Chapter 8: Structural Dynamics and Control Strategies

Objectives:

• Understand the importance of structural alignment organization;

• State the importance of organizational control;
• Explain the relationships of structure and strategy;
• Understand the growth and expansion of corporate operations;
• Give the reasons why corporate expansion is develop and its strategic action.

Structural Alignment of Organization

• Corporate strategies cannot be implemented in a vacuum.

• Organizational structure provides the framework within which strategies are used and provide
the necessary mechanism for its effective implementation and control.

• In the organizational set up, the top executives of the firm have the final responsibility for
ensuring the matching of its strategies with the appropriate organizational structure and the
changes that would be necessary when needed.

• Organizational structure- as it defines the duties and responsibilities of the people in the
organization and the implementation of effective control system. Firms’ effective performance
in implementing its strategies is greatly dependent on the organizational structure.

Organizational structure specifies the firms formal reporting relationships, procedure, control
and the authority and decision making processes.

Effective strategic leadership presupposes the ability to select the most appropriate strategies and
match it with the appropriate organizational structure that would deliver the firm to its target
objectives. Critical to this matching process is the strong relationship of strategies and the organizational
structure as it defines the duties and responsibilities of the people in the organization and the
implementation of effective control system.

• EFFECTIVE STRUCTURES PROVIDE THE STABILITY THE FIRM NEEDS TO SUCCESSFULLY

IMPLEMENT ITS STRATEGIES AND MAINTAIN ITS CURRENT COMPETETIVE ADVANTAGE.

• STRUCTURAL STABILITY IS THE CAPACITY OF THE FIRM TO CONSISTENTLY AND PREDICTABLY

MANAGE ITS ONGOING ACTIVITIES AND ITS DAILY ROUTINE WITHOUT EFFECT TO ITS DIRECTION
OF PROFITABLE OPERATION.

• AS THE FIRM EXPANDS ITS OPERATION DUE TO NEW OPPORTUNITIES AND WITH ITS
COMPETITIVE ADVANTAGE, THE FIRM MUST MODIFY THE STRUCTURE TO FIT THE CHANGES
 WITH NEW STRATEGIES. IT IS NOT FITTING FOR THE FIRM TO REMAIN IN THE STRUCTURAL
STATUS WHEN CHANGES OCCUR IN THE BUSSINESS ENVIRONMENT AS IT WILL BE COUNTER-
PRODUCTIVE TO THE CHANGES IN THE STRATEGIES

Firms designed the structure that is complex enough to facilitate the use of its strategies but simple
enough for all to implement effectively.

Top management must act proactively in changing the structure and its corresponding strategies before
the stockholder get its foot into the problem.

Changes in structure and strategies must be made before the firm experience performance decline as
dictated by market forces.

The Importance of Organizational control

• Organizational controls are important aspects of structure.

• It guides the use of strategy and indicates performance standards.

• It is difficult to achieve competitive advantage without effective control measures that provide
clear insights regarding behavioral strategies that enhance organizational performance.

• Firms rely on strategic controls and financial controls as part of their structures to support the
use of strategies. Strategic controls are subjective criteria.

• It is intended to verify that the firms are using appropriate strategies to achieve its corporate
goals and objectives against its competitive advantage in both the external and internal
environment

Organizational control- important aspect of structure, it guides the use of strategy and indicates
performance standards.

Effectiveness of control- measured the result against performance indicators.

It is difficult to achieve competitive advantage without effective control measure.

Effective strategic control- help the firm understand what it takes to be successful. It demands rich
communication system between operating managers and administrative staff.

Operating managers and administrative staff have the prime responsibility of implementing the strategic
actions.

The communication linkage could either be formal and informal as coordination demands effective
communication
CHARACTERISTICS OF STRATEGIC CONTROLS

• 1. IT HELPS FIRM UNDERSTAND WHAT IT INTEND TO DO.

• 2. THEY ARE SUBJECTIVE CRITERIA

• 3. IT EXAMINES WHAT FITS TO BE DONE

• 4. IT DEMANDS EFFECTIVE COMMUNICATION

• 5. IT VERIFIES THE SHARING OF APPROPRIATE STRATEGIES

CHARACTERISTICS OF EFFECTIVE FINANCIAL CONTROLS

• 1. FINANCIAL CONTROLS ARE EFFECTIVE INDICATORS OF PERFORMANCE

• 2. THEY ARE OBJECTIVE CRITERIAL THAT MEASURE PERFORMANCE

• 3. IT EVALUATES PRESENT PERFORMANCE AGAINST PREVIOUS RECORD

• 4. IT IS THE INDICATORS IN SAFEGUARDING THE CORPORATE ASSETS

• 5. IT ENSURES THAT TRANSACTIONS ARE PROPERLY AUTHORIZED

• 6. IT PROVIDES RELIABLE INFORMATION IN THE USE OF FINANCIAL RESOURCES

Both strategic and financial control are important aspects of each organizational structure.

The strategic and financial control interplay the achievement of desired profit objectives.

• BOTH STRATEGIC AND FINANCIAL CONTROLS ARE IMPORTANT ASPECTS OF EACH

ORGANIZATIONAL STRUCTURE.

• THE STRUCTURAL EFFECTIVENESS IS DETERMINED HOW STRATEGIC AND FINANCIAL CONTROLS

INTERPLAY IN THE ACHIEVEMENT OF THE DESIRED PROFIT OBJECTIVES. FIRMS VARY IN THE USE
OF STRATEGIC AND FINANCIAL CONTROLS

THE INTERDEPENDENCE OF STRUCTURE AND STRATEGY

• THERE EXIST A RECIPROCAL RELATIONSHIP BETWEEN STRATEGY AND STRUCTURE. STRATEGIC

FORMULATION IS THE PLAN OF ACTIONS WHILE STRATEGIC IMPLEMENTATION IS THE EXTENT
BY WHICH THE FIRM OPERATES BASED ON PLANS AND GOALS. ONCE THE STRUCTURE IS PUT IN
PLACE IT MUST INFLUENCE THE STRATEGIES THAT THE FIRM PURSUES AND DEVELOP FUTURE
STRATEGIES.

• ANY CHANGES IN THE STRUCTURE WILL REQUIRE RECIPROCAL CHANGES IN THE STRATEGY ON
HOW THE FIRM WILL COMPLETE ITS WORK IN ACHIEVING ITS CORPORATE OBJECTIVES. IN THE
DEVELOPMENT OF FIRM'S STRUCTURE, TOP EXECUTIVES MUST SEE TO IT THAT THERE EXIST A
 RECIPROCAL MATCHING OF THE STRUCTURE AND THE STRATEGY THAT PROVIDES THE STABILITY
TO USE CURRENT COMPETITIVE ADVANTAGE. IT MUST ALSO PROVIDE FLEXIBILITY THAT
PROVIDES FUTURE OPERATIONAL ADVANTAGES.

Strategic formulation is the plan of actions

Strategic implementation is the extent by which the firm operates based on plans and goals.

In the development of firms structure it must provide flexibility for future operational advantages.

PATTERNS OF RELATIONSHIPS BETWEEN STRATEGY AND STRUCTURE

A. INCREASE IN SALES VOLUME- As the firms increase its sales volume, they need people to handle
marketing and distribution of its products then later on develop its own advertising agency to
handle its promotional activities.

B. GEOGRAPHICAL DISTRIBUTION- Geographic distributors of products and services needs new

breed of managers and executives who will handle the provisional activities to cope with the
increasing demand of the market.

C. VERTICAL AND HISTORICAL INTEGRATION- This growth factor develops higher caliber of
executives who are trusted by the management in their strategies for corporate growth.

D. PRODUCT DIVERSIFICATION- The manufacturing of new product of the integration of new

technology in the production of goods needs new structure and the same time developed new
strategies to make the product survive in the market competitiveness

E. BUSINESS DIVERSIFICATION- The development of new business organization that is consistent

with the corporate expansion program to the business venture needs a more elaborate structure
that will deliver the desire profit and return on investments.

BASED ON THE ABOVE GROWTH PATTERNS THREE MAJOR ORGANIZATIONAL STRUCTURES WERE USED
TO IMPLEMENT STRATEGIES.

 Simple structure- the owner-manager makes all major decisions and supervises all operations
from production to marketing of products or services. Simple structure is matched with focus
strategy directed towards offering one line products and concentrated in certain geographic
market.
- The line organizational structure
- ADVANTAGES OF LINE ORGANIZATION
o EASE OF OPERATION AND CONTROL AS FEW LAYERS IN DECISION MAKING.
o FEW LINES IN THE STRUCTURE THAT FACILITATE COMMUNICATION.
o DIRECT AUTHORITY OF EXECUTIVE THAT GUIDES THE WORK COMPLETED IN COST
LEADERSHIP FORM.
 o RESPONSIBILITIES CAN BE PINPOINTED IMMEDIATELY THAT INCREASE EFFICIENCY.
o STRONG FOCUS ON PROCESS IMPROVEMENT WITH HIGHLY FORMALIZED RULES
AND PROCEDURE.
o THE STRUCTURE CONTRIBUTES TO LOW COSTS OPERATIONAL DYNAMICS.
- DISADVANTAGES OF LINE ORGANIZATION
o LACKS SYSTEM OF SPECIALIZATION.
o Limited opportunities for learning and growth.
- The line and staff organizational structure- supervision and control are delegated to trusted
supervisor and managers.
- ADVANTAGES OF LINE AND STAFF STRUCTURE
 SERVICES OF STAFF ASSISTANT THAT DEVELOP BETTER RESEARCH AND
DEVELOPMENT STRATEGIES.
 GREATER HORIZONTAL AND VERTICAL COMMUNICATION.
 SPECIALIZED FUNCTIONAL AREAS THAT CHARACTERIZED DIFFERENTIATION FROM.
 DELEGATION OF AUTHORITY AND RESPONSIBILITY THAT TAKES ACTION- BASED
INFORMATION.
- DISADVANTAGES OF LINE AND STAFF STRUCTURE
 MORE EXECUTIVES TO PAY.
 JEALOUSLY AMONG EXECUTIVE MAY EXIST.
 OVER CONFIDENCE CREATES LESSER CONTROL OF OPERATION.
 FUNCTIONAL STRUCTURE
- Operating officers in each unit with the board of directors as the policy making body while
corporate strategies are determined by the chief executive officer. This structure allows for
functional specialization that allows active sharing of knowledge within each functional area
thereby developing shared competencies for greater growth and expansion. Knowledge
sharing facilities career path as well as professional development of executives.
- it consist of operating officers in each unit with the board of directors as the policy making
body. Growth and product differentiation strategy it matched in this structure.
 DIVISION PRODUCT OR REGIONAL STRUCTURE
- The mother company monitors the operation of its product division or regional operations
through its corporate board of directors. While the structure provides flexibility, the chief
operating executive must work hard to verify that the decisions and actions of individual
divisions and functional units are implemented. It must support the structural
implementation of business-level strategies and some corporate-level strategies.
- ADAVANTAGES
o Effective communication and coordination
o Effective sharing of knowledge and information
o Allows functional specialization that allows innovation.
o Career path for executives and managers.
- DISADVANTAGES
o May have negative effect on communication.
 o Needs close coordination among units.
o Fewer formal rules and regulations.
o Need strong linkages of control mechanism.
 THE GROWTH OF MULTI-DIVISIONAL STRUCTURE
- Most diversified corporations continue to grow and succeed not only in the local operations
but also internationally. Managing high levels of diversification through functional structures
creates serious consideration and control problems. Successful diversification requires
analysis of substantially greater amount of data and information when firms offer the same
products and different market diversifies in foreign countries.
- The multi-national structures consist of division or diversified operational company
representing different separate firms. Each unit has its profit centers in which corporate
officer delegate responsibilities for the day to day operation and business unit strategies.
- President or chief operations executive of each unit develops their strategic plans and
actions. They operate independently and are self-contained units their own functional
hierarchy.
- Multi-national structures consist of divisions or diversified operational company
representing different or separate firms. Each unit has its own profit centers in which
corporate officer delegate responsibilities for the day to day operation and business unit
strategies. Presidents or chief operations executive of each unit develops their own strategic
plans and actions.
- ADVANTAGES
o Accurate monitoring of business performance.
o Simplified operational and problem control.
o Each unit operates as a separate center.
o Improved performance of executive and managers.
o Active performance monitoring.
o Dominant structure for multi-level corporation.

• THE MAKING OF ORGANIZATIONAL STRUCTURES SHOULD NOT BE GOOD ONLY ON PAPER

CHARTS OR FOR DISPLAY IN THE FRONT OFFICE. AS THE ORGANIZATION GROWS MORE
COMPLEX AND OPERATIONS BECOME MORE EXTENSIVE, THE CRAFTING OF THE ORGANIZATION
CHART MUST INVOLVE THE STRATEGIC COOPERATION OF TOP EXECUTIVES AND LINE
EXECUTIVES. THE DECISION TO CENTRALIZE OR DECENTRALIZE, TO INTEGRATE OR
DISINTEGRATE, FORMALIZE OR NON-FORMALIZE OR A COMBINATION OF THESE IS DIFFICULT TO
MANAGE SUCCESSFULLY.

- DISADVANTAGES
o OVER EXPANSION MAY CREATE VACUUM IN THE ORGANIZATIONAL LADDER.
o NEEDS TRUSTED AND COMMITTED EXECUTIVES.
o HIGHER CALIBER OF TOP EXECUTIVES OFTEN IS DIFFICULT TO FIND.
o OVER DIVERSIFICATION MAY DEPLETE IMPORTANT FINANCIAL AND HUMAN
RESOURCES.