Organizational Structure and Controls
Organizational structure specifies
- the firms formal reporting relationships, procedures, controls, and authority and decision making processes
- the work to be done and how to do it given the firms strategy or strategies
It is critical to match organization structure to the firms strategy
Orgainzational Structure
Effective structures provide:
- Stability
- flexibility
Structural stability provides:
- the capacity required to consistently and predictably manage daily work routines
Structural flexibility provides for:
- the opportunity to explore competitive possibilities
- the allocation of resources to activities that shape needed competitive advantages
Orgainzational Controls
Purpose of organizational controls
- Guide the use of strategy
- Indicates 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 organisational controls
a) Strategic Controls
- Concerned with examining the fit between:
- what the firm might do (opportunities in its external environment)
- what a firm can do (competitive advantage)
Evaluate the degree to which the firm focuses on the requirements to implement its strategy
b) Financial Controls: Objective Criteria
- Accounting based measures
- Return on Investment
- Return on Assets
Matching Control to Strategy
Relative use of controls varies by type of strategy
- Large diversified firms using a cost leadership startegy emphasise financial controls
- Firms and business units using a differentiation strategy
Evolutionary patterns of Structure and organizational Structure
- Firms grow in predictable patterns
- First by volume
- then by geography
- then integration (vertical, horizontal)
- and finally through product/business diversification
- A firms growth patterns determine its structural form
- All organizations require some form of organizational structure to implement and manage their strategies
- Three basic structure types
- Simple structure
- Functional structure
- Multidivisional structure (M-form)
Strategy and Structure Growth Pattern
- Simple Structure –> Sales Growth –> Sales Growth (Coordination and Control Problems) –> Functional Structure –> Sales Growth (Coordination and Control Problems) –> Multidivisional Structure
a) Simple Structure
Owner Manager
- Makes all major decisions directly
- Monitors all activities
Staff
- Serves as an extension of the managers supervisor authority
Matched with focus strategies and business level strategies
- Commonly compete by offering a single product line in a single geographic market
b) Functional Structure
Chief Executive Officer (CEO)
- Limited corporate staff
Functional line managers in dominant areas of:
- production
- marketing
- engineering
- human resources
- accounting
- R&D
Supports use of business level strategies and some corporate level strategies
- Single or dominant business with low levels of diversification
For Cost Leadership
- Operations is the main function
- Process engineering is emphasized over research and development
- Large centralised staff oversees activities
- Formalised procedures guide actions
- Structure is mechanical
- Job roles are highly structured
For Differentiation Strategy
- New product R&D is emphasised
- Most functions are decentralised
- Formalization is limited to foster change and promote new ideas
Integrated Cost Leadership/Differentiation Strategy
- their relatively low product cost through an emphasis on production and process engineering
- reasonable sources of differentiation based on new product R&D are emphasised while production and process engineering are not
c) Multidivisonal Structure
- Increasing diversification creates control problems that the functional structure can not handle
- Information processing, coordination
- Control
- Diversification strategy requires firm to change from functional structure to a multidivisonal structure
- Different levels of diversification create the need for implementing of a unique form of the multidivisional structure
Related Constrained Strategy
- Horizontal integration is used to bring about interdivisional cooperation
- Sharing divisional competencies facilitates development of economies of scope
- To foster divisional cooperation teh corporate office emphasises centralization of
- Strategic planning
- human resources
- Marketing
- R&D is likely to be centralized
Related Linked Strategy
- Strategic business unit (SBU) form is a structure consisting of three levels
- Corporate headquarters
- Strategic business units (SBUs)
- SBU divisions
- Divisions within SBUs share:
- products, or markets or both
- Divisions within SBUs develop economies of scope and/or scale by sharing product or market competencies
- Each SBU is a profit centre (financial) controlled and evaluated by the headquarters office
Unrelated Strategy
- A structure in which there is complete interdependence among the firms divisions
- Divisions do not share common corporate strengths
- Because strengths aren’t shared , integrating devices aren’t developed
- Organizational arrangements emphasise divisional competition rather than cooperation
Worldwide Product Divisional Structure: Implementing a aGlobal Strategy
- Global Strategy
- Allows firm to offer standardized products across country markets
- Effects on Firm
- Success depends on firms ability to develop and take advantage of economies of scope and scale on global level
- Firm tends to outsource some primary or support activities to the worlds best providers