Strategy and Structure
Transcript of Strategy and Structure
Strategy and Structure
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Major kinds of organizational form
Simple tasks performed by a small group of people can be structured in several ways:
Individually
Self-managed team
Hierarchy of authority
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Complex Hierarchies
involve organizing large numbers of groups within extensive and potentially overlapping schemes
arises from the need not just to organize individuals into groups, but to organize groups into larger groups
Complex hierarchies are designed to address the following two issues :
- Departmentalization- Coordination of activities
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Departmentalization
Formal groupings in large organizations can be based on functional areas, geography, products, types of customers and so on
A firm should decide on the organizing dimensions based on
o economies of scale and scope o transactions costs o agency costs
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Coordination and Control Coordination involves the flow of information to facilitate decisions that
further the organization’s objectives and the distribution of decision making rights and rule
making authority within the organization.
Coordination and control choices will affect both technical efficiency and agency efficiency.
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Organizational Structure & Controls
Some structural characteristics defined Specialization Centralization Formalization
Other structural characteristics Authority, Responsibility, Degree of Integration, how
Coordination is achieved, Reporting relationships, Standardization
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The Relationship Between Strategy and Structure
Modifying current strategy or selecting a new one calls for changes to organizational structure
Reciprocal relationship - change to one causes change in the other
No one structure is superior to the others No best or optimal structure for all firms
Strategy-structure fit can lead to a competitive advantage and above average returns
Structure must match strategy Structural choice should be based on control, coordination,
and motivation issues Several structure forms can be used to implement
strategies
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Organizational Structure
Types of organizational structures
Unitary Functional Structure (U-form)
Multidivisional (M-form)
Matrix Structure
Network Structure
U-form Each department in the firm is responsible for a
particular functional area such as finance or marketing.
U-form promotes performance within the department
but makes coordination across departments difficult.
The unitary functional structure is suitable for stable conditions when operating efficiency is the prime consideration.
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The Functional (U-form) Structure
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M-form
The multidivisional firm is organized along such dimensions as
- product line - geography or - type of customers Divisional managers will be responsible for
operating decisions and the top management will handle strategic decisions.
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The Multidivisional (M-form) Structure
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Advantages of the M-form
Measuring divisional performance is easier under M-form.
Pay for performance schemes are easier to implement in managerial compensation.
Divisional managers compete for funds in the internal capital markets based on their operating performance in the past.
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Matrix Structure
A firm that uses a matrix structure is organized along two (or more) dimensions - for example, product line and geography.
In a two-dimensional matrix, an employee belongs to two hierarchies and has two bosses.
The demands of competing dimensions should be roughly equal.
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Matrix Structure
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Advantages of Matrix Structure
Matrix structure can help exploit economies of scale and scope.
A firm may need national coordination to achieve economies of scale for manufacturing a particular product and regional coordination to negotiate with large buyers for different products.
Matrix structure allows a firm to economize on scarce human resources
Having a firm wide engineering department (or marketing department) will be more efficient than maintaining a separate engineering group for each product.
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Network Structure
Designed around the worker rather than the task.
Workers or worker groups contribute to multiple organizational tasks.
Work groups are reconfigured when the tasks change.
Network of autonomous firms can function as a virtual firm.
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Network Structure
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Network Structure
Preferred when coordination costs do not outweigh the gains in technical efficiency.
Facilitates the flow of diverse information, leading to high level of new product development in high technology companies
Becoming more popular as the cost of organizing has fallen.
Internet provides a less expensive infrastructure for network organizations than traditional means of data exchange.
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Organizational Structure & Controls
Organizational Controls Guide the use of strategy, indicate how to compare actual
results with expected results, and suggest corrective actions to take when the difference is unacceptable
Are an important aspect of structure Help managers recognize when it is time to adjust structure Firms use strategic, financial, and behavioral controls to
support their strategies
Contingency theory
Three factors that affect the relative efficiency of different structures
Technology and task interdependence Information flow The tension between integration and
differentiation Contingency factors are not sufficient for
understanding a firm structure.
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