Strategy_Session8

SESSION 8Organizational Structure and Controls : 

SESSION 8Organizational Structure and Controls

Organizational Structure and Controls : 

2 Organizational Structure and Controls Organizational structure specifies: The firm’s formal reporting relationships, procedures, controls, and 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.

Organizational Structure : 

3 Organizational Structure Effective structures provide: Stability Flexibility Structural stability provides: The capacity required to consistently and predictably manage daily work routines Structural flexibility provides for: The opportunity to explore competitive possibilities The allocation of resources to activities that shape needed competitive advantages

Organizational Controls : 

4 Organizational Controls Purposes of Organizational Controls: Guide the use of strategy. Indicate how to compare actual results with expected results. Suggest corrective actions to take when the difference between actual and expected results is unacceptable. Two Types of Organizational Controls Strategic controls Financial controls

Organizational Controls : 

5 Organizational Controls Strategic Controls: Subjective criteria Are concerned with examining the fit between: What the firm might do (opportunities in its external environment). What the firm can do (competitive advantages). Evaluate the degree to which the firm focuses on the requirements to implement its strategy.

Organizational Controls : 

6 Organizational Controls Financial Controls: Objective criteria Accounting-based measures include: Return on investment Return on assets Market-based measures include: Economic Value Added (EVA)

Matching Control to Strategy : 

7 Matching Control to Strategy Relative use of controls varies by type of strategy: Large diversified firms using a cost leadership strategy emphasize financial controls. Companies and business units using a differentiation strategy emphasize strategic controls.

Relationships between Strategy and Structure : 

8 Relationships between Strategy and Structure Strategy and structure have a reciprocal relationship: Structure flows from or 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.

Evolutionary Patterns of Structure and Organizational Structure : 

9 Evolutionary Patterns of Structure and Organizational 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.

Evolutionary Patterns of Structure and Organizational Structure (cont’d) : 

10 Evolutionary Patterns of Structure and Organizational 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)

Strategy and Structure Growth Pattern : 

11 Strategy and Structure Growth Pattern Sales GrowthCoordination and Control Problems Efficient implementation of formulated strategy Simple Structure Functional Structure Sales GrowthCoordination and Control Problems Multidivisional Structure Efficient implementation of formulated strategy

FIGURE 8.1 Strategy and Structure Growth Pattern : 

12 FIGURE 8.1 Strategy and Structure Growth Pattern

Strategy and Structure: Simple Structure : 

13 Strategy and Structure: 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 complete by offering a single product line in a single geographic market.

Simple Structure (cont’d) : 

14 Simple Structure (cont’d) 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.

Strategy and Structure: Functional Structure : 

15 Strategy and Structure: Functional Structure Chief Executive Officer (CEO) Limited corporate staff Functional line managers in dominant organizational areas of: Production ?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

Functional Structure (cont’d) : 

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

Strategy and Structure: Multidivisional Structure : 

17 Strategy and Structure: Multidivisional Structure Strategic Control Operating divisions function as separate businesses or profit centers Top corporate officer delegates responsibilities to division managers For day-to-day operations For business-unit strategy Appropriate as firm grows through diversification

Multidivisional Structure (cont’d) : 

18 Multidivisional Structure (cont’d) 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.

Matching Strategy and Functional Structure : 

19 Matching Strategy and Functional Structure Different forms of the functional organizational structure are matched to: Cost leadership strategy Differentiation strategy Integrated cost leadership/differentiation strategy Differences in these forms are seen in three important structural characteristics: Specialization (number and types of jobs) Centralization (decision-making authority) Formalization (formal rules and work procedures)

FIGURE 8.2 Functional Structure for Implementation of a Cost Leadership Strategy : 

20 FIGURE 8.2 Functional Structure for Implementation of a 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

Using the Functional Structure to Implement a Cost Leadership Strategy : 

21 Using the Functional Structure to Implement a Cost Leadership Strategy Operations is the main function. Process engineering is emphasized over research and development. Large centralized staff oversees activities. Formalized procedures guide actions. Structure is mechanical. Job roles are highly structured.

FIGURE 8.3 Functional Structure for Implementation of a Differentiation Strategy : 

22 FIGURE 8.3 Functional Structure for Implementation of a Differentiation Strategy Notes: • Marketing is the main function for keeping track of new product ideas • New product R&D is emphasized • Most functions are decentralized, but R&D and marketing may have centralized staffs that work closely with each other • Formalization is limited so that new product ideas can emerge easily and change is more readily accomplished • Overall structure is organic; job roles are less structured

Using the Functional Structure to Implement a Differentiation Strategy : 

23 Using the Functional Structure to Implement a Differentiation Strategy 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.

Using the Functional Structure to Implement the Integrated Cost Leadership/ Differentiation Strategy : 

24 Using the Functional Structure to Implement the Integrated Cost Leadership/ Differentiation Strategy Selling products that create customer value due to: Their relatively low product cost through an emphasis on production and process engineering, with infrequent product changes. Reasonable sources of differentiation based on new-product R&D are emphasized while production and process engineering are not. Used frequently in global economy

Implementing an Integrated Cost Leadership/Differentiation Strategy (cont’d) : 

25 Implementing an Integrated Cost Leadership/Differentiation Strategy (cont’d) The integrated form of the functional structure must have: Decision-making patterns that are partially centralized and partially decentralized. Semi-specialized jobs. Rules and procedures that allow both formal and informal job behaviors.

Corporate-Level Strategies and the Multidivisional Structure : 

26 Corporate-Level Strategies and the Multidivisional Structure A firm’s continuing success that leads to: Product diversification, or Market diversification, or Both product and market diversification. Increasing diversification creates control problems that the functional structure can’t handle. Information processing, coordination Control

Corporate-Level Strategies and the Multidivisional Structure (cont’d) : 

27 Corporate-Level Strategies and the Multidivisional Structure (cont’d) Diversification strategy requires firm to change from functional structure to a multidivisional structure.