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PowerPoint Presentation by Charlie CookThe University of West Alabama

Strategic ManagementCompetitiveness and Globalization:

Concepts and CasesMichael A. Hitt R. Duane Ireland Robert E. Hoskisson

Seventh edition

STRATEGIC

ACTIONS:

STRATEGY

IMPLEMENTATION

2007 Thomson/South-Western.All rights reserved.

CHAPTER 11

Organizational Structure

and Controls

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2007 Thomson/South-Western. All rights reserved. 112

Organizational Structure and Controls

Organizational structure specifies:The firms formal reporting relationships, procedures,

controls, and authority and decision-makingprocesses

The work to be done and how to do it, given the firms

strategy or strategies

It is critical to match organizational structure 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 shapeneeded competitive advantages

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Organizational Controls

Purposes of Organizational Controls:Guide the use of strategy.

Indicate how to compare actual results with expectedresults.

Suggest corrective actions to take when thedifference between actual and expected results isunacceptable.

Two Types of Organizational Controls

Strategic controls

Financial controls

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Strategic Controls: Subjective criteria

Are concerned with examining the fit between:

What the firm might do(opportunities in its externalenvironment).

What the firm can do(competitive advantages).

Evaluate the degree to which the firm focuses on therequirements to implement its strategy.

OrganizationalControls

StrategicControls

FinancialControls

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Financial 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 a differentiationstrategy emphasize strategic controls.

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Relationships between Strategy and Structure

Strategy and structure have a reciprocalrelationship:

Structure flows from or follows the selection of thefirms strategy but

Once in place, structure can influence currentstrategic actions as well as choices about futurestrategies.

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Evolutionary Patterns of Structure andOrganizational Structure

Firms grow in predictable patterns:

First by volume

Then by geography

Then integration (vertical, horizontal)

And finally through product/business diversification

A firms growth patterns determine its structuralform.

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Evolutionary Patterns of Structure andOrganizational Structure (contd)

All organizations require some form oforganizational structure to implement andmanage their strategies

Firms frequently alter their structure as they growin size and complexity

Three basic structure types:

Simple structure

Functional structure

Multidivisional structure (M-form)

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StrategyandStructureGrowthPattern

Sales GrowthCoordination and Control Problems

Efficient implementation

of formulated strategy

Simple Structure

Functional Structure

Sales GrowthCoordination and Control Problems

Multidivisional Structure

Efficient implementationof formulated strategy

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FIGURE11.1

Strategy andStructure Growth

Pattern

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Strategy and Structure: Simple Structure

Owner-managerMakes all major decisions directly.

Monitors all activities.

Staff

Serves as an extension of the managers supervisor

authority.

Matched with focus strategies and business-levelstrategies

Commonly complete by offering a single product linein 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 andcomplex tasks involved with multiple organizationalfunctions.

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Strategy and Structure: Functional Structure

Chief Executive Officer (CEO)Limited corporate staff

Functional line managers in dominantorganizational areas of:

Production Marketing Engineering

Accounting R&DHuman resources

Supports use of business-level strategies and

some corporate-level strategiesSingle or dominant business with low levels of

diversification

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Functional Structure (contd)

Differences in orientation among organizationalfunctions can:

Impede communication and coordination.

Increase the need for CEO to integrate decisions and

actions of business functions.

Facilitate career paths and professional developmentin specialized functional areas.

Cause functional-area managers to focus on localversus overall company strategic issues.

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Strategy and Structure: MultidivisionalStructure

Strategic Control

Operating divisions function as separate businessesor profit centers

Top corporate officer delegates responsibilitiesto 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 BenefitsCorporate officers are able to more accurately

monitor the performance of each business, whichsimplifies 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 Functional Structure

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 in threeimportant structural characteristics:

Specialization (number and types of jobs)

Centralization (decision-making authority)

Formalization (formal rules and work procedures)

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FIGURE11.2 Functional Structure for Implementationof a Cost Leadership Strategy

Notes: Operations is the main function

Process engineering is emphasizedrather than new product R&D

Relatively large centralized staffcoordinates functions

Formalized procedures allow foremergence of a low-cost culture

Overall structure is mechanical; jobroles are highly structured

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Using the Functional Structure to Implementa Cost Leadership Strategy

Operations is the main function.

Process engineering is emphasized over researchand development.

Large centralized staff oversees activities.Formalized procedures guide actions.

Structure is mechanical.

Job roles are highly structured.

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FIGURE11.3 Functional Structure for Implementationof a Differentiation Strategy

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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Using the Functional Structure to Implementa Differentiation Strategy

Marketing is the main function for tracking newproduct 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.

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Using the Functional Structure to Implementthe Integrated Cost Leadership/Differentiation Strategy

Selling products that create customer value dueto:

Their relatively low product cost through an emphasison production and process engineering, withinfrequent product changes.

Reasonable sources of differentiation based on new-

product R&D are emphasized while production andprocess engineering are not.

Used frequently in global economy

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Implementing an Integrated CostLeadership/Differentiation Strategy (contd)

The integrated form of the functional structuremust have:

Decision-making patterns that are partially centralized

and partially decentralized.Semi-specialized jobs.

Rules and procedures that allow both formal andinformal 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 controlproblems that the functional structure cant

handle.

Information processing, coordination

Control

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Corporate-Level Strategies and theMultidivisional Structure (contd)

Diversification strategy requires firm to changefrom functional structure to a multidivisionalstructure.

ch11a97

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