Strategic Management, CH10, Organizational Structure and Controls
Terms in this set (22)
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.
-Crucial: make sure you match organizational structure to the firm's strategy.
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: Strategic, Financial
Strategic Controls: Subjective Criteria
-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
Financial Controls: Objective Criteria
--Return on investment
--Return on assets
--Economic Value Added (EVA)
Matching Control to Strategy
-Relative use of controls varies by type of strategy
--Large diversified firms using a cost leadership strategy would likely emphasize financial controls.
--Firms and business units using a differentiation strategy would likely emphasize strategic controls.
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.
-Three basic structure types
1. simple structure
2. functional structure
3. multidivisional structure (m-form)
Strategy and Structure Growth Pattern
Matches between Business-Level Strategies and the Functional Structure
-Different forms of the functional organizational structure are matched to:
--cost leadership 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)
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
Using the Functional Structure to Implement the 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
-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
-The integrated form of the functional structure must have:
--decision-making patterns that are partially centralized and partially decentralized
--rules and procedures that allow both formal and informal job behaviors.
Matches between 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 not handle.
--Information processing, coordination
-Diversification strategy requires firm to change from functional structure to a multidivisional structure.
-Different levels of diversification create the need for implementation of a unique form of the multidivisional structure.
Three Variations of the Multidivisional Structure
-Strategic Business Unit (SBU) Form
Using the Cooperative Form of M-Form Structure to Implement the Related Constrained Strategy
-Horizontal integration is used to bring about interdivisional cooperation.
-Sharing divisional competencies facilitates development of economies of scope.
-To foster divisional cooperation, the corporate office emphasizes centralization of:
-R&D is likely to be centralized
-Frequent, direct contact between division managers encourages and supports cooperation and sharing of competencies and resources
-Use of liaison roles
-Rewards are subjective, emphasizing overall corporate performance in addition to divisional performance
Using the SBU Form of the M-Form Structure to Implement the Related Linked Strategy
-Strategic business unit (SBU) form is a structure consisting of three levels:
--Strategic business units (SBUs)
-Divisions within SBUs share:
--products, or markets, or both.
-Divisions within SBUs develop economies of scope and/or scale by sharing product or market competencies.
--Each SBU is a profit center controlled and evaluated by the headquarters office.
-Used by large firms
--Can be complex due to an organization's size and diversity in products and markets.
Using the Competitive Form of the M-Form to Implement the Unrelated Diversification Strategy
-A structure in which there is complete independence among the firm's divisions.
--Divisions do not share common corporate strengths.
--Because strengths aren't shared, integrating devices aren't developed.
--Organizational arrangements emphasize divisional competition rather than cooperation.
-Three benefits from the internal competition
--Flexibility—corporate headquarters can have divisions working on different technologies to identify those with greatest future potential.
--Challenges the status quo and inertia
-Creates specific profit performance expectations for each division to promote internal competition for resources
International Strategies Allow the Firm to Search for New:
Worldwide Geographic Area Structure: Implementing a Multidomestic Strategy
Multidomestic strategy decentralizes strategic and operating decisions to:
--business units in each country
--product characteristics tailored to local preferences
Firms counter global competitive forces by:
--establishing protected market positions, or
--competing in industry segments most affected by differences among local countries.
Worldwide Geographic Area Structure
Worldwide Geographic Area Structure
--Emphasizes national interests
--Facilitates the firm's efforts to satisfy local or cultural differences
--Requires little coordination between different county markets: integrating mechanisms aren't needed
--Key disadvantage is inability to create global efficiencies
-Allows firm to offer standardized products across country markets.
Effects on Firm
-Success depends on firm's ability to develop and take advantage of economies of scope and scale on global level.
-Firm tends to outsource some primary or support activities to the world's best providers.
Worldwide Product Divisional Structure
Centralizes decision-making authority in the worldwide division headquarters
--Headquarters coordinates and integrates decisions and actions among divisional business units.
Integrating mechanisms are important
--Direct contact between managers
--Liaison roles between departments
--Temporary task forces as well as permanent teams
Using the Combination Structure to Implement the Transnational Strategy
--Combines multidomestic strategy's local responsiveness with global strategy's efficiency.
Combination structure draws characteristics and mechanisms from both:
--worldwide geographic area structure
--worldwide product divisional structure
Appropriate integrating mechanisms for the combination structure are less obvious.
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