Chapter Ten Implementing Strategy: Creating Effective Organizational Designs.

Chapter Ten

Implementing Strategy:Creating Effective

Organizational Designs

CHAPTER 10McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights

reserved.

STRATEGIC MANAGEMENT Gregory G. Dess and G. T. Lumpkin

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

• The importance of organizational structure and the concept of the “boundary-less” organization in implementing strategies

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

• Each of the traditional types of organizational structure—simple, functional, divisional, and matrix

• The relative advantages and disadvantages of traditional organizational structures

• The implications of a firm’s international operations for organizational structure

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

Learning Objectives

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Exhibit 10.1 Growth Patterns of Large Corporations

Phase 1Strategy: Low revenue base; simple product-market scopeStructure: Simple

Phase 2Strategy: Increase in revenues; engage in vertical integration (backward

and/or forward)Structure: Functional

Phase 3Strategy: Expand into new, related product-markets and/or geographical

areasStructure: Divisional

Phase 4Strategy: Expand into international marketsStructure: International Division, Geographic Area, Worldwide Product

Division, Worldwide Functional, or Worldwide Matrix

Phase 1Strategy: Low revenue base; simple product-market scopeStructure: Simple

Phase 2Strategy: Increase in revenues; engage in vertical integration (backward

and/or forward)Structure: Functional

Phase 3Strategy: Expand into new, related product-markets and/or geographical

areasStructure: Divisional

Phase 4Strategy: Expand into international marketsStructure: International Division, Geographic Area, Worldwide Product

Division, Worldwide Functional, or Worldwide Matrix

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Functional Structure: Advantages and Disadvantages

Chief Executive Officer or President

Manager Production

Manager Engineering

Manager Marketing

Manager R&D

Manager Personnel

Manager Accounting

Lower-level managers, specialists, and operating personnel

Exhibit 10.2TRANSPARENCY-86


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Divisional Structure: Advantages and Disadvantages


Corporate Staff

Division A

General Manager

Division B

General Manager

Division C

General Manager

Manager Production

Manager Engineering

Manager Marketing

Manager R&D

Manager Personnel

Manager Accounting

Organized similarly to Division 1

Organized similarly to Division 1

Lower-level managers, specialists, and operating personnel



reserved.


Matrix Structures: Advantages and Disadvantages


Corporate Staff

Manager Administration

and Human Resources

Manager Projects

Manager Manufacturing

Manager Engineering

Manager Marketing

Manager Public Relations

Project A

Project B

Project C

Project D



reserved.


Functional, Divisional, and Matrix Structures: Advantages and Disadvantages

Advantages Disadvantages

• Pooling of specialists enhances coordination and control• Centralized decision making enhances an organizational perspective

across functions• Efficient use of managerial and technical talent• Career paths and professional development in specialized areas are

facilitated

• Differences in functional area orientation impede communication and coordination

• Tendency for specialists to develop short-term perspective and overly narrow functional orientation

• Functional area conflicts may overburden top level decision makers

• Difficult to establish uniform performance standards

Functional Structure

Exhibit 10.5


• Increases strategic and operational control, permitting corporate-level executives to address strategic issues

• Quick response to environmental changes• Increased focus on products and markets• Minimizes problems associated with sharing resources across

functional areas• Facilitates development of general managers

• Increased costs incurred through duplication of personnel, operations, and investment

• Dysfunctional competition among divisions may detract from overall corporate performance

• Difficulty in maintaining uniform corporate image• Overemphasis on short-term performance

Divisional Structure


• Increases market responsiveness through collaboration and synergies among professional colleagues

• Allows more efficient utilization of resources• Improves flexibility, coordination, and communication• Increases professional development through broader range of

responsibility

• Dual reporting relationships can result in uncertainty regarding accountability

• Intense power struggles may lead to increased levels of conflict• Working relationships may be more complicated and human

resources duplicated• Excessive reliance on group processes and teamwork may impede

timely decision making

Matrix Structure

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Pros and Cons of the Barrier-Free Structures

Pros Cons• 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.

• Difficult to overcome political and authority boundaries both 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



reserved.


Pros and Cons Of Modular Structures

Pros Cons• 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

• Inhibits common vision through reliance on outsiders

• Diminishes future competitive advantages if critical technologies or other competences are outsourced

• Increases the difficulty of bringing 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

Exhibit 10.7 TRANSPARENCY-91


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Pros and Cons of Virtual Structure

Pros Cons• 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

• 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


Chapter Ten Implementing Strategy: Creating Effective Organizational Designs.

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