2. Organizational Structure
ļ¬Organizational design
ā Selecting the structure and control
systems that are most strategically
effective for pursuing sustainable
competitive advantage.
ļ¬The role of structure and control
ā To coordinate strategy implementation.
ā To motivate and provide incentives for superior
performance.
3. The Role of Organizational
Structure
ļ¬Building blocks of organizational structure
ā Differentiation in the allocation of people and
resources to create value.
ļ¬ Vertical differentiation in the
distribution of decision-making
authority.
ļ¬ Horizontal differentiation in
dividing up people and tasks
into functions and divisions.
ā Integration
ļ¬ The means used in coordinating people and functions
to accomplish organizational tasks.
4. Differentiation, Integration,
Bureaucratic Costs
ļ¬Bureaucratic costs and strategy implementation:
ā Bureaucratic costs increase with
organizational complexity.
ā More differentiation = more managers.
ā More integration = more coordination.
ā Better strategy implementation = better bottom-line
performance and profitability.
5. Vertical Differentiation
ļ¬Span of control (division of authority)
ā The number of subordinates that a single manager
directly manages.
ļ¬Organizational hierarchy choices
ā Flat structures
ļ¬ Few organizational levels
ļ¬ Wide spans of control
ā Tall structures
ļ¬ Many organizational levels
ļ¬ Narrow spans of control
7. Problems with Tall Structures
ļ¬Principle of minimum chain of command
ā Maintaining a hierarchy with the least number of
levels of authority needed to achieve a strategy.
ļ¬Sources of bureaucratic costs:
8. Centralization or Decentralization
ļ¬Authority patterns in organizations:
ā Centralized
ļ¬ Decision making retained in the
hands of upper-level managers.
ā Decentralized
ļ¬ Decisions delegated to lower
levels in the organization.
9. Centralization (Structural) Choice?
ļ¬Advantages of
decentralization
ā Reduced information
overload on upper
managers.
ā Increased motivation and
accountability throughout
organization.
ā Fewer managers; lower
bureaucratic costs.
ļ¬Advantages of
centralization
ā Easier coordination of
organizational activities.
ā Decisions fitted to broad
organizational objectives.
ā Exercise of strong
leadership in crisis.
ā Faster decision making and
response.
10. Horizontal Differentiation
ļ¬Focus is on division and grouping of tasks to
meet business objectives.
ļ¬Simple structure:
ā Characteristic of small entrepreneurial companies.
ā Entrepreneur takes on most managerial roles.
ā No formal organization arrangements.
ā Horizontal differentiation is low.
11. 11
ļ¬ Structure Follows Strategy:
ā Changes in corporate strategy lead to
changes in organizational structure
12. 12
ļ¬ Structure Follows Strategy:
ā¢ New strategy is created
ā¢ New administrative problems emerge
ā¢ Economic performance declines
ā¢ New appropriate structure is invented
ā¢ Profit returns to its previous levels
13. 13
ļ¬ Stages of corporate development
ļ¬ Simple Structure
ļ¬ Functional Structure
ļ¬ Divisional Structure
ļ¬ Beyond SBUās
14. 14
ļ¬ Simple Structure:
ā Stage I:
ļ¬ Entrepreneur
ā Decision making tightly controlled
ā Little formal structure
ā Planning short range/reactive
ā Flexible and dynamic
15. 15
ļ¬ Functional Structure:
ā Stage II:
ļ¬ Management team
ļ¬ Functional specialization
ļ¬ Delegation decision making
ļ¬ Concentration/specialization in industry
16. 16
ļ¬ Divisional Structure:
ā Stage III:
ļ¬ Diverse product lines
ļ¬ Decentralized decision making
ļ¬ SBUās
ļ¬ Almost unlimited resources
18. Functional Structure
ļ¬Advantages
ā Task grouping facilitates
specialization and
productivity.
ā Better monitoring of work
processes, reduced costs.
ā Greater control over
organizational activities.
ļ¬Disadvantages
ā Functional orientation
creates communication
problems.
ā Performance and
profitability measurement
problems.
ā Location versus function
problems (coordination).
ā Strategic problems due to
structural (vertical and
horizontal) mismatches.
20. Mutlitdivisional Structure
ļ¬Advantages
ā Enhanced corporate
control by division
ā Enhanced strategic
control of each SBU in
portfolio
ā Growth is easier. New
units donāt have to be
integrated across
organization
ā Stronger pursuit of
internal efficiencies.
Performance of individual
units is readily
measurable.
ļ¬Disadvantages
ā Establishing the divisional-
corporate authority
relationship
ā Distortion of information by
divisions
ā Competition for resources
by divisions
ā Transfer pricing problems
between divisions
ā Short-term research and
development focus
ā Bureaucratic costs
22. Matrix Structure
ļ¬Advantages
ā Flexibility of the structure and membership
ā Minimum of direct hierarchical control
ā Maximizes use of employeesā skills
ā Motivates employees;
frees up top management
ļ¬Disadvantages
ā High bureaucratic costs
ā High costs (time and money) for building
relationships
ā Two-boss employeeās role conflict
24. 24
ļ¬ Network Structure:
ā ānon structureā ā elimination of in-house
business functions
ā Termed āvirtual organizationā
ļ¬ Useful in unstable environments
ļ¬ Need for innovation and quick response
26. 26
ļ¬ Effective implementation requires:
ā Leadership
ļ¬ Leading people to use their abilities and skills
most effectively and efficiently to achieve
organizational objectives
27. 27
ļ¬ Staffing follows strategy:
ā Matching the manager to the strategy
ļ¬ Executive type
ā Executives with a particular mix of skills and
experiences
29. 29
Matching Chief Executive āTypesā with
Strategy
Average
HighLow
Business Strength/Competitive Position
Strong
GrowthāConcentration
Dynamic Industry Expert
Stability
Cautious Profit Planner
Retrenchmentā
Close Company
Professional
Liquidator
Retrenchmentā
Save Company
Turnaround
Specialist
IndustryAttractiveness
Medium
Weak
GrowthāDiversification
Analytical Portfolio
Manager
30. 30
ļ¬ Managing corporate culture:
ā Corporate culture
ļ¬ Affects firmās ability to shift its strategic direction
ļ¬ Strong tendency to resist change
ļ¬ Corporate culture should support the strategy
31. 31
ļ¬ Strategy-Culture Compatibility:
ā Consider the following:
ļ¬ Is the planned strategy compatible with the firmās
current culture?
ļ¬ Can the culture be easily modified to make it more
compatible with new strategy?
ļ¬ Is management willing to make major
organizational changes?
ļ¬ Is management committed to implementing the
strategy?
32. 32
ļ¬ Managing corporate culture:
ā Communication
ļ¬ Key to effective management of change
ļ¬ Rationale for strategic change should be
communicated to all
33. What Is Organizational Culture?
ļ¬Culture
ā The collection of values and norms shared by people and
groups in an organization.
ā Shared values and a common culture increase integration
and improve coordination.
ļ¬Values
ā Beliefs and ideas about common goals and proper
behaviors.
ļ¬Norms
ā Act as guidelines or expectations that prescribe acceptable
behavior by organizational members.
35. Culture and Strategic Leadership
ļ¬The influence of the founder
ā Initial cultural values and management
style is imprinted on the organization
by its founder.
ļ¬Organizational structure
ā Structure follows strategy.
Strategic leadership affects
the cultural norms and values
that develop in the organization.
36. Strategic Reward Systems
ļ¬Individual reward systems
ā Piecework plans
ā Commission systems
ā Bonus plans
ā Promotion
ļ¬Group and organizational
reward systems
ā Group-based bonus systems
ā Profit sharing systems
ā Employee stock option systems
ā Organization bonus systems