organizational structure

Production Finance Engineering Accounting Sales & Marketing Human Resources Functional Structure Chief Executive Officer Corporate Finance Corporate R&D Corporate Marketing Corporate Hum

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Chapter 3

Internal Environment

Process

Strategic Intent

Strategic Mission

Strategic Competitiveness Above Average Returns

Chapter 6

Corporate-Level Strategy

Chapter 8

International Strategy

Chapter 9

Cooperative Strategies

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Structure Types

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 StructureMulti-divisional Structure (M-form)Simple Structure

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Strategy & Structure

Multidivisional Structure

Functional Structure

Simple Simple Structure

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Simple Structure

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

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First stage beyond a Simple Structure

Appropriate 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 and

actions from a company-wide point of view

Risks conflicts between myopic function managers

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Production Finance Engineering Accounting Sales &

Marketing

Human Resources

Functional Structure

Chief Executive Officer

Corporate Finance

Corporate R&D

Corporate Marketing

Corporate Human Resources Strategic

Planning

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Marketing Engineering Operations Personnel Accounting

Functional Structure for

Cost Leadership Strategy

Office of the President

• Formalized procedures allow

for low-cost culture

• Structure is mechanical; job

roles are highly structured

Relatively large centralized staff coordinates

functions

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•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

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Multi-Divisional Structure

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

Managers try to strike a balance between:

Competing among divisions for scarce capital resources

Creating opportunities for cooperation to develop synergies

The goal is to maximize overall firm performance

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Balance on these dimensions may change over time

The decision-making of managers in a

Multi-Divisional structure may be:

Centralized or Decentralized Bureaucratic or Non-bureaucratic

Changes in strategy Degree of diversification Geographic scope

Nature of competition

Structure will evolve over time with:

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Division Division Division Division

Production Finance Engineering Accounting Sales & Human

Chief Executive Officer

Corporate R&D

Strategic Planning

Corporate Human Resources

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Form

Cooperative

Form Strategic Business Unit (SBU) Structure

Strategic Business Unit

(SBU) Structure Competitive Form

Competitive

Form

Variations of the Multi-Divisional Structure

Multi-Divisional

Structure (M-form)

Multi-Divisional

Structure (M-form)

Related-Constrained

Strategy Related-LinkedStrategy Unrelated /HoldingCompany Strategy

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Product Division

Product

Division

Product Division

Corporate

R&D Lab

Legal Affairs

Cooperative Form

President Related-Constrained Strategy

Government Affairs

• Structural integration devices create tight links among all divisions

• Large corporate office with R&D likely to be centralized

•

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Corporate

R&D

Division Division

Division

Strategic Business Unit C

Division

Strategic Business Unit B

Strategic Business Unit D

• Structural integration exists among divisions within SBUs, but not across SBUs

• Each SBU may have its own budget for staff to foster integration

• Corporate headquarters staff serve as consultants to SBUs and divisions

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Competitive Form

Unrelated /Holding Company Strategy

President

Legal Affairs Finance Finance

• Corporate headquarters has a small staff

• Finance and auditing are the most prominent functions in the headquarters

• Divisions are independent and separate for financial evolution purposes

• Divisions retain strategic control, but cash is managed by the corporate office

Auditing

Division

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The choice between centralization and decentralization

is frequently based on the business-level strategy

implemented in each division

Complex Multi-Divisional structure firms may be

simultaneously centralized and decentralized ,

depending upon the various business-level strategies

employed throughout the firm’s individual businessesMulti-Divisional structure firms use a combination of:

Financial Controls Strategic Controls

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Attributes of Various Structural Forms

Centralized at Corporate Office Centralized in SBUs Decentralized to Division

Linked to Corporate Performance

Linked to Corporation, Division & SBU

Linked to Divisional Performance

Extensive Synergies Moderate Synergies Nonexistent Synergies

Financial Criteria

Strategic &

Financial Criteria

Subjective/

Strategic Criteria Related- Constrained Related Linked Unrelated

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North

Latin America Africa

Product A Product B Product C Product D

Product A

Evolution of Multi-Divisional Structure

Chief Executive Officer Corporate Office (Staff)

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

North

Latin America Africa

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Multinational Headquarters

Asia UnitedUnitedStatesStates

Latin America

Latin America Europe

Africa

Middle East/

Africa

• Green circles indicate decentralization of operations

• Emphasis is on differentiation by local demand to fit a culture

• Corporate headquarters coordinates financial resources among independent subsidiaries

• The organization is like a decentralized federation

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A Structural evolution based on Product lines

usually implies a Global International Strategy

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Implementation of a Global Strategy

• Headquarters also allocates financial resources cooperatively

• The organization is like a centralized federation

Multinational Headquarters

Worldwide Products Division

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A Transnational International Strategy is likely

to utilize a structure and that results in emphasis

on both geographic and product structures

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Strategic Networks

A Strategic Network is a grouping of organizations

that has been formed to create value through

participation in an array of cooperative arrangements, such as a strategic alliance

A Strategic Center Firm often manages the network

The Strategic Center Firm identifies actions that

increase the opportunity for each firm to achieve

success through its participation in the network

The Strategic Center Firm creates incentives that

reduce the probability of any single firm taking

advantage of its network partners

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A Strategic Network

Strategic Center Firm

Network Firms

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Strategic Center Firm’s Critical Functions

Strategic Outsourcing Capability Development Technology Sharing

Building Linkages to Facilitate Learning

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Strategic Outsourcing

Center firm coordinates outsourcing among partners,

initiates actions and coordinates problem solving

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Strategic center firm manages the development and sharing

technology-based ideas among network partners

Capability and Technology

Center firm attempts to develop each partner’s core

competencies and provides incentives for network firms to

share their capabilities and competencies with partners

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Building Linkages to Facilitate Learning

Strategic center firm emphasizes to partners the need to build

linkages between value chains and networks of value chains.

The strategic network seeks to develop a competitive

advantage in primary or support activities

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A Distributed Strategic Network

Main Strategic Center Firm

Distributed Strategic Center Firms International Cooperative Strategies often require more complex networks

Many large multinational firms form distributed strategic networks with

multiple regional strategic centers to manage their array of cooperative

arrangements with partner firms

Breaking large networks into multiple manageably-sized networks

helps to manage the complexity of maintaining many relationships

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