chapter 11 chapter 11

Ch11-1

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 Publishing©2000 South-Western College Publishing

Ch11-2

CompetitivenessCompetitiveness

Chapter 3Chapter 3InternalInternal

EnvironmentEnvironment

Chapter 2Chapter 2ExternalExternal

EnvironmentEnvironmentThe StrategicThe StrategicManagementManagement

ProcessProcess

The StrategicThe StrategicManagementManagement

ProcessProcess

Strategic IntentStrategic Intent

Strategic MissionStrategic Mission

StrategicStrategicCompetitivenessCompetitivenessAbove AverageAbove Average

ReturnsReturnsFeedback

Strategy FormulationStrategy Formulation

Chapter 4Chapter 4Business-LevelBusiness-Level

StrategyStrategy

Chapter 5Chapter 5CompetitiveCompetitiveDynamicsDynamics

Chapter 6Chapter 6Corporate-LevelCorporate-Level

StrategyStrategy

Chapter 8Chapter 8InternationalInternational

StrategyStrategy

Chapter 9Chapter 9CooperativeCooperative

StrategiesStrategies

Chapter 7Chapter 7Acquisitions &Acquisitions &RestructuringRestructuring

Strategy ImplementationStrategy Implementation

Chapter 10Chapter 10CorporateCorporate

GovernanceGovernance

Chapter 11Chapter 11StructureStructure& Control& Control

Chapter 12Chapter 12StrategicStrategic

LeadershipLeadership

Chapter 13Chapter 13Entrepreneurship & InnovationEntrepreneurship & Innovation

Str

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Str

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Str

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Ch11-3

Structure TypesStructure Types

All organizations require some form of organizational All organizations require some form of organizational structure to implement and manage their strategiesstructure to implement and manage their strategies

Firms frequently alter their structure as they grow in Firms 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

Ch11-4

Strategy & StructureStrategy & StructureGrowth PatternsGrowth Patterns

Sales Growth CoordinationSales Growth Coordinationand Control Problemsand Control Problems


Efficient implementationEfficient implementationof formulated strategyof formulated strategy


MultidivisionalMultidivisionalStructureStructure

MultidivisionalMultidivisionalStructureStructure





Functional Functional StructureStructure

Functional Functional StructureStructure

Simple Simple StructureStructureSimple Simple

StructureStructure

Ch11-5

Simple StructureSimple Structure

Owner / ManagerOwner / Manager

Owner/Manager makes all major decisions Owner/Manager makes all major decisions directly and monitors all activitiesdirectly and monitors all activities

Difficult to maintain this structure as Difficult to maintain this structure as the firm grows in size and complexitythe firm grows in size and complexity

Ch11-6

* 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 of Overcomes information processing limits of single owner/managersingle owner/manager

Functional department heads report to Chief Functional department heads report to Chief Executive Officer who integrates decisions and Executive Officer who integrates decisions and actions 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

Ch11-7

ProductionProductionFinanceFinance EngineeringEngineering AccountingAccountingSales & Sales &

MarketingMarketingHuman Human

ResourcesResources


Chief Executive OfficerChief Executive Officer

Corporate Corporate FinanceFinance

Corporate Corporate R&DR&D

Corporate Corporate MarketingMarketing

Corporate Corporate Human Human

ResourcesResources

Strategic Strategic PlanningPlanning

Ch11-8

MarketingMarketingEngineeringEngineering OperationsOperations PersonnelPersonnel AccountingAccounting

Functional Structure forFunctional Structure forCost LeadershipCost Leadership Strategy StrategyFunctional Structure forFunctional Structure forCost LeadershipCost Leadership Strategy Strategy

Office of the PresidentOffice of the President

CentralizedCentralizedStaffStaff

• Operations is main functionOperations is main function

• Process engineering is Process engineering is emphasized rather than new emphasized rather than new product R&Dproduct R&D

• Formalized procedures allow Formalized procedures allow for low-cost culturefor low-cost culture

• Structure is mechanical; job Structure is mechanical; job roles are highly structuredroles are highly structured

Relatively large Relatively large centralized staff centralized staff coordinates coordinates functionsfunctions

Ch11-9

MarketingMarketingNew New Product Product R&DR&D

OperationsOperationsHumanHuman

ResourcesResourcesFinanceFinance

R&DR&D MarketingMarketing

Functional Structure forFunctional Structure forDifferentiationDifferentiation Strategy Strategy

Functional Structure forFunctional Structure forDifferentiationDifferentiation Strategy Strategy

President andPresident andLimited StaffLimited Staff

• Marketing is the main function for tracking new product ideasMarketing is the main function for tracking new product ideas• New 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

Ch11-10

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 synergies Key task of corporate managers is exploiting synergies among divisionsamong divisions

Managers use a combination of strategic controls and Managers use a combination of strategic controls and financial 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 resourcesCreating 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

Ch11-11


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 DecentralizedBureaucratic or Non-bureaucraticBureaucratic or Non-bureaucratic

Changes in strategyChanges in strategy

Degree of diversificationDegree of diversificationGeographic scopeGeographic scope

Nature of competitionNature of competition

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

Ch11-12

DivisionDivision DivisionDivision DivisionDivision DivisionDivision

ProductionProductionFinanceFinance EngineeringEngineering AccountingAccountingSales & Sales &

MarketingMarketingHuman Human

ResourcesResources


Chief Executive OfficerChief Executive Officer






ResourcesResources

Ch11-13

CooperativeCooperativeFormForm

CooperativeCooperativeFormForm

Strategic Business UnitStrategic Business Unit(SBU) Structure(SBU) Structure

Strategic Business UnitStrategic Business Unit(SBU) Structure(SBU) Structure

CompetitiveCompetitiveFormForm

CompetitiveCompetitiveFormForm

Variations of theVariations of theMulti-Divisional StructureMulti-Divisional Structure

Multi-DivisionalMulti-DivisionalStructureStructure(M-form)(M-form)

Multi-DivisionalMulti-DivisionalStructureStructure(M-form)(M-form)

Related-ConstrainedRelated-ConstrainedStrategyStrategy

Related-LinkedRelated-LinkedStrategyStrategy

Unrelated /HoldingUnrelated /HoldingCompany StrategyCompany Strategy

Ch11-14

Product Product DivisionDivision





StrategicStrategicPlanningPlanning

Corporate Corporate R&D LabR&D Lab

CorporateCorporateHumanHuman

ResourcesResources

LegalLegalAffairsAffairsLegalLegal

AffairsAffairs

CorporateCorporateMarketingMarketing

CorporateCorporateFinanceFinance

Cooperative FormCooperative Form

PresidentPresident

Related-Constrained StrategyRelated-Constrained Strategy

GovernmentGovernmentAffairsAffairs

GovernmentGovernmentAffairsAffairs

• Structural integration devices create tight links among all divisionsStructural integration devices create tight links among all divisions• Large corporate office with R&D likely to be centralizedLarge corporate office with R&D likely to be centralized• Culture emphasizes cooperative sharingCulture emphasizes cooperative sharing

Ch11-15

PresidentPresidentPresidentPresident

Strategic Strategic Business Business Unit AUnit A

SBU FormSBU FormRelated-Linked StrategyRelated-Linked Strategy






ResourcesResources

DivisionDivisionDivisionDivisionDivisionDivision

Strategic Strategic Business Business Unit CUnit C

DivisionDivisionDivisionDivisionDivisionDivision

Strategic Strategic Business Business Unit BUnit B

Strategic Strategic Business Business 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

Ch11-16

Competitive FormCompetitive FormUnrelated /Holding Company StrategyUnrelated /Holding Company Strategy

PresidentPresidentPresidentPresident

LegalLegalAffairsAffairs

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

Ch11-17

Cost LeadershipCost LeadershipDecentralizationDecentralizationDifferentiationDifferentiation

CentralizationCentralization


The choice between centralization and decentralization The choice between centralization and decentralization is frequently based on the business-level strategy is frequently based on the business-level strategy implemented in each divisionimplemented in each division

Complex Multi-Divisional structure firms may be Complex Multi-Divisional structure firms may be simultaneously centralized and decentralized , simultaneously centralized and decentralized , depending upon the various business-level strategies depending upon the various business-level strategies employed throughout the firm’s individual businessesemployed throughout the firm’s individual businesses

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

Financial ControlsFinancial ControlsStrategic Controls Strategic Controls

Ch11-18

Attributes of Various Structural FormsAttributes of Various Structural Forms

Structural Structural CharacteristicsCharacteristics

Degree ofDegree ofCentralizationCentralization

Use ofUse ofIntegratingIntegratingMechanismsMechanisms

DivisionalDivisionalPerformancePerformance

AppraisalAppraisal

DivisionalDivisionalIncentive Incentive

CompensationCompensation

Type of Type of StrategyStrategy

Cooperative Cooperative M-FormM-Form

SBUSBU M-FormM-Form

Competitive Competitive M-FormM-Form

Centralized atCentralized atCorporate OfficeCorporate Office

CentralizedCentralizedin SBUsin SBUs

DecentralizedDecentralizedto Divisionto Division

Linked to Linked to CorporateCorporate

PerformancePerformance

Linked toLinked toCorporation,Corporation,

Division & SBUDivision & SBU

Linked toLinked toDivisionalDivisional

PerformancePerformance

ExtensiveExtensiveSynergiesSynergies

ModerateModerateSynergiesSynergies

NonexistentNonexistentSynergiesSynergies

FinancialFinancialCriteriaCriteria

Strategic &Strategic &FinancialFinancialCriteriaCriteria

Subjective/Subjective/StrategicStrategicCriteriaCriteria

Related-Related-ConstrainedConstrained

RelatedRelatedLinkedLinked

UnrelatedUnrelated

Ch11-19

North North AmericaAmerica AustraliaAustraliaEuropeEurope AsiaAsia

Latin Latin AmericaAmerica

AfricaAfrica

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

Product AProduct A

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)

Ch11-20

A Structural evolution based on A Structural evolution based on GeographicGeographic lines usually lines usually implies a implies a Multi-DomesticMulti-Domestic International Strategy International Strategy


North North AmericaAmerica AustraliaAustraliaEuropeEurope AsiaAsia

Latin Latin AmericaAmerica

AfricaAfrica




Ch11-21

Implementation of a Implementation of a MultidomesticMultidomestic Strategy Strategy

WorldwideWorldwideGeographicGeographic

AreaAreaStructureStructure

MultinationalMultinationalHeadquartersHeadquartersMultinationalMultinationalHeadquartersHeadquarters

AsiaAsiaAsiaAsia UnitedUnitedStatesStates

UnitedUnitedStatesStates

LatinLatinAmericaAmerica

LatinLatinAmericaAmerica EuropeEuropeEuropeEurope

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 among Corporate headquarters coordinates financial resources among independent subsidiariesindependent subsidiaries

• The organization is like a decentralized federationThe organization is like a decentralized federation

Ch11-22


A Structural evolution based on A Structural evolution based on ProductProduct lines lines

usually implies a usually implies a GlobalGlobal International Strategy International Strategy




Ch11-23

Implementation of a Implementation of a GlobalGlobal Strategy Strategy

WorldwideWorldwideProductProduct

DivisionalDivisionalStructureStructure

• Green circle indicates centralization to coordinate information Green circle indicates centralization to coordinate information flow among worldwide productsflow among worldwide products

• Headquarters uses many intercoordination devices to facilitate Headquarters uses many intercoordination devices to facilitate global 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

MultinationalMultinationalHeadquartersHeadquartersMultinationalMultinationalHeadquartersHeadquarters

WorldwideWorldwideProductsProductsDivisionDivision












Ch11-24

A Transnational International Strategy is likely A Transnational International Strategy is likely to utilize a structure and that results in emphasis to utilize a structure and that results in emphasis on both geographic and product structureson both geographic and product structures


Ch11-25

Strategic NetworksStrategic Networks

A Strategic Network is a grouping of organizations A Strategic Network is a grouping of organizations that has been formed to create value through that has been formed to create value through participation in an array of cooperative arrangements, participation in an array of cooperative arrangements, such as a strategic alliancesuch as a strategic alliance

A Strategic Center Firm often manages the networkA Strategic Center Firm often manages the network

The Strategic Center Firm identifies actions that The Strategic Center Firm identifies actions that increase the opportunity for each firm to achieve increase the opportunity for each firm to achieve success through its participation in the networksuccess through its participation in the network

The Strategic Center Firm creates incentives that The Strategic Center Firm creates incentives that reduce the probability of any single firm taking reduce the probability of any single firm taking advantage of its network partnersadvantage of its network partners

Ch11-26

A Strategic NetworkA Strategic Network

StrategicStrategicCenterCenterFirmFirm


Network FirmsNetwork Firms

Ch11-27



Strategic Center Firm’s Critical FunctionsStrategic Center Firm’s Critical Functions

Strategic OutsourcingStrategic Outsourcing

Capability DevelopmentCapability Development

Technology SharingTechnology Sharing

Building Linkages to Building Linkages to Facilitate LearningFacilitate Learning

Ch11-28




Center firm coordinates outsourcing among partners, Center firm coordinates outsourcing among partners, initiates actions and coordinates problem solvinginitiates actions and coordinates problem solving

Ch11-29








Ch11-30

Strategic center firm manages the development and sharing Strategic 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 partner’s core Center firm attempts to develop each partner’s core competencies and provides incentives for network firms to competencies and provides incentives for network firms to share their capabilities and competencies with partnersshare their capabilities and competencies with partners

Ch11-31








Ch11-32



Building Linkages to Facilitate LearningBuilding Linkages to Facilitate Learning

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

The strategic network seeks to develop a competitive The strategic network seeks to develop a competitive advantage in primary or support activitiesadvantage in primary or support activities

Ch11-33

A Distributed Strategic NetworkA Distributed Strategic Network

MainMainStrategicStrategicCenterCenterFirmFirm

MainMainStrategicStrategicCenterCenterFirmFirm

Distributed Strategic Center FirmsDistributed Strategic Center Firms

International Cooperative Strategies often require more complex networksInternational Cooperative Strategies often require more complex networks

Many large multinational firms form distributed strategic networks with Many large multinational firms form distributed strategic networks with multiple regional strategic centers to manage their array of cooperative multiple regional strategic centers to manage their array of cooperative arrangements with partner firmsarrangements with partner firms

Breaking large networks into multiple manageably-sized networks Breaking large networks into multiple manageably-sized networks helps to manage the complexity of maintaining many relationshipshelps to manage the complexity of maintaining many relationships

chapter 11 chapter 11

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