Contemporary Strategy Analysis (6th edition)

NOTES AND SUGGESTIONS ON SELF-STUDY QUESTIONS Chapter 6. Organization Structure and Management Systems
1. As DuPont expanded its product range (from explosives into paints, dyes, plastics and synthetic fibers) why do you think that the functional structure (organized around manufacturing plants and other functions such as sales, finance, and R&D) became unwieldy? Why did the multidivisional structure based on product groups facilitate administration? On page 173, I quote DuPont as the pioneer of the multidivisional company structure. Its shift from a functional to a multidivisional structure was the result of a strategy of product diversification. To understand the reasons for this shift, we need to invoke the fundamental principle of organization articulated on page 184. In answer to the question How should organizational units be defined? I observe: The fundamental issue is achieving the coordination necessary to integrate the efforts of different individuals. This implies grouping individuals according to the intensity of their coordination needs. Those individuals whose tasks require the most intensive coordination should work within the same organizational unit. Thus, when DuPont manufactured gunpowder and little else, individuals were specialized by function (e.g. manufacturing, sales, R&D) and by geographical location. However, in terms of coordination, function was more important than location. (It was more important that DuPonts sales manager in New York coordinated with other sales managers than with the manager of DuPonts New York-based plants.) However, once DuPont diversified into a wider range of products, then its coordination needs changed. For the production manager of DuPonts main Dulux paint plant, it was more important that he coordinated with the sales manager for paints and the other functional heads responsible for paint than with the production managers of DuPonts gunpowder and dynamite plants. Under a function structure, coordination between the paints plant manager and the sales manager had to occur through the corporate head office. Organizing DuPont by product groups facilitated coordination among the individuals with the most pressing coordination needs. It also facilitated the task of the corporate head office in managing the company. In particular, it could treat each product division as a profit center, establish profitability targets, and monitor return on investment. 2. Explain (with reference to a diversified, divisionalized company such as General Electric) the extent to which the multidivisional company may be regarded as a modular organization. To what degree is each division an independent entity? What are the standardized interfaces that allow the divisions to fit together into a coherent whole? A modular organization is one made up of discrete organizational units. Within each organizational unit, coordination is intense. However, between organizational units there is limited coordination. This allows a high level of decentralization of decision making to each organizational unit. In a modular system the key to coordination (i.e. ensuring that the pieces fit together) is the existence of standardized interfaces between the divisions. The multidivisional corporation is modular in structure. Each division is independent for most operational decisions (and for a high proportion of strategic decisions too). Thus, GEs jet engines divisions can make decisions without taking account of what is happening in the medical equipment division. Coordination is

achieved through standardized management systems that are common across all of GEs divisions. These include: a financial budgeting systems through which all divisions follow a common format in submitting operating accounts and making capital expenditure requests, a common strategic planning system, a common IT platform, a common HR system that evaluated individual performance and training needs, plus other corporate-wide coordinating devices. 3. Within your own organization (whether a university, company, or not-for-profit organization), which departments or activities are organized mechanistically and which organically? To what extent does the mode of organization fit the different environmental contexts and technologies of the different departments or activities? The purpose of this exercise is to recognize the characteristics of mechanistic and organic organizational forms within a familiar organization and think about the factors that influenced the choice of the particular organizational form. For example, at Georgetown University, the admissions department, the library, and the student records unit of the Registry tend to be mechanistic: tasks are rigidly defined, coordination is through rules and directives, communication is mostly vertical. Most academic departments are organically organized: tasks are flexible and broadly defined, coordination is by mutual adjustment, communication is mainly horizontal. These organizational differences reflect differences in the operating environments of these different units. Admissions, student records, and the library involve large numbers of fairly standard transactions. The operating environments are fairly stable and there is little uncertainty. As a result, these organizational units are well suited to highly systematized and mechanized processes and administrative procedures. Academic departments are involved in tasks that are less homogeneous and more uncertain: teaching, research, organizing seminars, recruiting new faculty. These activities cannot be easily systematized and tend to involve horizontal communication and ad hoc coordination. 4. The examples of Apple Computer and General Motors (see section on Functional Structure) point to a more general feature of organizational structure over the product life cycle. During the growth phase, many companies adopt multidivisional structures; during maturity and decline many companies revert to functional structures. Why might this be? (Note: you may wish to refer to Chapter 10, which outlines the main features of the life cycle model.) Firms that supply very different products (GE, Samsung, 3M) will always need to organize around product divisions. Firms that supply several similar products (see p. 187 for examples of GM and Apple) can be organized either by product division or functional department. The critical issue is: between which organizational members is coordination more important employees working in the same function but in different products, or employees across different functions within the same product? It depends, in part, on the characteristics of the environment, which in turn depend on the stage of the product life cycle. Thus, in the growth phase of the cycle, the strategic emphasis is, naturally, on growth. The emphasis of strategy is on developing new products, differentiating them to appeal to groups of customers, and launching them. These activities require close coordination between functions; coordination between products is less important. Under maturity, price competition is likely to be stronger, differentiation opportunities fewer, and the emphasis of strategy is on cost efficiency. Cross-functional capabilities such as product development become less important; effectiveness and efficiency in functional capabilities such as manufacturing, sales, marketing, and finance become more important. At the same time, differentiation between products becomes less evident. The implication is that functional organizations are more closely aligned with industry key

success factors. For example, once excess capacity emerges in production and sales, then functional structures allow for the better management of excess capacity and better allocation of capacity across products. 5. Draw an organizational chart for a business school that you are familiar with. Does the school operate with a matrix structure (e.g. are there functional/discipline-based departments together with units managing individual programs)? Which dimension of the matrix is more powerful, and how effectively do the two dimensions coordinate? How would you reorganize the structure to make the school more efficient and effective? An organizational chart may be drawn showing organizational units, or the job titles of the individuals who hold positions in the organizational structure. To the extent that each organizational unit is headed by an individual manager/coordinator, the result should be the same. Georgetown Universitys McDonough School of Business is organized as shown below. There are two primary dimensions of the organization: the program structure (represented by three Associate Deans for programs); then there is the discipline or functional structure (represented by the different academic areas, each headed by a coordinator). Hence, the School does have a matrix structure where the largest group of employees the faculty are assigned to different disciplinary areas, but also teach within the different programs. In terms of decision-making power, the discipline-based part of the structure is primary. This reflects status (within universities, professors have more status than administrators), job security (most senior professors have tenure), and actual decision-making power. Most strategic decisions concerning programs are taken by committees notably the Graduate Curriculum Committee, the Undergraduate Curriculum Committee, and the MBA Admissions Committee. These committees are dominated by faculty and chaired by a faculty member. Coordination between programs and the academic areas occurs in three principal ways: Hierarchically through the Dean. Through the different committees referred to above including the Executive Council, whose members are all School employees. Informally through personal linkages. The most important links in this respect are between the area coordinators and the program deans.

Dean
Executive Council Ugrad Curriculum Committee Graduate Curriculum Committee Technology Committee Deans Office: CFO, Communications, Special Projects Peer Review Committee Rank & Tenure Committee

Associate Dean Executive Programs

Associate Dean Graduate Programs

Associate Dean Ugrad. Programs

MBA Admissions

MBA Career Management

MBA Student Services

Deputy Dean

Coordinator, Finance & Accounting Area

Coordinator, Marketing Area

Coordinator, Management Area

Coordinator, Strategy Area

Coordinator, Operations & Decision Sciences Area