Organizational Structure

and Controls
 Strategy and Structure

Strategy is implemented through

Organizational Design.
Orgnl. Design involves selecting the
combination of Orgnl. STRUCTURE and
CONTROL systems that lets a company
pursue its strategy most effectively.
Primary role of STRUCTURE and
CONTROL: COORDINATION and
MOTIVATION.
 Strategy and Structure

COORDINATE employees activities so

that they work together to most efficiently
implement a strategy that increases SCA.
MOTIVATE employees and provide them
with the incentives to achieve superior
efficiency, quality, innovation and
responsiveness.
 Building Blocks of Structure
DIFFERENTIATION: The way in which a
company allocates people and resources to
organizational tasks in order to create value.
Vertical Differentiation: How to distribute
DECISION-MAKING AUTHORITY in the
organization to best control value-creation
activities.
Horizontal Differentiation: How to divide people
and tasks into functions and divisions to
increase their ability to create value.
 Building blocks

INTEGRATION: The means by which a

company seeks to coordinate people and
functions to accomplish organizational
tasks.
 Structure Types
All organizations require some form of organizational
structure to implement and manage their strategies

Firms frequently alter their structure as they grow in

size and complexity

Three basic structure types:

Simple Structure
Functional Structure
Multi-divisional Structure (M-form)
 Multidivisional
Strategy & Structure Structure
Growth Patterns
Sales Growth Coordination
and Control Problems

Efficient implementation
of formulated strategy

Functional
Structure

Sales Growth Coordination

and Control Problems

Efficient implementation
of formulated strategy

Simple
Structure
 Simple Structure
Owner / Manager

Owner/Manager makes all major decisions

directly and monitors all activities

Difficult to maintain this structure as

the firm grows in size and complexity
 Functional Structure
First stage beyond a Simple Structure
Appropriate for single or dominant-business firms
Allows specialization of tasks
* Production * Engineering * Sales & Marketing
* Finance * Accounting * Human Resources

Overcomes information processing limits of

single owner/manager
Functional department heads report to Chief
Executive Officer who integrates decisions and
actions from a company-wide point of view
Risks conflicts between myopic function managers
 Functional Structure

Chief Executive Officer

Corporate
Corporate Corporate Strategic Corporate
Human
R&D Finance Planning Marketing
Resources

Sales & Human

Finance Production Engineering Accounting
Marketing Resources
 Functional Structure for
Cost Leadership Strategy
Office of the President
Operations is main function
Process engineering is Relatively large
emphasized rather than new centralized staff
product R&D Centralized coordinates
functions
Formalized procedures allow Staff
for low-cost culture
Structure is mechanical; job
roles are highly structured

Engineering Marketing Operations Personnel Accounting

 Cost Leadership Structure

Ex: Southwest Airlines, Easyjet.

Continuously strive to improve efficiency of
production and distribution systems.
Sell tickets thru Ticketing Machines and
the Internet. No commission paid to travel
agents.
 Functional Structure for
Differentiation Strategy
President and
Limited Staff

R&D Marketing

New Product Human Finance

Marketing Operations
R&D Resources

Marketing is the main function for tracking new product ideas

New product R&D is emphasized
Most functions are decentralized
Formalization is limited to foster change and promote new ideas
Overall structure is organic; job roles are less structured
 Differentiation Structure
Ex: L Oreal.
Marketing and Product R&D emphasized.
Acquired Maybelline for $758 Mn.
Complete makeover of the brand.
Theme of urban American chic.
Great Finish Enamel dried in 1 minute name
changed to Express Finish positioned as a
product for women on the go market share has
increased from 3% to 15%.
Different R&D centres for America and Europe.
Relatively Flat Structure.
 Integrated Strategy
Ex: Toyota Motor Corporation.
Concurrent implementation of differentiated design and
standardized manufacturing processes.
Map design spaces; define feasible regions of overlap
for product and process design; look for intersections of
feasible sets; establish feasibility of overlapping design
before committing to it.
Result: Toyota considers a broader range of possibilities
than any other manufacturer, deliberately delays certain
decisions, and yet has the fastest and most efficient
vehicle development cycle in the industry.
Ex: Vanguard Financial Services Highest Quality
Product at the lowest possible prices.
 Multi-Divisional Structure
Each division is operated as a separate business
Appropriate for related-diversified businesses
Key task of corporate managers is exploiting synergies
among divisions
Managers use a combination of strategic controls and
financial controls

Managers try to strike a balance between:

Competing among divisions for scarce capital resources
Creating opportunities for cooperation to develop synergies

The goal is to maximize overall firm performance

 Multi-Divisional Structure

The decision-making of managers in a Multi-

Divisional structure may be:
Centralized or Decentralized
Bureaucratic or Non-bureaucratic

Balance on these dimensions may change over time

Structure will evolve over time with:

Changes in strategy
Degree of diversification
Geographic scope
Nature of competition
 Multi-Divisional Structure

Chief Executive Officer

Corporate
Corporate Corporate Strategic Corporate
Human
R&D Finance Planning Marketing
Resources

Division Division Division Division

Sales & Human

Finance Production Engineering Accounting
Marketing Resources
 Variations of the
Multi-Divisional Structure

Multi-Divisional
Structure
(M-form)

Cooperative Strategic Business Unit Competitive

Form (SBU) Structure Form

Related-Constrained Related-Linked Unrelated /Holding

Strategy Strategy Company Strategy
 Cooperative Form
Related-Constrained Strategy

President

Government Legal
Affairs Affairs

Corporate Strategic Corporate Corporate Corporate

Planning Human Marketing Finance
R&D Lab Resources

Product Product Product Product Product

Division Division Division Division Division

Structural integration devices create tight links among all divisions

Large corporate office with R&D likely to be centralized
Culture emphasizes cooperative sharing
Ultimately, a matrix form may emerge.
 Related Constrained Strategy
Ex: IBM under Louis Gerstner.
System of interconnected businesses held
together by a co-operative M-form structure
focused on serving e-commerce customers and
providing total-solution services.
Counsel customers on technology, help them
prepare for mishaps, runs all their computer
operations, develops their applications, procures
their supplies, trains their employees, and even
gets them into the dot com realm.
 SBU Form
Related-Linked Strategy

President

Corporate
Corporate Corporate Strategic Corporate
Human
R&D Finance Planning Marketing
Resources

Strategic Strategic Strategic Strategic

Business Business Business Business
Unit A Unit B Unit C Unit D

Division Division Division Division Division Division

Structural integration exists among divisions within SBUs, but not across SBUs
Each SBU may have its own budget for staff to foster integration
Corporate headquarters staff serve as consultants to SBUs and divisions
 SBU form for related constrained
strategy
Ex: SONY. CEO: Nobuyuki Idei.
10 internal companies being regrouped into 4
autonomous units focused on products and
networks.
Cut headquarters staff from 2500 to 300.
Cut global workforce by 10%.
Reduce factories from 70 to 55.
Each unit must justify its existence.
Ex: ConAgra Food Producer.
 Competitive Form
Unrelated /Holding Company Strategy

President

Legal Finance Auditing

Affairs

Division Division Division Division Division

Corporate headquarters has a small staff

Finance and auditing are the most prominent functions in the headquarters
Divisions are independent and separate for financial evolution purposes
Divisions retain strategic control, but cash is managed by the corporate office
Divisions compete for corporate resources
 Competitive Form for Unrelated
Diversification Strategy
Ex: NEWELL RUBBERMAID.
Manufacturer and full-service marketer of consumer
products sold through mass-retailers.
Emphasis: Excellent Customer Service.
Growth fuelled by acquisitions.
Unrelated Businesses.
Household Products, Hardware, Home-furnishing, and
Office Products.
Small HQ corporate staff.
Sophisticated electronic logistics system.
Result: Lower Cost and Improved Customer Relations.
Ex: TYCO Intl. CEO: DENNIS L KOZLOWSKI. 70 staff.
 Attributes of Various Structural Forms
Structural Cooperative SBU Competitive
Characteristics M-Form M-Form M-Form

Type of Related- Related Unrelated

Strategy Constrained Linked
Degree of Centralized at Centralized Decentralized
Centralization Corporate Office in SBUs to Division
Use of Extensive Moderate Nonexistent
Integrating
Mechanisms Synergies Synergies Synergies
Divisional Subjective/ Strategic &
Performance Financial
Strategic Financial Criteria
Appraisal Criteria Criteria
Divisional Linked to Linked to Linked to
Incentive Corporate Corporation, Divisional
Compensation Performance Division & SBU Performance
 Evolution of Multi-Divisional Structure
Chief Executive Officer

Corporate Office (Staff)

North Latin
Europe Asia Africa Australia
America America

Product A Product B Product C Product D

A Structural evolution based on Geographic lines usually

implies a Multi-Domestic International Strategy
Implementation of a Multidomestic Strategy
Worldwide
Geographic United
Asia
States
Area
Structure

Latin Multinational Europe

America Headquarters

Middle
Australia East/
Africa

Green circles indicate decentralization of operations

Emphasis is on differentiation by local demand to fit a culture
Corporate headquarters coordinates financial resources among
independent subsidiaries
The organization is like a decentralized federation
 Multi-Domestic Strategy

Ex: The Body Shop. CEO: Patrick

Cournay.
Focus on regions of the world.
Shifting centralized management from
Littlehampton, UK, to regional units in UK,
Europe, America and Asia.
Source locally.
All must follow green guidelines.
 Evolution of Multi-Divisional Structure
Chief Executive Officer

Corporate Office (Staff)

Product A Product B Product C Product D

A Structural evolution based on Product lines

usually implies a Global International Strategy
 Implementation of a Global Strategy
Worldwide Worldwide Worldwide
Product Products Products
Division Division
Divisional
Structure
Worldwide Multinational Worldwide
Products Products
Division Headquarters Division

Worldwide Worldwide
Products Products
Division Division

Green circle indicates centralization to coordinate information

flow among worldwide products
Headquarters uses many intercoordination devices to facilitate
global economies of scale and scope
Headquarters also allocates financial resources cooperatively
The organization is like a centralized federation
 Product Divisional Structure and
Global Strategy
Ex: Procter and Gamble. CEO: DURK JAGER.
Problems: Pampers Vs Kimberley-Clark.
Ivory Brand Soap Vs Unilevers Dove.
Crest Toothpaste Vs Colgate.
Reorganized into seven worldwide product divisions:
baby care, beauty care, fabric and home care, feminine
protection, food and beverage, tissues and towels.
Move from risk aversion to risk taking.
Encourage each division to develop global products.
Most important: New products required: TERMACARE
a portable heat wrap; FIT antibacterial fruit and veg.
cleanser, FEBREZE anti-odour spray-on; DRYEL a
home dry-cleaning product.
Evolution of Multi-Divisional Structure

A Transnational International Strategy is likely

to utilize a structure and that results in emphasis
on both geographic and product structures Ex:
Ford Motor Combination
Structure.Simultaneously match localization and
global integration implemented under
JACQUES NASSER.