10-1. 10-2 Creating Effective Organizational Designs McGraw-Hill/Irwin Strategic Management, 3/e...

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Creating Effective Organizational Designs

McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Chapter ten

Part 3: strategic implementation

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Learning Objectives

After reading this chapter, you should have a good understanding of:

The importance of organizational structure and the concept of the “boundaryless” organization in implementing strategies.

The growth patterns of major corporations and the relationship between a firm’s strategy and its structure.


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Learning Objectives



Each of the traditional types of organizational structure: simple, functional, divisional, and matrixThe relative advantages and disadvantages of traditional organizational structureThe implications of a firm’s international operations for organizational structure

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Learning Objectives


The different types of boundaryless organizations—barrier-free, modular, and virtual—and their relative advantages and disadvantages

The need for creating ambidextrous organizational designs that enable firms to explore new opportunities and effectively integrate existing operations


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Traditional Forms of Organizational Structure


Organizational structure refers to formalized patterns of interactions that link a firm’s

TasksTechnologiesPeople

Structure provides a means of balancing two conflicting forces

Need for the division of tasks into meaningful groupingsNeed to integrate the groupings for efficiency and effectiveness

10-7 Dominant Growth Patterns of Large Corporations


Adapted from Exhibit 10.1 Dominant Growth Patterns of Large CorporationsSource: Adapted from J. R. Galbraith and R. K. Kazanjian, Strategy Implementation: The Role of Structure and Process, 2nd ed. (St. Paul, MN: West Publishing Company, 1986), p. 139.

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Patterns of Growth of Large Corporations


Simple StructureSimple StructureSimple structure is the oldest and most common organizational form

Staff serve as an extension of the top executive’s personalityHighly informalCoordination of tasks by direct supervisionDecision making is highly centralizedLittle specialization of tasks, few rules and regulations, informal evaluation and reward system

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Functional StructureFunctional Structure

Adapted from Exhibit 10.2 Functional Organizational Structure

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Functional StructureFunctional StructureFound where there is a single or closely related product or service, high production volume, and some vertical integration

AdvantagesEnhanced coordination and controlCentralized decision makingEnhanced organizational-level perspectiveMore efficient use of managerial and technical talentFacilitated career paths and development in specialized areas

DisadvantagesImpeded communication and coordination due to differences in values and orientationsMay lead to short-term thinking (functions vs. organization as a whole)Difficult to establish uniform performance standards

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Divisional Structure


Adapted from Exhibit 10.3 Divisional Organizational Structure

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Organized around products, projects, or marketsEach division includes its own functional specialists typically organized into departmentsDivisions are relatively autonomous and consist of products and services that are different from those of other divisionsDivision executives help determine product-market and financial objectives

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AdvantagesSeparation of strategic and operating controlQuick response to important changes in external environmentMinimal problems of sharing resources across functional departmentsDevelopment of general management talent is enhanced

DisadvantagesCan be very expensiveCan be dysfunctional competition among divisionsCan be a sense of a “zero-sum” game that discourages sharing ideas and resources among divisionsDifferences in image and quality may occur across divisionsCan focus on short-term performance

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Strategic business unit (SBU) structureDivisions with similar products, markets, and/or technologies are grouped into homogenous SBUs

Task of planning and control at corporate office is more manageableMay become difficult to achieve synergies across SBUs

Appropriate when the businesses in a corporation’s portfolio do not have much in common

Lower expenses and overhead, fewer levels in the hierarchyInherent lack of control and dependence of CEO-level executives on divisional executives

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Matrix Structure


Adapted from Exhibit 10.4 Matrix Organizational Structure

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Matrix Structure


A combination of the functional and divisional structuresIndividuals who work in a matrix organization become responsible to two managers

The project managerThe functional area manager

AdvantagesFacilitates the use of specialized personnel, equipment and facilitiesProvides professionals with a broader range of responsibility and experience

DisadvantagesCan cause uncertainty and lead to intense power strugglesWorking relationships become more complicatedDecisions may take longer

10-17International Operations: Implications for Organizational Structure


Three major contingencies influence structure adopted by firms with international operations

Type of strategy driving the firm’s foreign operationsProduct diversityExtent to which the firm is dependent on foreign sales

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International Operations: Implications for Organizational Structure


Structures used to manage international operations

International divisionGeographic-area divisionWorldwide functionalWorldwide product divisionWorldwide matrix

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Boundaryless Organizational Designs


Boundaries that place limits on organizations

Vertical boundaries between levels in the organization’s hierarchyHorizontal boundaries between functional areasExternal boundaries between the firm and its customers, suppliers, and regulatorsGeographic boundaries between locations, cultures and markets

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Three approachesPermeable internal boundaries

Higher level of trust and shared interestsShift in philosophy from executive development of organizational developmentGreater use of teamsFlexible, porous organizational boundariesCommunication flows and mutually beneficial relationships with internal and external constituencies

Making Boundaries More Permeable

Barrier-free type Barrier-free type of organizationof organization

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Pros and Cons of Barrier-Free Structures


Leverages the talents of all employees

Enhances cooperation, coordination, and information sharing among functions, divisions, SBUs, and external constituencies

Enables a quicker response to market changes through a single-goal focus

Can lead to coordinated win-win initiatives with key suppliers, customers, and alliance partners

Pros Cons Difficult to overcome political

and authority boundaries inside and outside the organization

Lacks strong leadership and common vision, which can lead to coordination problems

Time-consuming and difficult-to-manage democratic processes

Lacks high levels of trust, which can impede performance

Adapted from Exhibit 10.7 Pros and Cons of Barrier-Free Structures

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Three approachesOutsources nonvital functions, tapping into knowledge and expertise of “best in class” suppliers but retains strategic controlThree advantages

Decrease overall costs, leverage capitalEnables company to focus scarce resources on areas where it holds competitive advantageAdds critical skills and accelerates organizational learning


Modular type of Modular type of organizationorganization

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Pros and Cons of Modular Structures


Directs a firm’s managerial and technical talent to the most critical activities

Maintains full strategic control over most critical activities—core competencies

Achieves “best in class” performance at each link in the value chain

Leverages core competencies by outsourcing with smaller capital commitment

Encourages information sharing and accelerates organizational learning

Pros Cons Inhibits common vision

through reliance on outsiders Diminishes future competitive

advantages if critical technologies or other competences are outsourced

Increases the difficulty of brining back into the firm activities that now add value due to market shifts

May lead to an erosion of cross-functional skills

Decreases operational control and potential loss of control over a supplier

Adapted from Exhibit 10.8 Pros and Cons of Modular Structures

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Modular type of Modular type of organizationorganization

Virtual type of Virtual type of organizationorganization

Three approachesContinually evolving network of independent companies linked together to share skills, costs, and access to one another’s markets

SuppliersCustomersCompetitors

Each gains from resulting individual and organizational learningMay not be permanent

10-25 Pros and Cons of Virtual Structures


Enables the sharing of costs and skills

Enhances access to global markets

Increases market responsiveness

Creates a “best of everything” organization since each partner brings core competencies to the alliance

Encourages both individual and organizational knowledge sharing and accelerates organizational learning

Pros Cons Harder to determine where one

company ends and another begins, due to close interdependencies among players

Leads to potential loss of operational control among partners

Results in loss of strategic control over emerging technology

Requires new and difficult-to-acquire managerial skills

Source: R. E. Miles and C. C. Snow, “Organizations: New Concepts for New Forms,” California Management Review,” Spring 1986, pp. 62-73; R. E. Miles and C. C. Snow, “Causes of Failure in Network Organizations,” California Management Review, Summer 1999, pp. 53-72; and H. Bahrami, “The Emerging Flexible Organization: Perspectives from Silicon Valley,” California Management Review, Summer 1991, pp. 33-52.

Adapted from Exhibit 10.9 Pros and Cons of Virtual Structures

10-26 Boundaryless Organizations: Making Them Work


Factors facilitating effective coordination and integration of key activities

Common culture and shared valuesHorizontal organization structuresHorizontal systems and processesCommunications and information technologiesHuman resource practices

10-1. 10-2 Creating Effective Organizational Designs McGraw-Hill/Irwin Strategic Management, 3/e...

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