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12-1 © 2006 by Nelson, a division of Thomson Canada Limited.
Organizational Structure & Controls
Chapter Twelve
© 2006 by Nelson, a division of Thomson Canada Limited.
12-2 © 2006 by Nelson, a division of Thomson Canada Limited.
The Strategic Management Process
Chapter 8:Acquisition & Restructuring
Chapter 9:International
Strategy
Chapter 10:Cooperative
Strategy
Strategy Formulation
Chapter 11:Corporate
Governance
Ch. 12: Org. Structure & Controls
Chapter 13:Strategic
Leadership
Chapter 14:Org. Renewal & Innovation
Strategy Implementation
StrategicActions
Chapter 3:The External Environment
Strategic Competitiveness
Strategic Mission & Strategic Intent
Strategic Objectives & Inputs
Chapter 1: Strategic
ManagementStrategic
Competitiveness Ch. 2: Strat. Mgmt . &
Performance
Chapter 3:The External Environment
Chapter 3:The External Environment
Chapter 4:The Internal Environment
Chapter 5: Bus.-Level Strategy
Chapter 6:Competitive Dynamics
Chapter 7:Corp.-Level
Strategy
Ch. 12: Org. Structure & Controls
12-3 © 2006 by Nelson, a division of Thomson Canada Limited.
Organizational Structure & Controls
Knowledge Objectives:• Discuss organizational structure & controls & discuss the
difference between strategic & financial controls• Describe the relationship between strategy & structure
• Discuss the functional structures used to implement business-level strategies
• Explain the use of 3 versions of multidivisional (M-Form) structure to implement different diversification strategies
• Discuss the organizational structures used to implement three international strategies
• Define strategic networks & strategic centre firms
12-4 © 2006 by Nelson, a division of Thomson Canada Limited.
Organizational Structure
• Organizational structure & the controls that are a part of it affect firm’s performance.
• When the firm’s strategy is not matched with the most appropriate structure & controls, performance declines.
• Specifies the firm’s formal reporting relationships, procedures, controls & authority, and decision making process.
12-5 © 2006 by Nelson, a division of Thomson Canada Limited.
Organizational Structure
• Influences how managers work & the decisions resulting from that work.
• Specifies the work to be done & how to do it given the firm’s strategy or strategies.
• Provides the stability a firm needs to successfully implement it’s strategies & maintain it’s competitive advantages.
12-6 © 2006 by Nelson, a division of Thomson Canada Limited.
Organizational Structure
• Structural Flexibility: Provides the opportunity
to explore competitive possibilities & allocate
resources to activities that will shape the
competitive advantages of the firm that it will
need to be successful in the future.
• Structural Stability: Provides the capacity the
firm requires to consistently & predictably
manage it’s daily work routines.
12-7 © 2006 by Nelson, a division of Thomson Canada Limited.
Organizational Controls
• Guide the use of strategy.
• Indicate how to compare actual with expected results.
• Suggest corrective action when differences between actual & expected results are unacceptable.
•Evaluate the degree to which the firm focuses on the
the requirements to implement its strategies.
•Concerned with examining the fit between what the
firm might do and what it can do
12-8 © 2006 by Nelson, a division of Thomson Canada Limited.
Financial Controls
• Largely financial objective criteria used to measure the firm’s performance against previously established quantitative standards.
12-9 © 2006 by Nelson, a division of Thomson Canada Limited.
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:
Functional Structure
Multi-divisional Structure (M-form)
Simple Structure
Structure Types
12-10 © 2006 by Nelson, a division of Thomson Canada Limited.
Functional StructureFunctional Structure
Efficient implementationof formulated strategy
Efficient implementationof formulated strategy
Multidivisional StructureMultidivisional Structure
Efficient implementationof formulated strategy
Efficient implementationof formulated strategy
Simple StructureSimple Structure
Strategy & StructureGrowth Patterns
Sales Growth Coordination & Control Problems
Sales Growth Coordination & Control Problems
Sales Growth Coordination & Control Problems
Sales Growth Coordination & Control Problems
12-11 © 2006 by Nelson, a division of Thomson Canada Limited.
Owner / Manager
Owner/Manager makes all major decisions directly and monitors all activities.
Difficult to maintain this structure as the firm grows in size and complexity.
Simple Structure
12-12 © 2006 by Nelson, a division of Thomson Canada Limited.
** Production** Finance
** Engineering** Accounting
** Sales & Marketing** Human Resources
First stage beyond a Simple Structure
Fine for single or dominant-business firms
Allows specialization of tasks
Overcomes information processing limits of single owner/manager
Functional department heads report to Chief Executive Officer who integrates decisions & actions from a company-wide point of view.
Risks conflict between myopic functional managers
Functional Structure
12-13 © 2006 by Nelson, a division of Thomson Canada Limited.
ProductionFinance Engineering AccountingSales &
MarketingHuman
Resources
Chief Executive Officer
Corporate Finance
Corporate R&D
Corporate Marketing
Corporate Human
Resources
Strategic Planning
Functional Structure
12-14 © 2006 by Nelson, a division of Thomson Canada Limited.
Office of the President
CentralizedStaff
•Operations are the main function
•Formalized procedures allow for low-cost culture
•Structure is mechanical; job roles are highly structured
•Process engineering is emphasized rather than new product R&D
Relatively large
centralized staff
coordinates functions
MarketingEngineering Operations
Personnel Accounting
Functional Structure forCost Leadership Strategy
12-15 © 2006 by Nelson, a division of Thomson Canada Limited.
MarketingNew Product
R&D OperationsHuman
ResourcesFinance
R&D Marketing
President andLimited Staff
•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 & promote new ideas.•Overall structure is organic; job roles are less structured.
Functional Structure forDifferentiation Strategy
12-16 © 2006 by Nelson, a division of Thomson Canada Limited.
Each division is operated as a separate business.
Appropriate for related-diversified businesses.
Key task of corporate managers is exploiting synergies among divisions.
Managers use a combination of strategic controls and financial controls.
The goal is to maximize overall firm performance.
Multi-Divisional Structure
Competing among divisions for scarce capital resources
Creating opportunities for cooperation to develop synergies
Managers try to strike a balance between:
and
12-17 © 2006 by Nelson, a division of Thomson Canada Limited.
Balance of these dimensions may change over time
The decision-making of managers in a Multi-Divisional structure may be:
Structure will evolve over time with:Changes in strategy
Degree of diversification
Geographic scope
Nature of competition
Multi-Divisional Structure
Centralized or Decentralized
Bureaucratic or Non-bureaucratic
12-18 © 2006 by Nelson, a division of Thomson Canada Limited.
Division Division Division Division
Chief Executive Officer
Corporate Finance
Corporate R&D
Corporate Marketing
Strategic Planning
Corporate Human
Resources
Multi-Divisional Structure
ProductionFinance Engineering AccountingSales &
MarketingHuman
Resources
Corp. Head
quarters
12-19 © 2006 by Nelson, a division of Thomson Canada Limited.
CooperativeForm
CooperativeForm
Strategic Business Unit(SBU) Structure
Strategic Business Unit(SBU) Structure
CompetitiveForm
CompetitiveForm
Multi-DivisionalStructure(M-form)
Multi-DivisionalStructure(M-form)
Related-Constrained
Strategy
Related-Linked
Strategy
Unrelated /Holding
Company Strategy
Three Variations of theMulti-Divisional Structure
12-20 © 2006 by Nelson, a division of Thomson Canada Limited.
Product Division
Product Division
Product Division
Product Division
Product Division
President
Related-Constrained Strategy
StrategicPlanning
Corporate R&D Lab
Corporate Human
Resources
Corporate Marketing
CorporateFinance
LegalAffairsLegal
AffairsGovernment
AffairsGovernment
Affairs
• Structural integration devices create tight links among divisions
• Large corporate office with R&D likely to be emphasized
• Culture emphasizes cooperative sharing
Cooperative Form
Corp. Headquarters
12-21 © 2006 by Nelson, a division of Thomson Canada Limited.
2 Dimensions
Operations
Unit
Marketing
Unit
Finance
Unit
People
Unit
Product & Functional Matrix
Operations
Unit
Marketing
Unit
Finance
Unit
People
Unit
Operations Marketing Finance People
Operations
Unit
Marketing
Unit
Finance
Unit
People
Unit
Operations
Unit
Marketing
Unit
Finance
Unit
People
Unit
Manager
Product A
Manager
Product B
Manager
Product C
Manager
Product D
Each Unit reports to Functional AND Project Managers
Senior Management
Each Project has Functional Units
Product Functional
12-22 © 2006 by Nelson, a division of Thomson Canada Limited.
DivisionDivisionDivisionDivisionDivisionDivision
Strategic Business
Unit A
Strategic Business
Unit C
Strategic Business
Unit B
Strategic Business
Unit D
Related-Linked Strategy
PresidentPresident
Corporate Finance
Corporate R&D
Corporate Marketing
Strategic Planning
Corporate Human
Resources
•Structural integration exists among divisions within but not across SBUs
•Each SBU may have its own budget for staff to foster integration
•Corp. headquarter’s staff serve as consultants to SBUs & divisions
SBU FormCorp.
Headquarters
12-23 © 2006 by Nelson, a division of Thomson Canada Limited.
Unrelated /Holding Company Strategy
•Corporate headquarters (HQ) has a small staff
•Finance and auditing are the most prominent functions in the HQ
•Divisions are independent & separate for financial evaluation
•Divisions retain strategic control, but cash is managed by corp. office
•Divisions compete for corporate resources
Competitive Form
PresidentPresident
LegalAffairs
Finance Auditing
DivisionDivisionDivisionDivision Division
Corp. Headquarters
12-24 © 2006 by Nelson, a division of Thomson Canada Limited.
Structural Characteristics
CentralizationOf Operations
Use ofIntegrating
Mechanisms
DivisionalPerformance
Appraisal
DivisionalIncentive
Compensation
Type of Strategy
Cooperative M-Form
SBU M-Form
Competitive M-Form
Centralized atCorporate Office
Centralizedin SBUs
Decentralizedto Division
Linked to Corporate
Performance
Linked toCorporation,
Division & SBU
Linked toDivisional
Performance
ExtensiveSynergies
ModerateSynergies
NonexistentSynergies
FinancialCriteria
Strategic &FinancialCriteria
Subjective/StrategicCriteria
Related-Constrained
RelatedLinked
Unrelated
Characteristics of Diversification Strategies
12-25 © 2006 by Nelson, a division of Thomson Canada Limited.
• Product characteristics tailored to local preferences
Worldwide Geographic Area Structure
MultinationalMultinationalHeadquartersHeadquarters EuropeEurope
UnitedUnitedStatesStates
MiddleMiddleEast/East/AfricaAfrica
CanadaCanada
AsiaAsia
LatinLatinAmericaAmerica
Multidomestic StrategyMultidomestic Strategy
• Isolation from global competition
– establish protected market positions, compete in industry
– segments most affected by differences among local countries
12-26 © 2006 by Nelson, a division of Thomson Canada Limited.
• Standardized products Standardized products across countriesacross countries
• Economies of scope Economies of scope and scaleand scale
Worldwide Product Divisional Structure
GlobalGlobalCorporateCorporate
HeadquartersHeadquarters
WorldwideWorldwideProductsProductsDivisionDivision
WorldwideWorldwideProductsProductsDivisionDivision
WorldwideWorldwideProductsProductsDivisionDivision
WorldwideWorldwideProductsProductsDivisionDivision
WorldwideWorldwideProductsProductsDivisionDivision
WorldwideWorldwideProductsProductsDivisionDivision
Global StrategyGlobal Strategy
• Outsource some Outsource some primary or support primary or support activities to the world’s activities to the world’s best providersbest providers
• Decision-making Decision-making authority centralized in authority centralized in worldwide division worldwide division headquartersheadquarters
12-27 © 2006 by Nelson, a division of Thomson Canada Limited.
Strategic NetworksA Strategic Network is a grouping of organizations that has been formed to create value via participation in a set of cooperative arrangements (such as a strategic alliance).
A Strategic Centre firm often manages the network
The Strategic Centre firm identifies actions that increase the opportunity for each firm to achieve success through its participation in the network.
The Strategic Centre firm creates incentives that reduce the probability of any single firm taking advantage of its network partners.
12-28 © 2006 by Nelson, a division of Thomson Canada Limited.
StrategicCentreFirm
StrategicCentreFirm
Centre firm is engaged in four primary tasks – Strategic Outsourcing, Competencies, Technology & A Race to Learn.
A Strategic Network
12-29 © 2006 by Nelson, a division of Thomson Canada Limited.
Primary tasks of the Strategic Centre Firm
Strategic Outsourcing: Outsourcing and partnering with more firms than the other network firms.
Competencies: Seeks ways to support each member’s efforts to develop core competencies that can benefit the network.
Technology: Responsible for managing the development & sharing of technology based ideas among network members.
Race to Learn: Guides participants in efforts to form network-specific competitive advantages.
12-30 © 2006 by Nelson, a division of Thomson Canada Limited.
MainStrategic
CentreFirm
MainStrategic
CentreFirm
Distributed Strategic Centre Firms
A Distributed Strategic Network
International Cooperative Strategies often require more complex networks.
Many large multinational firms form distributed strategic networks with multiple regional strategic centres to manage their array of cooperative arrangements with partner firms.
Breaking big networks into multiple manageably-sized ones helps to manage the complexity of maintaining many relationships.
12-31 © 2006 by Nelson, a division of Thomson Canada Limited.
The Strategic Management Process
Chapter 8:Acquisition & Restructuring
Chapter 9:International
Strategy
Chapter 10:Cooperative
Strategy
Strategy Formulation
Chapter 11:Corporate
Governance
Ch. 12: Org. Structure & Controls
Chapter 13:Strategic
Leadership
Chapter 14:Org. Renewal & Innovation
Strategy Implementation
StrategicActions
Chapter 3:The External Environment
Strategic Competitiveness
Strategic Mission & Strategic Intent
Strategic Objectives & Inputs
Chapter 1: Strategic
ManagementStrategic
Competitiveness Ch. 2: Strat. Mgmt . &
Performance
Chapter 3:The External Environment
Chapter 3:The External Environment
Chapter 4:The Internal Environment
Chapter 5: Bus.-Level Strategy
Chapter 6:Competitive Dynamics
Chapter 7:Corp.-Level
Strategy
Ch. 12: Org. Structure & Controls