MODULE 11

ORGANIZATIONAL
STRUCTURE & CONTROLS
Learning Objectives
 Define Organizational Structure and Controls and discuss the
difference between strategic and financial controls.
 Describe the relationship between Strategy and Structure.
 Discuss the functional structures used to implement business-level
strategies.
 Explain the use of three versions of the Multidivisional (M-form)
structure to implement different diversification strategies.
 Discuss the organizational structures used to implement three
international strategies.
 Define Strategic Networks and discuss how strategic center firms
implement such networks at the business, corporate, and international
levels.
Introduction
 All firms use at least one business-level strategy
 Once selected, strategies are NOT implemented in a
vacuum
 Organizational structure and controls provide
framework within which strategies are used
Organizational Structure (OS)
 Specifies firm’s formal reporting relationships, procedures,
controls, authority & decision-making processes
 Effective use of firm’s strategies facilitated when structure is
properly aligned
oStructural stability: Capacity firm requires to consistently and
predictably manage its daily work routines
oStructural flexibility: Opportunity to explore competitive
advantages firm will need to be successful in the future
 Pioneer Alfred Chandler found organizations change their
structures when inefficiencies force them to do so.
Organizational Controls (OC)
 Guide the use of strategy, indicate
how to compare actual results with
expected results, and suggest
corrective actions to take when the
difference is unacceptable
Organizational Controls (OC)
 Two types
1. Strategic controls: are largely subjective criteria intended to verify that
the firm is using appropriate strategies for the conditions in the
external environment and the company’s competitive advantages
o Concerned with what firm might do vs. what it can do
o Used to evaluate degree to which firm focuses on the requirement to
implement strategies
o Focus on the content of strategic actions
o Encourage decisions that incorporate moderate and acceptable levels
of risk
Organizational Controls (OC)
2. Financial controls - Objective criteria used to measure firm’s
performance against previously established quantitative standards
o Focus on short-term financial outcomes
o Produce risk-averse managerial decisions
o Reciprocal relationship
o Implies change to one cause change in the other
o “Research shows strategy has a much more important influence on
structure than the reverse.”
o Chandler found firms tend to grow in a predictable pattern, including
the areas of volume, geography, integration (horizontal & vertical) &
product/ business diversification
Organizational Controls (OC)
Growth pattern implies structural changes.
• Several Structure Forms are used to
implement strategies, including:
1. Simple
2. Functional
3. Multidivisional
Strategy and
Structure
Growth Pattern
Strategy and Structure Growth Pattern
 Three main Structures

1. Simple
o Owner-manager makes all major decisions and monitors all activities, staff acts as
extension of manager's supervisory authority
o Few rules, limited task specialization, unsophisticated technology system
o As firm grows more complex, need to add layers and controls

2. Functional
o CEO and a limited corporate staff make all decisions, with functional line managers in
dominant organizational areas
o Allows functional specialization resulting in active knowledge sharing in each
functional area
o Can negatively affect communication and coordination among those representing
different organizational functions
Strategy and Structure Growth Pattern
Strategy and Structure Growth Pattern
3. Multidivisional (M-form) structure
oEach division represents a separate business or profit center
in which corporate officers delegate responsibilities for day-
to-day operations and business-unit strategies to division
managers
o Enables corporate officers to more accurately monitor the
performance of each business-->simplifies the problem of
control
oFacilitates comparisons between divisions--> improves
resource allocation process
oStimulates managers of poorly performing divisions to look
for ways of improving performance
Strategy and Structure Growth Pattern
Strategy and Structure Growth Pattern
 Matches between Business-level strategies and Functional structure to
implement them:
1. Cost leadership and the Functional structure
o Simple reporting relationships
o Few decision-making and authority layers
o Centralized corporate staff
o Strong operational focus on process improvements
o Low-cost culture
o Centralized staff decision-making authority
o Jobs specialization
o Highly formalized rules and procedures
Strategy and Structure Growth Pattern

 Functional Structure for Implementing a Cost Leadership Strategy

 Matches between Business-level strategies and Functional structure to
implement them:
2. Differentiation and Functional structure
o Complex and flexible reporting relationships
o Cross-functional product development teams
o Strong focus on marketing and product R&D
o Development-oriented culture
o Decentralized decision making
o Broad job descriptions
o Informal rules and procedures
 Functional Structure for Implementing a Differentiation Strategy
 Matches between business-level strategies and functional
structure to implement them:
3. Integrated cost leadership/differentiation strategy
o These firms may sell products that create value because of
relatively low price and reasonable sources of differentiation

o Difficult to implement, but frequently used in the global

economy
o Challenge due to primary/support activities
o Need to successfully combine specialization, formalization
 Three Variations of the Multidivisional
Structure
 Matches between Corporate-Level Strategies and the Multidivisional
Structure
 Cooperative Form of the Multidivisional Structure for Implementing a Related
Constrained Strategy
 Matches between Corporate-level strategies & Multidivisional Structure:
Cooperative form/related constrained strategy
Cooperative form: Organizational structure using horizontal integration to
bring about interdivisional cooperation
o Divisions formed around products, markets or both
o All of the divisions share one or more corporate strengths
o Interdivisional sharing depends on cooperation
o Links resulting from effective integration mechanisms support sharing of
both tangible and intangible resources
o Centralization is one integrating mechanism that can be used to link
activities among divisions, allowing firms to exploit common strengths
and share competencies
o Success influenced by how well information is processed among
divisions and can be influenced by managerial commitment levels and
the response to some lost managerial autonomy
 SBU Form of the Multidivisional Structure for Implementing a Related
Linked Strategy
 Matches between corporate-level strategies and
multi-divisional structure : SBU form/Related Linked
Strategy
oStrategic Business-Unit (SBU) Form: Multi-divisional
organization structure with three levels to support the
implementation diversification strategy
1. Corporate headquarters
2. Strategic Business Units (SBUs)
3. SBU division
 Competitive Form of the Multidivisional Structure for Implementing an
Unrelated Diversification Strategy
 Matches between corporate-level strategies and multi-divisional structure:
Competitive form/unrelated diversification
o Competitive form defined: organizational structure in which the firm's divisions are
completely independent
o Divisions do not share common corporate strengths
o Integration devices not developed to coordinate activities across divisions
o Efficient capital markets in unrelated strategies require organizational arrangements
that emphasize divisional competition rather than cooperation
o Specific performance expectations and accountability for independent divisions
stimulate internal competition for future resources
o Headquarters maintains a distant relationship to avoid intervention in divisional affairs
o Strategic controls are used to monitor performance relative to targeted returns
o Headquarters remains responsible for cash flow allocation, performance appraisal,
resource allocation, and the legal aspects related to acquisitions
Worldwide Geographic Area Structure for
Implementing a Multidomestic Strategy
 International Strategy and Worldwide Structure
 Three Primary International Strategies:
1. Worldwide geographic area structure to implement the
Multidomestic Strategy
oMultidomestic Strategy: international strategy in which
strategic and operating decisions are decentralized to the
strategic business-unit (SBU) in each country to allow the
units to tailor products to local markets
oWorldwide Geographic Area Structure: organizational
structure emphasizing national interests and facilitates
efforts to satisfy local or cultural differences (used to
implement the multidomestic strategy)
o Focuses on variations of competition within each country
Worldwide Product Divisional Structure for
Implementing a Global Strategy
International Strategy and Worldwide Structure
 Three Primary International Strategies:
2. Worldwide product divisional structure to implement
Global Strategy
oGlobal Strategy: International strategy whereby firm offers
standardized products across country markets, with the
competitive strategy being dictated by the home office
oWorldwide Product Divisional Structure: Organizational
structure with centralized decision-making authority in the
WW division headquarters to coordinate and integrate
decisions and actions among divisional business units (used
to implement the global strategy)
oFacilitated by improved global accounting and financial
reporting standards
 Hybrid Form of the Combination Structure
Transnational Strategy
3. Combination structure to implement the
Transnational Strategy
oTransnational Strategy: usually implemented through
global matrix structure and hybrid global design
o Flexible Coordination: Building a shared vision and
individual commitment through an integrated network
oCombination Structure: mechanisms are drawn from
both the worldwide geographic area structure and
the worldwide product divisional structure (used to
implement transnational strategy)
 A Strategic Network
 is a group of firms that has
been formed to create
value by participating in
multiple cooperative
arrangements. A strategic
network can be a source of
competitive advantage for
its members when its
operations create value that
is difficult for competitors to
duplicate and that network
members can’t create by
themselves.
 Strategic Center Firm’s primary tasks:
1. Strategic outsourcing - The strategic center firm
outsources and partners with more firms than do other
network members.
2. Competencies - To increase network effectiveness, the
strategic center firm seeks ways to support each member’s
efforts to develop core competencies with the potential of
benefiting the network.
3. Technology - The strategic center firm is responsible for
managing the development and sharing of technology-
based ideas among network members.
4. Race to learn - The strategic center firm emphasizes that
the principal dimensions of competition are between value
chains and between networks of value chains.