Slides Business Models

8/8/2019 Slides Business Models

1/26

Ch1

Chapter 11Chapter 11

Organizational Structure

and Controls

Organizational Structure

and Controls

Michael A. HittR. Duane Ireland

Robert E. Hoskisson

Michael A. HittR. Duane Ireland

Robert E. Hoskisson

2000 South-Western College Publishing2000 South-Western College Publishing


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Ch1

Structure TypesStructure Types

All organizations require some form of organizationalAll organizations require some form of organizationalstructure to implement and manage their strategiesstructure to implement and manage their strategies

Firms frequently alter their structure as they grow inFirms frequently alter their structure as they grow in

size and complexitysize and complexity

Three basic structure types:Three basic structure types:

Functional StructureFunctional Structure

Multi-divisional Structure (M-form)Multi-divisional Structure (M-form)

Simple StructureSimple Structure


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Strategy & StructureStrategy & Structure

Growth PatternsGrowth PatternsSales Growth CoordinationSales Growth Coordination

and Control Problemsand Control Problems

Sales Growth CoordinationSales Growth Coordination

and Control Problemsand Control Problems

Efficient implementationEfficient implementationof formulated strategyof formulated strategy


MultidivisionalMultidivisional

StructureStructure

MultidivisionalMultidivisional

StructureStructure



Sales Growth CoordinationSales Growth Coordinationand Control Problemsand Control Problems

Sales Growth CoordinationSales Growth Coordinationand Control Problemsand Control Problems

FunctionalFunctionalStructureStructure

FunctionalFunctionalStructureStructure

SimpleSimpleStructureStructure

SimpleSimple

StructureStructure


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Ch1

Simple StructureSimple Structure

Owner / ManagerOwner / Manager

Owner/Manager makes all major decisionsOwner/Manager makes all major decisions

directly and monitors all activitiesdirectly and monitors all activities

Difficult to maintain this structure asDifficult to maintain this structure asthe firm grows in size and complexitythe firm grows in size and complexity


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Ch1

* Production* Production

* Finance* Finance

* Engineering* Engineering

* Accounting* Accounting

* Sales & Marketing* Sales & Marketing

* Human Resources* Human Resources


First stage beyond a Simple StructureFirst stage beyond a Simple Structure

Appropriate for single or dominant-business firmsAppropriate for single or dominant-business firms

Allows specialization of tasksAllows specialization of tasks

Overcomes information processing limits ofOvercomes information processing limits ofsingle owner/managersingle owner/manager

Functional department heads report to ChiefFunctional department heads report to ChiefExecutive Officer who integrates decisions andExecutive Officer who integrates decisions andactions from a company-wide point of viewactions from a company-wide point of view

Risks conflicts between myopic function managersRisks conflicts between myopic function managers


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Ch1

ProductionProductionFinanceFinance EngineeringEngineering AccountingAccounting

Sales &Sales &

MarketingMarketing

HumanHuman

ResourcesResources


Chief Executive OfficerChief Executive Officer

CorporateCorporate

FinanceFinance

CorporateCorporate

R&DR&D

CorporateCorporate

MarketingMarketing

CorporateCorporate

HumanHuman

ResourcesResources

StrategicStrategic

PlanningPlanning


7/26Ch1MarketingMarketingEngineeringEngineering OperationsOperations PersonnelPersonnel AccountingAccounting

Functional Structure forFunctional Structure for

Cost LeadershipCost Leadership StrategyStrategyFunctional Structure forFunctional Structure for

Cost LeadershipCost Leadership StrategyStrategy

Office of the PresidentOffice of the President

CentralizedCentralized

StaffStaff

Operations is main functionOperations is main function

Process engineering isProcess engineering is

emphasized rather than newemphasized rather than newproduct R&Dproduct R&D

Formalized procedures allowFormalized procedures allowfor low-cost culturefor low-cost culture

Structure is mechanical; jobStructure is mechanical; jobroles are highly structuredroles are highly structured

Relatively largeRelatively large

centralized staffcentralized staffcoordinatescoordinatesfunctionsfunctions


8/26Ch1

MarketingMarketingNewNew

ProductProduct

R&DR&D

OperationsOperationsHumanHuman

ResourcesResourcesFinanceFinance

R&DR&D MarketingMarketing

Functional Structure forFunctional Structure for

DifferentiationDifferentiation StrategyStrategyFunctional Structure forFunctional Structure for

DifferentiationDifferentiation StrategyStrategy

President andPresident andLimited StaffLimited Staff

Marketing is the main function for tracking new product ideasMarketing is the main function for tracking new product ideasNew product R&D is emphasizedNew product R&D is emphasized Most functions are decentralizedMost functions are decentralized Formalization is limited to foster change and promote new ideasFormalization is limited to foster change and promote new ideas Overall structure is organic; job roles are less structuredOverall structure is organic; job roles are less structured


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Multi-Divisional StructureMulti-Divisional Structure

Each division is operated as a separate businessEach division is operated as a separate business

Appropriate for related-diversified businessesAppropriate for related-diversified businesses

Key task of corporate managers is exploiting synergiesKey task of corporate managers is exploiting synergies

among divisionsamong divisionsManagers use a combination of strategic controls andManagers use a combination of strategic controls andfinancial controlsfinancial controls

Managers try to strike a balance between:Managers try to strike a balance between:Competing among divisions for scarce capital resourcesCompeting among divisions for scarce capital resources

Creating opportunities for cooperation to develop synergiesCreating opportunities for cooperation to develop synergies

The goal is to maximize overall firm performanceThe goal is to maximize overall firm performance


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Balance on these dimensions may change over timeBalance on these dimensions may change over time

The decision-making of managers in a Multi-The decision-making of managers in a Multi-Divisional structure may be:Divisional structure may be:

Centralized or DecentralizedCentralized or Decentralized

Bureaucratic or Non-bureaucraticBureaucratic or Non-bureaucratic

Changes in strategyChanges in strategy

Degree of diversificationDegree of diversification

Geographic scopeGeographic scope

Nature of competitionNature of competition

Structure will evolve over time with:Structure will evolve over time with:


11/26Ch11-

DivisionDivision DivisionDivision DivisionDivision DivisionDivision

ProductionProductionFinanceFinance EngineeringEngineering AccountingAccounting

Sales &Sales &

MarketingMarketing

HumanHuman

ResourcesResources


Chief Executive OfficerChief Executive Officer

CorporateCorporate

FinanceFinance

CorporateCorporate

R&DR&D

CorporateCorporate

MarketingMarketing

StrategicStrategic

PlanningPlanning

CorporateCorporate

HumanHuman

ResourcesResources


12/26Ch11-

PresidentPresidentPresidentPresident

StrategicStrategic

BusinessBusiness

Unit AUnit A

SBU FormSBU FormRelated-Linked StrategyRelated-Linked Strategy

CorporateCorporate

FinanceFinance

CorporateCorporate

R&DR&D

CorporateCorporate

MarketingMarketing

StrategicStrategic

PlanningPlanning

CorporateCorporate

HumanHuman

ResourcesResources

DivisionDivisionDivisionDivisionDivisionDivision

StrategicStrategic

BusinessBusiness

Unit CUnit C

DivisionDivisionDivisionDivisionDivisionDivision

StrategicStrategic

BusinessBusiness

Unit BUnit B

StrategicStrategic

BusinessBusiness

Unit DUnit D

Structural integration exists among divisions within SBUs, but not across SBUsStructural integration exists among divisions within SBUs, but not across SBUs Each SBU may have its own budget for staff to foster integrationEach SBU may have its own budget for staff to foster integration

Corporate headquarters staff serve as consultants to SBUs and divisionsCorporate headquarters staff serve as consultants to SBUs and divisions


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Competitive FormCompetitive FormUnrelated /Holding Company StrategyUnrelated /Holding Company Strategy

PresidentPresidentPresidentPresident

LegalLegal

AffairsAffairs

FinanceFinance

Corporate headquarters has a small staffCorporate headquarters has a small staff Finance and auditing are the most prominent functions in the headquartersFinance and auditing are the most prominent functions in the headquarters Divisions are independent and separate for financial evolution purposesDivisions are independent and separate for financial evolution purposes

Divisions retain strategic control, but cash is managed by the corporate officeDivisions retain strategic control, but cash is managed by the corporate office

Divisions compete for corporate resourcesDivisions compete for corporate resources

AuditingAuditing

DivisionDivisionDivisionDivisionDivisionDivisionDivisionDivision DivisionDivision


14/26Ch11-

Cost LeadershipCost Leadership

DecentralizationDecentralizationDifferentiationDifferentiation

CentralizationCentralization


The choice between centralization and decentralizationThe choice between centralization and decentralization

is frequently based on the business-level strategyis frequently based on the business-level strategyimplemented in each divisionimplemented in each division

Complex Multi-Divisional structure firms may beComplex Multi-Divisional structure firms may besimultaneously centralized and decentralized ,simultaneously centralized and decentralized ,depending upon the various business-level strategiesdepending upon the various business-level strategies

employed throughout the firms individual businessesemployed throughout the firms individual businesses

Multi-Divisional structure firms use a combination of:Multi-Divisional structure firms use a combination of:

Financial ControlsFinancial Controls

Strategic ControlsStrategic Controls


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A Structural evolution based onA Structural evolution based on GeographicGeographic lines usuallylines usually

implies aimplies a Multi-DomesticMulti-Domestic International StrategyInternational Strategy

Evolution of Multi-Divisional StructureEvolution of Multi-Divisional Structure

NorthNorthAmericaAmerica

AustraliaAustraliaEuropeEurope AsiaAsia LatinLatinAmericaAmerica

AfricaAfrica

Product AProduct A Product BProduct B Product CProduct C Product DProduct D

Chief Executive OfficerChief Executive OfficerChief Executive OfficerChief Executive Officer

Corporate Office (Staff)Corporate Office (Staff)Corporate Office (Staff)Corporate Office (Staff)


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Implementation of aImplementation of aMultidomesticMultidomestic StrategyStrategy

WorldwideWorldwide

GeographicGeographicAreaArea

StructureStructure

MultinationalMultinational

HeadquartersHeadquarters



AsiaAsiaAsiaAsiaUnitedUnited

StatesStates

UnitedUnited

StatesStates

LatinLatin

AmericaAmerica

LatinLatin

AmericaAmericaEuropeEuropeEuropeEurope

AustraliaAustraliaAustraliaAustraliaMiddleMiddleEast/East/

AfricaAfrica

MiddleMiddleEast/East/

AfricaAfrica

Green circles indicate decentralization of operationsGreen circles indicate decentralization of operations Emphasis is on differentiation by local demand to fit a cultureEmphasis is on differentiation by local demand to fit a culture Corporate headquarters coordinates financial resources amongCorporate headquarters coordinates financial resources among

independent subsidiariesindependent subsidiaries The or anization is like a decentralized federationThe or anization is like a decentralized federation


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Product AProduct A Product BProduct B Product CProduct C Product DProduct D

A Structural evolution based onA Structural evolution based onProductProductlineslines

usually implies ausually implies a GlobalGlobal International StrategyInternational Strategy

Evolution of Multi-Divisional StructureEvolution of Multi-Divisional Structure

Chief Executive OfficerChief Executive OfficerChief Executive OfficerChief Executive Officer

Corporate Office (Staff)Corporate Office (Staff)Corporate Office (Staff)Corporate Office (Staff)


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Implementation of aImplementation of a GlobalGlobalStrategyStrategy

WorldwideWorldwide

ProductProductDivisionalDivisional

StructureStructure

Green circle indicates centralization to coordinate informationGreen circle indicates centralization to coordinate informationflow among worldwide productsflow among worldwide products

Headquarters uses many intercoordination devices to facilitateHeadquarters uses many intercoordination devices to facilitateglobal economies of scale and scopeglobal economies of scale and scope

Headquarters also allocates financial resources cooperativelyHeadquarters also allocates financial resources cooperatively The organization is like a centralized federationThe organization is like a centralized federation





WorldwideWorldwide

ProductsProductsDivisionDivision

WorldwideWorldwideProductsProductsDivisionDivision

WorldwideWorldwide

ProductsProductsDivisionDivision











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20/26Ch11-

A Strategic NetworkA Strategic Network

StrategicStrategic

CenterCenterFirmFirm

StrategicStrategic


Network FirmsNetwork Firms


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StrategicStrategicCenterCenter

FirmFirm


FirmFirm

Strategic Center Firms Critical FunctionsStrategic Center Firms Critical Functions

Strategic OutsourcingStrategic Outsourcing

Capability DevelopmentCapability Development

Technology SharingTechnology Sharing

Building Linkages toBuilding Linkages to

Facilitate LearningFacilitate Learning


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StrategicStrategicCenterCenterFirmFirm

StrategicStrategic



Center firm coordinates outsourcing among partners,Center firm coordinates outsourcing among partners,

initiates actions and coordinates problem solvinginitiates actions and coordinates problem solving


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Ch11-


FirmFirm


FirmFirm








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Ch11-

Strategic center firm manages the development and sharingStrategic center firm manages the development and sharing

technology-based ideas among network partnerstechnology-based ideas among network partners

Capability and TechnologyCapability and Technology



Center firm attempts to develop each partners coreCenter firm attempts to develop each partners corecompetencies and provides incentives for network firms tocompetencies and provides incentives for network firms toshare their capabilities and competencies with partnersshare their capabilities and competencies with partners


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Ch11-

StrategicStrategic

CenterCenter

FirmFirm

StrategicStrategic

CenterCenter

FirmFirm








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Building Linkages to Facilitate LearningBuilding Linkages to Facilitate Learning

Strategic center firm emphasizes to partners the need to buildStrategic center firm emphasizes to partners the need to buildlinkages between value chains and networks of value chains.linkages between value chains and networks of value chains.

The strategic network seeks to develop a competitiveThe strategic network seeks to develop a competitive

advantage in primary or support activitiesadvantage in primary or support activities

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