Strategic management Ch 11 Organization Structure & Controls - Lachowicz
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Transcript of Strategic management Ch 11 Organization Structure & Controls - Lachowicz
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Hitt Chapter 11- Organizational
Structure and Controls
MGNT428 Business Policy & Strategy
Dr. Tom Lachowicz, Instructor
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Learning Objectives
Studying this chapter should provide you withthe strategic management knowledge neededto:
Define organizational structure and controls and discuss thedifference between strategic and financial controls.
Describe the relationship between strategy and structure.
Discuss the functional structures used to implement business-level strategies.
Explain the use of three versions of the multidivisional (M-form)structure to implement different diversification strategies.
Discuss the organizational structures used to implement threeinternational strategies.
Define strategic networks and strategic center firms.
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Figure 1.1
Copyright 2004 South-Western. All rights reserved.
The StrategicManagement
Process
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Organizational Structure
Organizational structure specifies:
The firms formal reporting relationships,
procedures, controls, and authority and
decision-making processes
The work to be done and how to do it, giventhe firms strategy or strategies
It is critical to match organizationalstructure to the firms strategy
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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
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Organizational Controls
Purposes of Organizational Controls:
Guide the use of strategy
Indicate how to compare actual results withexpected results
Suggest corrective actions to take when thedifference between actual and expected
results is unacceptable
Two types of organizational controls
Strategic controls
Financial controls
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Organizational 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
OrganizationalControls
StrategicControls
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Organizational Controls
Objective criteria
Accounting-based measures include:
Return on investment
Return on assets
Market-based measures include:
Economic Value Added (EVA)
OrganizationalControls
StrategicControls
FinancialControls
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Matching Control to Strategy
Relative use of controls varies by type ofstrategy
Large diversified firms using a cost leadershipstrategy emphasize financial controls
Companies and business units using adifferentiation strategy emphasize strategiccontrols
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Relationships between
Strategy and Structure
Strategy and structure have a reciprocalrelationship:
Structure flows from or follows the selection ofthe firms strategybut
Once in place, structure can influence currentstrategic actions as well as choices aboutfuture strategies
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Evolutionary Patterns of Strategy andOrganizational Structure
Firms grow in predictable patterns:
First by volume
Then by geography
Then integration (vertical, horizontal)
And finally through product/businessdiversification
A firms growth patterns determine its
structural form
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Evolutionary Patterns of Strategy andOrganizational Structure
All organizations require some form oforganizational 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)
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Strategy and StructureGrowth Pattern
Figure 11.1
Efficient implementationof formulated strategy
Efficient implementation
of formulated strategy
As firms grow larger andbecome more complex,structural challengesemerge
Firms larger sizes dictate
the need for moresophisticated workflows andintegrating mechanisms
Simple
Functional
Multidivisional
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Strategy and Structure:Simple Structure
Owner-manager
Makes all major decisions directly
Monitors all activities
Staff
Serves as an extension of the managers
supervisor authority
Matched with focus strategies andbusiness-level strategies
Commonly compete by offering a single
product line in a single geographic market
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Simple Structure (contd)
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 withmultiple organizational functions
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Strategy and Structure: Functional Structure
Chief Executive Officer (CEO) Limited corporate staff
Functional line managers in dominant
organizational areas of: ManufacturingMarketing Engineering
Accounting R&D HR
Supports use of business-level strategiesand some corporate-level strategies Single or dominant business with low levels of
diversification
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Functional Structure (contd)
Differences in orientation amongorganizational functions can:
Impede communication and coordination
Increase the need for CEO to integratedecisions and actions of business functions
Facilitate career paths and professionaldevelopment in specialized functional areas
Cause functional-area managers to focus onlocal versus overall company strategic issues
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Strategy and Structure:
Multidivisional Structure
Strategic Control
Operating divisions function as separate
businesses or profit centers
Top corporate officer delegatesresponsibilities to division managers
For day-to-day operations For business-unit strategy
Appropriate as firm grows through
diversification
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Multidivisional Structure (contd)
Three Major Benefits
Corporate officers are able to more accuratelymonitor the performance of each business, which
simplifies the problem of control
Facilitates comparisons between divisions, whichimproves the resource allocation process
Stimulates managers of poorly performing divisions tolook for ways of improving performance
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Matching Strategy and FunctionalStructure
Different forms of the functional organizationalstructure are matched to:
Cost leadership strategy
Differentiation strategy Integrated cost leadership/differentiation strategy
Differences in these forms are seen inthreeimportant structural characteristics:
Specialization (number and types of jobs)
Centralization (decision-making authority)
Formalization (formal rules and work procedures)
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Functional Structure for 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 Figure 11.2
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Functional Structure under
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
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Functional Structure for Implementation ofa Differentiation Strategy
Figure 11.3
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
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Functional Structure undera 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 promotenew ideas
Overall structure is organic
Job roles are less structured
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Implementing an Integrated CostLeadership/ Differentiation Strategy
Selling products that create customervalue due to:
Their relatively low product cost through an emphasison manufacturing and process engineering, withinfrequent product changes
Reasonable sources of differentiation based on new-
product R&D are emphasized while manufacturingand process engineering are not
Used frequently in global economy
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Implementing an Integrated CostLeadership/Differentiation Strategy (contd)
The integrated form of the functionalstructure must have:
Decision-making patterns that are partiallycentralized and partially decentralized
Semi-specialized jobs
Rules and procedures that allow both formaland informal job behaviors
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Corporate-Level Strategies and theMultidivisional Structure
A firms 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 canthandle Information processing, coordination
Control
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Corporate-Level Strategies and theMultidivisional Structure (contd)
Diversification strategy requires firm tochange from functional structure to a
multidivisional structure
Different levels of diversification create theneed for implementation of a unique formof the multidivisional structure
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Variations of the MultidivisionalStructure
Figure 11.4
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Cooperative Form of Multidivisional Structure: Related-Constrained Strategy
Notes Structural integration devices create tight links among all divisions Corporate office emphasizes centralized strategic planning, human resources, and marketing to foster cooperation between divisions
R&D is likely to be centralized
Rewards are subjective and tend to emphasize overall corporateperformance in addition to divisional performance
Culture emphasizes cooperative sharing
Figure 11.5
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Multidivisional Structure: Cooperative Form
Horizontal integration is used to bring aboutinterdivisional cooperation
Sharing divisional competencies facilitates
development of economies of scope To foster divisional cooperation, the corporate
office emphasizes centralization:
Strategic planning Human resources
MarketingRelated-Constrained Strategy
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Cooperative Form (contd)
R&D is likely to be centralized
Frequent, direct contact between divisionmanagers encourages and supports cooperation
and sharing of competencies and resources
Use of liaison roles
Rewards are subjective, emphasizing overall
corporate performance in addition to divisionalperformance
Related-Constrained Strategy
C titi F f M ltidi i i l
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Competitive Form of MultidivisionalStructure:
Unrelated Strategy
Figure 11.7
Notes Corporate headquarters has a small staff Finance and auditing are the most prominent functions
in the headquarters office to manage cash flow andassure the accuracy of performance data coming fromdivisions
The legal affairs function becomes important when the firm acquires or
divests assets Divisions are independent and separate for financial evaluation purposes Divisions retain strategic control, but cash is managed by the corporate office Divisions compete for corporate resources
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Characteristics of Structures to ImplementDiversification Strategies (contd)
a Strategy implemented with structural form.Table 11.1
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Worldwide Geographic Area Structure:Multidomestic Strategy
Notes: The perimeter circles indicate decentralization ofoperations
Emphasis is on differentiation by local demand to fit
an area or country culture Corporate headquarters coordinates financial
resources among independent subsidiaries The organization is like a decentralized federation
Figure 11.8
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Worldwide Product Divisional Structure:Global Strategy
Notes The headquarters circle indicates centralization tocoordinate information flow among worldwide products
Corporate headquarters uses many intercoordinationdevices to facilitate global economies of scale and scope
Corporate headquarters also allocates financial resources
in a cooperative way The organization is like a centralized federation
Figure 11.9
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A Strategic Network
StrategicCenterFirm
Adapted fromFigure 11.10
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StrategicCenterFirm
MainStrategicCenterFirm
A Distributed Strategic Network
= Distributed Strategic Center Firms Adapted fromFigure 11.11