative staff means few overhead costs. Supports unrelated diversification very well. Corporate Business Unit 2 Business Unit 2 Business Unit 3 Business Unit 3 Business Unit 1 Business Unit 1

21. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 10-21 Ex. 10-9: Diagram of a Typical Geographic Structure Geographic structures are excellent in responding to the needs of local, regional markets. Geographic structures have their own self-contained product and/or functional structures to meet the needs of that region’s customers. Promotes a high level of decentralization. Corporate Region 1 Region 2 Region 3 Product or Function Product or Function Product or Function Product or Function Product or Function Product or Function

22. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 10-22 Ex. 10-10: Key Characteristics of Geographic Structures Slide 1 of 3 Advantages –High specialization according to market needs –High autonomy from other geographic units –Promotes a high degree of decentralization –Fast response to market needs –Highly flexible structure; easy to create smaller geographic units

23. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 10-23 Exhibit 9-10: Key Characteristics of Geographic Structures Slide 2 of 3 Advantages (continued) –Allows for full use and development of local talent/managers –Excellent support for multidomestic strategies

24. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 10-24 Exhibit 9-10: Key Characteristics of Geographic Structures Slide 3 of 3 Disadvantages –Duplicate functions within each region –Places coordination demands on senior management –Needs other support measures to ensure high quality and uniform image –May not work well in fast-changing, technologically-intensive businesses or industries

25. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 10-25 Ex. 10-11: Diagram of a Typical Matrix Structure Each lower-level manager reports to two bosses -- one product division superior and one functional superior. Although it promotes technology sharing, matrix structures are extremely costly and difficult to manage. Matrix structures lost favor over the 1980’s; most companies that adopted them ultimately switched to another structure Function 3 Manager Function 2 Manager Function 1 Manager Product 1 Product 2 Product 3 Corporate

26. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 10-26 Exhibit 10-12: Key Characteristics of Matrix Structures Slide 1 of 2 Advantages –Promotes sharing of key resources and skills –Enhances fast change and flexibility –Helps when resources are scarce –Allows for transfer and movement of people –High specialization along key activities and products

27. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 10-27 Exhibit 10-12: Key Characteristics of Matrix Structures Slide 2 of 2 Disadvantages –Very high cost structure –Slows down decision-making in practice –Lower-level managers often unable to feel comfortable in this structure –High tension and stress –Could generate conflict between superiors that are the “arms” of the matrix

28. Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. Slide 10-28 Fig. 10-13: Diagram of an International Division Structure International division structures are excellent to support a firm’s early global expansion efforts. Promotes a high level of specialization for overseas knowledge and activities. Corporate Product 1 Product 2 Product 3 Region 1 Region 3 Region 2 International Division International Division