Strategic Management Ch12

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.


The Strategic Management Process

Chapter 8:Acquisition & Restructuring

Chapter 9:International

Strategy

Chapter 10:Cooperative

Strategy

Strategy Formulation

Chapter 11:Corporate

Governance

Ch. 12: Org. Structure & Controls

Chapter 13:Strategic

Leadership

Chapter 14:Org. Renewal & Innovation

Strategy Implementation

StrategicActions

Chapter 3:The External Environment

Strategic Competitiveness

Strategic Mission & Strategic Intent

Strategic Objectives & Inputs

Chapter 1: Strategic

ManagementStrategic

Competitiveness Ch. 2: Strat. Mgmt . &

Performance



Chapter 4:The Internal Environment

Chapter 5: Bus.-Level Strategy

Chapter 6:Competitive Dynamics

Chapter 7:Corp.-Level

Strategy



Organizational Structure & Controls

Knowledge Objectives:• Discuss organizational structure & controls & discuss the

difference between strategic & financial controls• Describe the relationship between strategy & structure

• Discuss the functional structures used to implement business-level strategies

• Explain the use of 3 versions of multidivisional (M-Form) structure to implement different diversification strategies

• Discuss the organizational structures used to implement three international strategies

• Define strategic networks & strategic centre firms


Organizational Structure

• Organizational structure & the controls that are a part of it affect firm’s performance.

• When the firm’s strategy is not matched with the most appropriate structure & controls, performance declines.

• Specifies the firm’s formal reporting relationships, procedures, controls & authority, and decision making process.



• Influences how managers work & the decisions resulting from that work.

• Specifies the work to be done & how to do it given the firm’s strategy or strategies.

• Provides the stability a firm needs to successfully implement it’s strategies & maintain it’s competitive advantages.



• Structural Flexibility: Provides the opportunity

to explore competitive possibilities & allocate

resources to activities that will shape the

competitive 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 it’s daily work routines.


Organizational Controls

• Guide the use of strategy.

• Indicate how to compare actual with expected results.

• Suggest corrective action when differences between actual & 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


Financial Controls

• Largely financial objective criteria used to measure the firm’s performance against previously established quantitative standards.


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 Structure

Multi-divisional Structure (M-form)

Simple Structure

Structure Types


Functional StructureFunctional Structure

Efficient implementationof formulated strategy


Multidivisional StructureMultidivisional Structure



Simple StructureSimple Structure

Strategy & StructureGrowth Patterns

Sales Growth Coordination & Control Problems





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.

Simple Structure


** 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 of single owner/manager

Functional department heads report to Chief Executive Officer who integrates decisions & actions from a company-wide point of view.

Risks conflict between myopic functional managers



ProductionFinance Engineering AccountingSales &

MarketingHuman

Resources

Chief Executive Officer

Corporate Finance

Corporate R&D

Corporate Marketing

Corporate Human

Resources

Strategic Planning



Office of the President

CentralizedStaff

•Operations are the main function

•Formalized procedures allow for low-cost culture

•Structure is mechanical; job roles are highly structured

•Process engineering is emphasized rather than new product R&D

Relatively large

centralized staff

coordinates functions

MarketingEngineering Operations

Personnel Accounting

Functional Structure forCost Leadership Strategy


MarketingNew Product

R&D OperationsHuman

ResourcesFinance

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 forDifferentiation Strategy


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.

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


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


Centralized or Decentralized

Bureaucratic or Non-bureaucratic


Division Division Division Division

Chief Executive Officer

Corporate Finance

Corporate R&D

Corporate Marketing

Strategic Planning

Corporate Human

Resources


ProductionFinance Engineering AccountingSales &

MarketingHuman

Resources

Corp. Head

quarters


CooperativeForm

CooperativeForm

Strategic Business Unit(SBU) Structure

Strategic Business Unit(SBU) Structure

CompetitiveForm

CompetitiveForm

Multi-DivisionalStructure(M-form)

Multi-DivisionalStructure(M-form)

Related-Constrained

Strategy

Related-Linked

Strategy

Unrelated /Holding

Company Strategy

Three Variations of theMulti-Divisional Structure


Product Division

Product Division

Product Division

Product Division

Product Division

President

Related-Constrained Strategy

StrategicPlanning

Corporate R&D Lab

Corporate Human

Resources

Corporate Marketing

CorporateFinance

LegalAffairsLegal

AffairsGovernment

AffairsGovernment

Affairs

• 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


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 to Functional AND Project Managers

Senior Management

Each Project has Functional Units

Product Functional


DivisionDivisionDivisionDivisionDivisionDivision

Strategic Business

Unit A

Strategic Business

Unit C

Strategic Business

Unit B

Strategic Business

Unit D

Related-Linked Strategy

PresidentPresident

Corporate Finance

Corporate R&D

Corporate Marketing

Strategic Planning

Corporate Human

Resources

•Structural integration exists among divisions within but not across SBUs

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

•Corp. headquarter’s staff serve as consultants to SBUs & divisions

SBU FormCorp.

Headquarters


Unrelated /Holding Company Strategy

•Corporate headquarters (HQ) has a small staff

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

•Divisions are independent & separate for financial evaluation

•Divisions retain strategic control, but cash is managed by corp. office

•Divisions compete for corporate resources

Competitive Form

PresidentPresident

LegalAffairs

Finance Auditing

DivisionDivisionDivisionDivision Division

Corp. Headquarters


Structural Characteristics

CentralizationOf Operations

Use ofIntegrating

Mechanisms

DivisionalPerformance

Appraisal

DivisionalIncentive

Compensation

Type of Strategy

Cooperative M-Form

SBU M-Form

Competitive M-Form

Centralized atCorporate Office

Centralizedin SBUs

Decentralizedto Division

Linked to Corporate

Performance

Linked toCorporation,

Division & SBU

Linked toDivisional

Performance

ExtensiveSynergies

ModerateSynergies

NonexistentSynergies

FinancialCriteria

Strategic &FinancialCriteria

Subjective/StrategicCriteria

Related-Constrained

RelatedLinked

Unrelated

Characteristics of Diversification Strategies


• Product characteristics tailored to local preferences

Worldwide Geographic Area Structure

MultinationalMultinationalHeadquartersHeadquarters EuropeEurope

UnitedUnitedStatesStates

MiddleMiddleEast/East/AfricaAfrica

CanadaCanada

AsiaAsia

LatinLatinAmericaAmerica

Multidomestic StrategyMultidomestic Strategy

• Isolation from global competition

– establish protected market positions, compete in industry

– segments most affected by differences among local countries


• Standardized products Standardized products across countriesacross countries

• Economies of scope Economies of scope and scaleand scale

Worldwide Product Divisional Structure

GlobalGlobalCorporateCorporate

HeadquartersHeadquarters

WorldwideWorldwideProductsProductsDivisionDivision






Global StrategyGlobal Strategy

• Outsource some Outsource some primary or support primary or support activities to the world’s activities to the world’s best providersbest providers

• Decision-making Decision-making authority centralized in authority centralized in worldwide division worldwide division headquartersheadquarters


Strategic NetworksA Strategic Network is a grouping of organizations that has been formed to create value via participation in a set of cooperative arrangements (such as a strategic alliance).

A Strategic Centre firm often manages the network

The Strategic Centre firm identifies actions that increase the opportunity for each firm to achieve success through its participation in the network.

The Strategic Centre firm creates incentives that reduce the probability of any single firm taking advantage of its network partners.


StrategicCentreFirm

StrategicCentreFirm

Centre firm is engaged in four primary tasks – Strategic Outsourcing, Competencies, Technology & A Race to Learn.

A Strategic Network


Primary tasks of the Strategic Centre Firm

Strategic Outsourcing: Outsourcing and partnering with more firms than the other network firms.

Competencies: Seeks ways to support each member’s efforts to develop core competencies that can benefit the network.

Technology: Responsible for managing the development & sharing of technology based ideas among network members.

Race to Learn: Guides participants in efforts to form network-specific competitive advantages.


MainStrategic

CentreFirm

MainStrategic

CentreFirm

Distributed Strategic Centre Firms

A Distributed Strategic Network

International Cooperative Strategies often require more complex networks.

Many large multinational firms form distributed strategic networks with multiple regional strategic centres to manage their array of cooperative arrangements with partner firms.

Breaking big networks into multiple manageably-sized ones helps to manage the complexity of maintaining many relationships.


The Strategic Management Process

Chapter 8:Acquisition & Restructuring

Chapter 9:International

Strategy

Chapter 10:Cooperative

Strategy

Strategy Formulation

Chapter 11:Corporate

Governance


Chapter 13:Strategic

Leadership

Chapter 14:Org. Renewal & Innovation

Strategy Implementation

StrategicActions


Strategic Competitiveness

Strategic Mission & Strategic Intent

Strategic Objectives & Inputs

Chapter 1: Strategic

ManagementStrategic

Competitiveness Ch. 2: Strat. Mgmt . &

Performance



Chapter 4:The Internal Environment

Chapter 5: Bus.-Level Strategy

Chapter 6:Competitive Dynamics

Chapter 7:Corp.-Level

Strategy


Strategic Management Ch12

Education

Transcript of Strategic Management Ch12