Organizational Structure. As we grow, what should our business look like? Organizational Structure. Organizational Controls.

Transcription

1 Chapters 11 Organizational As we grow, what should our business look like? 1 Organizational Organizational structure specifies the firm s formal reporting relationships, procedures, controls, and authority and decision-making processes It is critical to match organizational structure to the firm s strategy 2 Organizational Controls Organizational controls indicate how to compare actual results with expected results suggest corrective actions to take when the difference between actual and expected results is unacceptable Two types of organizational controls strategic controls financial controls 3

2 Organizational Controls: Strategic Controls Strategic Controls Concerned with examining the fit between what the firm might do (as suggested by opportunities in its external environment) what it can do (as indicated by its competitive advantages) 4 Organizational Controls: Financial Controls Strategic Controls Objective criteria Accounting-based measures Financial Controls include return on investment return on assets Market-based measures include economic value added 5 Matching Control to Strategy Relative use of controls varies by type of strategy large diversified firms using the cost leadership strategy emphasize financial controls companies and business units using the differentiation strategy emphasize strategic controls 6

3 Evolutionary Patterns of Strategy and Organizational Firms grow in predictable patterns by volume by geography integration (vertical, horizontal) through product/business diversification A firm s growth patterns determine its structural form 7 Evolutionary Patterns of Strategy and Organizational 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: simple structure functional structure multi-divisional structure (M-form) 8 Strategy and Growth Pattern: Simple Organizational form in which the ownermanager makes all major decisions directly monitors all activities Staff serves as an extension of the manager s supervisory authority Matched with focus strategies and business-level strategies commonly compete by offering a single product line in a single geographic market 9

4 Strategy and Growth Pattern: Simple Growth creates complexity managerial and structural challenges Owner-managers commonly lack organizational skills and experience become ineffective in managing the specialized and complex tasks involved with multiple organizational functions 10 Strategy and Growth Pattern: Functional Simple Sales Growth- Coordination and Control Problems Efficient implementation of formulated strategy Functional 11 Strategy and Growth Pattern: Functional Chief Executive Officer (CEO) limited corporate staff Functional line managers in dominant organizational areas production accounting marketing R&D engineering human resources Supports use of business-level strategies and some corporate-level strategies single or dominant business with low levels of diversification 12

5 Functional Chief Executive Officer R&D Strategic Planning Production Engineering Accounting Sales & 13 Strategy and Growth Pattern: Functional Differences in orientation among organizational functions can impede communication and coordination increase the need for CEO to integrate decisions and actions of business functions facilitate career paths and professional development in specialized functional areas cause functional-area managers to focus on local versus overall company strategic issues 14 Matching and Strategy Different forms of the functional organizational structure are matched to cost leadership strategy differentiation strategy integrated cost leadership/differentiation strategy differences in these forms seen in three important structural characteristics specialization centralization formalization 15

6 for Cost Leadership Strategy Operations is main function Process engineering is emphasized over R&D Large centralized staff Formalized procedures is mechanical, job roles highly structured Office of the President Centralized Staff Engineering Operations Accounting Personnel 16 for Differentiation Strategy President and Limited Staff R&D New Product R&D Operations 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 17 Strategy and Growth Pattern: Multidivisional Strategic control operating divisions each division is separate business or profit center Top corporate officer delegates responsibilities to division managers for day-to-day operations for business-unit strategy Appropriate when the firm grows through diversification 18

7 Strategy and Growth Pattern: Multidivisional Three major benefits corporate officers able to more accurately monitor the performance of each business, which simplifies the problem of control facilitates comparisons between divisions, which improves the resource allocation process stimulates managers of poorly performing divisions to look for ways of improving performance 19 Strategy and Growth Pattern: Multidivisional Simple Sales Growth- Coordination and Control Problems Efficient implementation of formulated strategy Multidivisional Functional Efficient implementation of formulated strategy Sales Growth- Coordination and Control Problems 20 Multi-al Chief Executive Officer R&D Strategic Planning Production Engineering Accounting Sales & 21

8 Three Variations of the Multidivisional Multidivisional (M-form) Cooperative Form Competitive Form Strategic Business-Unit (SBU) Form 22 Cooperative Form of Multidivisional : Related-Constrained Strategy Headquarters Office Government Affairs President Legal Affairs R&D Lab Strategic Planning Product Product Product Product Product 23 Cooperative Form of Multidivisional : Related-Constrained Strategy Structural integration devices create tight links among all divisions office emphasizes centralized strategic planning, human resources, and marketing to foster cooperation between divisions R&D is likely to be centralized Rewards are subjective and tend to emphasize overall corporate performance, in addition to divisional performance Culture emphasizes cooperative sharing 24

9 SBU Form of Multidivisional : Related-Linked Strategy Headquarters Office President R&D Lab Strategic Planning HRM SBU SBU SBU 25 SBU Form of Multidivisional : Related-Linked Strategy The SBU M-form includes an additional layer the strategic business unit between the corporate headquarters and the product divisions. There may be integration and coordination between divisions in a specific SBU. There is independence among and between SBU s. Headquarters manages approval of strategic of SBU s for the president. Individual SBU s mah have budgets and staffs for within-sbu integrating mechanisms Headquarters staff serve as consultants to SBU s and divisions on product strategy (rather than having direct input. 26 Competitive Form of Multidivisional : Unrelated Diversification Strategy Headquarters Office President Legal Affairs Auditing 27

10 Competitive Form of Multidivisional : Unrelated Diversification Strategy headquarters has a small staff and auditing are the most prominent functions in the headquarters to manage cash flow and ensure the accuracy of performance data coming from divisions The legal affairs function becomes important when the firm acquires or divests assets s are independent and separate for financial evaluation purposes s retain strategic control, but cash is managed by the corporate office s compete for corporate resources 28 Multidivisional : Other Points Complex multi-divisional structure firms may be simultaneously centralized and decentralized depending upon the various business-level strategies employed throughout the firm s individual businesses Multi-divisional structure firms use a combination of: strategic controls financial controls 29