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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.
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12-2 2006 by Nelson, a division of Thomson Canada Limited.
The StrategicManagement
Process
Chapter 8:
Acquisition &
Restructuring
Chapter 9:
International
Strategy
Chapter 10:
Cooperative
Strategy
Strategy Formulation
Chapter 11:
CorporateGovernance
Ch. 12: Org.
Structure &
Controls
Chapter 13:
StrategicLeadership
Chapter 14:
Org. Renewal& Innovation
Strategy
Implementation
Strategic
Actions
Chapter 3:
The External
EnvironmentStrategic
CompetitivenessStrategic Mission
& Strategic Intent
Strategic
Objectives & Inputs
Chapter 1:
Strategic
Management
Strategic
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
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12-3 2006 by Nelson, a division of Thomson Canada Limited.
Organizational Structure & Controls
Knowledge Objectives:
Discuss organizational structure & controls & discuss thedifference between strategic & financial controls
Describe the relationship between strategy & structure
Discuss the functional structures used to implementbusiness-level strategies
Explain the use of 3 versions of multidivisional (M-Form)structure to implement different diversification strategies
Discuss the organizational structures used to implementthree international strategies
Define strategic networks & strategic centre firms
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Organizational Structure
Organizational structure & the controls that are apart of it affect firms performance.
When the firms strategy is not matched with the
most appropriate structure & controls,performance declines.
Specifies the firms formal reporting
relationships, procedures, controls & authority,and decision making process.
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Organizational Structure
Influences how managers work & the decisionsresulting from that work.
Specifies the work to be done & how to do itgiven the firms strategy or strategies.
Provides the stability a firm needs to successfullyimplement its strategies & maintain its
competitive advantages.
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Organizational Structure
Structural Flexibility: Provides the opportunity
to explore competitive possibilities & allocate
resources to activities that will shape thecompetitive 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 its daily work routines.
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Organizational Controls
Guide the use of strategy. Indicate how to compare actual with expected results.
Suggest corrective action when differences betweenactual & 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
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Financial Controls
Largely financial objective criteria used tomeasure the firms performance against
previously established quantitative standards.
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All organizations require some form oforganizational structure to implement andmanage their strategies.
Firms frequently alter their structure as theygrow in size and complexity.
Three basic structure types:
Functional Structure
Multi-divisional Structure (M-form)
Simple Structure
Structure Types
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Functional Structure
Efficient implementationof formulated strategy
Multidivisional Structure
Efficient implementationof formulated strategy
Simple Structure
Strategy & Structure
Growth Patterns
Sales GrowthCoordination&Control Problems
Sales GrowthCoordination&Control Problems
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Owner / Manager
Owner/Manager makes all major decisionsdirectly and monitors all activities.
Difficult to maintain this structure as
the firm grows in size and complexity.
Simple Structure
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*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 ofsingle owner/manager
Functional department heads report to ChiefExecutive Officer who integrates decisions &actions from a company-wide point of view.
Risks conflict between myopic functional managers
Functional Structure
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ProductionFinance Engineering AccountingSales &
MarketingHuman
Resources
Chief Executive Officer
CorporateFinance
CorporateR&D
CorporateMarketing
CorporateHuman
Resources
StrategicPlanning
Functional Structure
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Office of the President
CentralizedStaff
Operations are the main functionFormalized procedures allow for
low-cost culture
Structure is mechanical; job rolesare highly structuredProcess engineering is
emphasized rather thannew product R&D
Relativelylarge
centralizedstaff
coordinatesfunctions
MarketingEngineering Operations Personnel Accounting
Functional Structure for
Cost LeadershipStrategy
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MarketingNew Product
R&DOperations
HumanResources
Finance
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 forDifferentiationStrategy
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Each division is operated as a separate business.
Appropriate for related-diversified businesses.
Key task of corporate managers is exploitingsynergies among divisions.
Managers use a combination of strategic controlsand 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
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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
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Division Division Division Division
Chief Executive Officer
CorporateFinance
CorporateR&D
CorporateMarketing
StrategicPlanning
CorporateHuman
Resources
Multi-Divisional Structure
ProductionFinance Engineering AccountingSales &
MarketingHuman
Resources
Corp.
Headquarters
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CooperativeForm
Strategic Business Unit(SBU) Structure
CompetitiveForm
Multi-DivisionalStructure(M-form)
Related-Constrained
Strategy
Related-Linked
Strategy
Unrelated/HoldingCompanyStrategy
Three Variations of theMulti-Divisional Structure
C ti F
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Product
Division
Product
Division
Product
Division
Product
Division
Product
Division
President
Related-Constrained Strategy
StrategicPlanning
CorporateR&D Lab
CorporateHumanResources
CorporateMarketing
CorporateFinance
LegalAffairs
GovernmentAffairs
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
P d t & F ti l M t i
P d t F ti l
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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 toFunctional AND Project
Managers
SeniorManagement
Each Project hasFunctional Units
Product Functional
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12-22 2006 by Nelson, a division of Thomson Canada Limited.
DivisionDivisionDivisionDivisionDivisionDivision
StrategicBusinessUnit A
StrategicBusiness
Unit C
StrategicBusiness
Unit B
StrategicBusiness
Unit D
Related-Linked Strategy
President
CorporateFinance
CorporateR&D
CorporateMarketing
StrategicPlanning
CorporateHuman
Resources
Structural integration exists among divisions within but not across SBUsEach SBU may have its own budget for staff to foster integrationCorp. headquarters staff serve as consultants to SBUs & divisions
SBU Form
Corp.Headquarters
C i i F
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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 HQDivisions are independent & separate for financial evaluationDivisions retain strategic control, but cash is managed by corp. officeDivisions compete for corporate resources
Competitive Form
President
LegalAffairs
Finance Auditing
DivisionDivisionDivisionDivision Division
Corp.Headquarters
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StructuralCharacteristics
CentralizationOf Operations
Use ofIntegrating
Mechanisms
Divisional
PerformanceAppraisal
DivisionalIncentive
Compensation
Type ofStrategy
CooperativeM-Form
SBUM-Form
CompetitiveM-Form
Centralized atCorporate Office
Centralizedin SBUs
Decentralizedto Division
Linked toCorporate
Performance
Linked toCorporation,
Division & SBU
Linked toDivisional
Performance
ExtensiveSynergies
ModerateSynergies
NonexistentSynergies
Financial
Criteria
Strategic &
FinancialCriteria
Subjective/
StrategicCriteria
Related-Constrained
RelatedLinked
Unrelated
Characteristics of Diversification Strategies
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Product characteristicstailored to localpreferences
Worldwide Geographic Area Structure
MultinationalHeadquarters
Europe
UnitedStates
MiddleEast/Africa
Canada
Asia
LatinAmerica
Multidomestic Strategy
Isolation from globalcompetition establish protected
market positions,compete in industry
segments mostaffected bydifferences amonglocal countries
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Standardized productsacross countries
Economies of scope
and scale
Worldwide Product Divisional Structure
GlobalCorporate
Headquarters
WorldwideProductsDivision
WorldwideProductsDivision
WorldwideProductsDivision
WorldwideProductsDivision
WorldwideProductsDivision
WorldwideProductsDivision
Global Strategy
Outsource someprimary or supportactivities to the worldsbest providers
Decision-makingauthority centralized inworldwide divisionheadquarters
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Strategic Networks
A Strategic Network is a grouping of organizations
that has been formed to create value viaparticipation in a set of cooperative arrangements(such as a strategic alliance).
A StrategicCentre firm often manages the network
The Strategic Centre firm identifies actions thatincrease the opportunity for each firm to achievesuccess through its participation in the network.
The Strategic Centre firm creates incentives thatreduce the probability of any single firm takingadvantage of its network partners.
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StrategicCentre
Firm
Centre firm is engaged in four primary tasks Strategic Outsourcing, Competencies, Technology &A Race to Learn.
A Strategic Network
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Main
StrategicCentreFirm
Distributed Strategic Centre Firms
A Distributed
StrategicNetwork
International Cooperative Strategies often require more complexnetworks.
Many large multinational firms form distributed strategic networkswith multiple regional strategic centres to manage their array ofcooperative arrangements with partner firms.
Breaking big networks into multiple manageably-sized ones helpsto manage the complexity of maintaining many relationships.
Strategic
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12-31 2006 by Nelson a division of Thomson Canada Limited
The StrategicManagement
Process
Chapter 8:
Acquisition &
Restructuring
Chapter 9:
International
Strategy
Chapter 10:
Cooperative
Strategy
Strategy Formulation
Chapter 11:
CorporateGovernance
Ch. 12: Org.
Structure &
Controls
Chapter 13:
StrategicLeadership
Chapter 14:
Org. Renewal& Innovation
Strategy
Implementation
Strategic
Actions
Chapter 3:
The External
EnvironmentStrategic
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