Chapter 11 Organizational Structure and Controls

Chapter 11Organizational Structure and ControlsMichael A. HittR. Duane IrelandRobert E. Hoskisson©2000 South-Western College PublishingCompetitivenessChapter 3InternalEnvironmentChapter 2ExternalEnvironmentThe StrategicManagementProcessStrategic IntentStrategic MissionStrategicCompetitivenessAbove AverageReturnsFeedbackStrategy FormulationChapter 4Business-LevelStrategyChapter 5CompetitiveDynamicsChapter 6Corporate-LevelStrategyChapter 8InternationalStrategyChapter 9CooperativeStrategiesChapter 7Acquisitions &RestructuringStrategy ImplementationChapter 10CorporateGovernanceChapter 11Structure& ControlChapter 12StrategicLeadershipChapter 13Entrepreneurship & InnovationStrategicInputsStrategicActionsStrategic OutcomesStructure TypesAll organizations require some form of organizational structure to implement and manage their strategiesFirms frequently alter their structure as they grow in size and complexityThree basic structure types:Functional StructureMulti-divisional Structure (M-form)Simple StructureStrategy & StructureGrowth PatternsSales Growth Coordinationand Control ProblemsEfficient implementationof formulated strategyMultidivisionalStructureEfficient implementationof formulated strategySales Growth Coordinationand Control ProblemsFunctional StructureSimple StructureSimple StructureOwner / ManagerOwner/Manager makes all major decisions directly and monitors all activitiesDifficult to maintain this structure as the firm grows in size and complexity* Production* Finance* Engineering* Accounting* Sales & Marketing* Human ResourcesFunctional StructureFirst stage beyond a Simple StructureAppropriate for single or dominant-business firmsAllows specialization of tasksOvercomes information processing limits of single owner/managerFunctional department heads report to Chief Executive Officer who integrates decisions and actions from a company-wide point of viewRisks conflicts between myopic function managersProductionFinanceEngineeringAccountingSales & MarketingHuman ResourcesFunctional StructureChief Executive OfficerCorporate FinanceCorporate R&DCorporate MarketingCorporate Human ResourcesStrategic PlanningMarketingEngineeringOperationsPersonnelAccountingFunctional Structure forCost Leadership StrategyOffice of the PresidentCentralizedStaffOperations is main functionProcess engineering is emphasized rather than new product R&DFormalized procedures allow for low-cost cultureStructure is mechanical; job roles are highly structuredRelatively large centralized staff coordinates functionsMarketingNew Product R&DOperationsHumanResourcesFinanceR&DMarketingFunctional Structure forDifferentiation StrategyPresident andLimited StaffMarketing is the main function for tracking new product ideasNew product R&D is emphasizedMost functions are decentralizedFormalization is limited to foster change and promote new ideasOverall structure is organic; job roles are less structuredMulti-Divisional StructureEach division is operated as a separate businessAppropriate for related-diversified businessesKey task of corporate managers is exploiting synergies among divisionsManagers use a combination of strategic controls and financial controlsManagers try to strike a balance between:Competing among divisions for scarce capital resourcesCreating opportunities for cooperation to develop synergiesThe goal is to maximize overall firm performanceMulti-Divisional StructureBalance on these dimensions may change over timeThe decision-making of managers in a Multi-Divisional structure may be:Centralized or DecentralizedBureaucratic or Non-bureaucraticChanges in strategyDegree of diversificationGeographic scopeNature of competitionStructure will evolve over time with:DivisionDivisionDivisionDivisionProductionFinanceEngineeringAccountingSales & MarketingHuman ResourcesMulti-Divisional StructureChief Executive OfficerCorporate FinanceCorporate R&DCorporate MarketingStrategic PlanningCorporate Human ResourcesCooperativeFormStrategic Business Unit(SBU) StructureCompetitiveFormVariations of theMulti-Divisional StructureMulti-DivisionalStructure(M-form)Related-ConstrainedStrategyRelated-LinkedStrategyUnrelated /HoldingCompany StrategyProduct DivisionProduct DivisionProduct DivisionProduct DivisionProduct DivisionStrategicPlanningCorporate R&D LabCorporateHumanResourcesLegalAffairsCorporateMarketingCorporateFinanceCooperative FormPresidentRelated-Constrained StrategyGovernmentAffairs Structural integration devices create tight links among all divisions Large corporate office with R&D likely to be centralized Culture emphasizes cooperative sharingPresidentStrategic Business Unit ASBU FormRelated-Linked StrategyCorporate FinanceCorporate R&DCorporate MarketingStrategic PlanningCorporate Human ResourcesDivisionDivisionDivisionStrategic Business Unit CDivisionDivisionDivisionStrategic Business Unit BStrategic Business Unit DStructural integration exists among divisions within SBUs, but not across SBUsEach SBU may have its own budget for staff to foster integrationCorporate headquarters staff serve as consultants to SBUs and divisionsCompetitive FormUnrelated /Holding Company StrategyPresidentLegalAffairsFinanceCorporate headquarters has a small staffFinance and auditing are the most prominent functions in the headquartersDivisions are independent and separate for financial evolution purposesDivisions retain strategic control, but cash is managed by the corporate officeDivisions compete for corporate resourcesAuditingDivisionDivisionDivisionDivisionDivisionCost LeadershipDecentralizationDifferentiationCentralizationMulti-Divisional StructureThe choice between centralization and decentralization is frequently based on the business-level strategy implemented in each divisionComplex Multi-Divisional structure firms may be simultaneously centralized and decentralized , depending upon the various business-level strategies employed throughout the firm’s individual businessesMulti-Divisional structure firms use a combination of:Financial ControlsStrategic Controls Attributes of Various Structural FormsStructural CharacteristicsDegree ofCentralizationUse ofIntegratingMechanismsDivisionalPerformanceAppraisalDivisionalIncentive CompensationType of StrategyCooperative M-FormSBU M-FormCompetitive M-FormCentralized atCorporate OfficeCentralizedin SBUsDecentralizedto DivisionLinked to CorporatePerformanceLinked toCorporation,Division & SBULinked toDivisionalPerformanceExtensiveSynergiesModerateSynergiesNonexistentSynergiesFinancialCriteriaStrategic &FinancialCriteriaSubjective/StrategicCriteriaRelated-ConstrainedRelatedLinkedUnrelatedNorth AmericaAustraliaEuropeAsiaLatin AmericaAfricaProduct AProduct BProduct CProduct DProduct AEvolution of Multi-Divisional StructureChief Executive OfficerCorporate Office (Staff)A Structural evolution based on Geographic lines usually implies a Multi-Domestic International StrategyEvolution of Multi-Divisional StructureNorth AmericaAustraliaEuropeAsiaLatin AmericaAfricaProduct AProduct BProduct CProduct DChief Executive OfficerCorporate Office (Staff)Implementation of a Multidomestic StrategyWorldwideGeographicAreaStructureMultinationalHeadquartersAsiaUnitedStatesLatinAmericaEuropeAustraliaMiddleEast/AfricaGreen circles indicate decentralization of operationsEmphasis is on differentiation by local demand to fit a cultureCorporate headquarters coordinates financial resources among independent subsidiariesThe organization is like a decentralized federationProduct AProduct BProduct CProduct DA Structural evolution based on Product lines usually implies a Global International StrategyEvolution of Multi-Divisional StructureChief Executive OfficerCorporate Office (Staff)Implementation of a Global StrategyWorldwideProductDivisionalStructureGreen circle indicates centralization to coordinate information flow among worldwide productsHeadquarters uses many intercoordination devices to facilitate global economies of scale and scopeHeadquarters also allocates financial resources cooperativelyThe organization is like a centralized federationMultinationalHeadquartersWorldwideProductsDivisionWorldwideProductsDivisionWorldwideProductsDivisionWorldwideProductsDivisionWorldwideProductsDivisionWorldwideProductsDivisionA Transnational International Strategy is likely to utilize a structure and that results in emphasis on both geographic and product structuresEvolution of Multi-Divisional StructureStrategic NetworksA 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 allianceA Strategic Center Firm often manages the networkThe Strategic Center Firm identifies actions that increase the opportunity for each firm to achieve success through its participation in the networkThe Strategic Center Firm creates incentives that reduce the probability of any single firm taking advantage of its network partnersA Strategic NetworkStrategicCenterFirmNetwork FirmsStrategicCenterFirmStrategic Center Firm’s Critical FunctionsStrategic OutsourcingCapability DevelopmentTechnology SharingBuilding Linkages to Facilitate LearningStrategicCenterFirmStrategic OutsourcingCenter firm coordinates outsourcing among partners, initiates actions and coordinates problem solvingStrategicCenterFirmStrategic Center Firm’s Critical FunctionsStrategic OutsourcingCapability DevelopmentTechnology SharingBuilding Linkages to Facilitate LearningStrategic center firm manages the development and sharing technology-based ideas among network partnersCapability and TechnologyStrategicCenterFirmCenter firm attempts to develop each partner’s core competencies and provides incentives for network firms to share their capabilities and competencies with partnersStrategicCenterFirmStrategic Center Firm’s Critical FunctionsStrategic OutsourcingCapability DevelopmentTechnology SharingBuilding Linkages to Facilitate LearningStrategicCenterFirmBuilding Linkages to Facilitate LearningStrategic 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 activitiesA Distributed Strategic NetworkMainStrategicCenterFirmDistributed Strategic Center FirmsInternational Cooperative Strategies often require more complex networksMany large multinational firms form distributed strategic networks with multiple regional strategic centers to manage their array of cooperative arrangements with partner firmsBreaking large networks into multiple manageably-sized networks helps to manage the complexity of maintaining many relationships