copyright guy harley 2004 organisational structure week 10
Post on 19-Dec-2015
218 views
TRANSCRIPT
Copyright Guy Harley 2004
Organisational Structure
Week 10
Copyright Guy Harley 2004
Organisational Structure
Organisational Structure is a firm’s: Role configuration Procedures Governance & control mechanisms Authority & decision making processes
Copyright Guy Harley 2004
Organisational Structure
Proper use of: organisational structure and accompanying integrating mechanisms &
controls
Contribute to a firm’s competitiveness Competitive advantage is created when there is
a match between strategy and structure
Copyright Guy Harley 2004
Structure Types
All organisations require some form of organisational 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)
Copyright Guy Harley 2004
Strategy & Structure Growth Pattern
SimpleStructure
Sales growth coordination & control problems
FunctionalStructure
Multi-divisionalStructure
Copyright Guy Harley 2004
Simple Structure
Owner/manager makes all major decisions directly and monitors all activities
Staff serve as an extension of the Manager’s supervisory authority
Information systems are unsophisticated Typically offers a single product line in a single
geographical market
Copyright Guy Harley 2004
Simple Structure
Often used for focused strategies Communication is frequent & direct New products are introduced to market quickly Important to the nations economy
Created 92% of new jobs in Australia in early 1990’s
Copyright Guy Harley 2004
Simple Structure
Difficult to maintain this structure as the firm grows in size and complexity
Lack skills necessary to manage specialised & complex tasks of multiple organisational functions
Copyright Guy Harley 2004
Functional Structure
First stage beyond a simple structure Appropriate for single- or dominant-business
firms Consists of
CEO Functional line managers in dominant
organisational areas
Copyright Guy Harley 2004
ProductionFinance R&D AccountingSales &
MarketingHuman
Resources
Differentiation business-level strategy usually employs a decentralised structure and emphasises product R&D and sales & marketing
Low cost business-level strategy usually employs a centralised structure and emphasises process R&D and operations
Chief Executive Officer (CEO)
Functional Structure
Copyright Guy Harley 2004
Functional StructureFunctional Structure Allows specialisation of tasks, for example:
Production Finance Engineering Accounting Sales & Marketing Human Resources
This facilitates knowledge sharing Idea development
Copyright Guy Harley 2004
Functional Structure
Overcomes information-processing limits of single owner/manager
Functional department heads report to CEO, who integrates decisions and actions from a companywide point of view
Risks conflicts between myopic function managers
Copyright Guy Harley 2004
Multi-Divisional Structure
Each division is operated as a separate business
Results from CEO information overload Increased diversification Conflict between functional managers
Appropriate for related-diversified businesses
Copyright Guy Harley 2004
Division Division Division Division
ProductionFinance Engineering AccountingSales &
MarketingHuman
Resources
Strategic Planning
Corporate Finance
Corporate R&D
Corporate Marketing
Corporate Human
Resources
CEO
Multi-Divisional Structure (M-form)Multi-Divisional Structure (M-form)
Copyright Guy Harley 2004
Multi-Divisional Structure
Enables corporate office to more accurately monitor performance of each business
Facilitates comparisons between divisions which improves resource allocation
Stimulates managers to improve poor performance
Copyright Guy Harley 2004
Multi-Divisional Structure
Key task of corporate managers is to exploit synergies among divisions
Managers use a combination of: Strategic controls
Subject long term & strategically relevant criteria
Financial controlsObjective criteria that evaluate returns of business units & managerial performance
Copyright Guy Harley 2004
Structure & Business Level Strategy
Cost Leadership Strong task specialisation Centralised decision making Formalisation of work rules Low cost culture Emphasis on process engineering Infrequent product changes
Copyright Guy Harley 2004
ProductionFinance R&D AccountingSales &
MarketingHuman
Resources
Centralised staff
Chief Executive Officer (CEO)
Cost Leadership
Copyright Guy Harley 2004
Structure & Business Level Strategy
Differentiation Teams that can coordinate & integrate with each
other Decision making
Consensus Decentralised
Rapid changes in work processes Emphasis on R&D and marketing Frequent product changes
Copyright Guy Harley 2004
ProductionFinance
R&D
Accounting
Sales & Marketing
Human Resources
Chief Executive Officer and limited staff
Differentiation
Copyright Guy Harley 2004
Structure & Business Level Strategy
Cost Leadership\Differentiation Conflicting organisational structure requirements Functional structure supplemented by horizontal
coordination Strong organisational structure Moderate level of product change
Copyright Guy Harley 2004
Multi-Divisional Structure (M-form)
Cooperative Form
RelatedConstrained
Multi-Divisional
Form
StrategyType
Strategic Business
Unit Structure
RelatedLinked
CompetitiveForm
Unrelated/Holding
Company
Centralisation
Bureaucratic cost
Three variations of the multi-divisional structure:
Copyright Guy Harley 2004
Cooperative Form
Fosters cooperation and integration Divisional liaisons Temporary teams Matrix organisation
Sharing of strategic assets Centralisation
Reward managers on overall results as there can be an unequal flow of benefits of integration to divisions
Copyright Guy Harley 2004
StrategicPlanning
CorporateFinance
Govt. Affairs
LegalAffairs
Corporate Marketing
CorporateHR
Chief Executive Officer
Cooperative Form
ProductDivision
CorporateR & D
ProductDivision
ProductDivision
ProductDivision
ProductDivision
ProductDivision
HQ
Copyright Guy Harley 2004
Strategic Business Unit Form (SBU)
Three levels Corporate Headquarters SBU Groups Divisions
Integration within SBUs Independence between SBUs
Copyright Guy Harley 2004
StrategicPlanning
CorporateFinance
Corporate Marketing
CorporateHR
Chief Executive Officer
SBU Form
Division
CorporateR & D
Division Division DivisionDivision Division
HQ
SBU SBU
Copyright Guy Harley 2004
Strategic Business Unit Form (SBU)
Corporate HQ Conducts strategic Planning Staff serve as consultants to SBUs
SBUs are Profit centres largely unrelated to each other
Divisions are grouped by relatedness Structural flexibility is important
Copyright Guy Harley 2004
Competitive Form
Corporate HQ has small staff Finance & Auditing are most prominent HQ
functions Legal Affairs for acquisition\divestiture of
assets Divisions
are independent Retain strategic control Compete for corporate resources
Copyright Guy Harley 2004
LegalAffairs
Finance
Chief Executive Officer
Competitive Form
Division
Auditing
Division Division DivisionDivision Division
HQ
Cooperative M-Form
SBU M-Form
Competitive M-Form
Structural Characteristics
Degree ofCentralisation
Use ofIntegrating
Mechanisms
DivisionalPerformance
Appraisal
DivisionalIncentive
Compensation
Type of Strategy
Related-Constrained
Centralised atCorporate Office
Centralisedin SBUs
Decentralisedto Division
ExtensiveSynergies
ModerateSynergies
FinancialCriteria
Strategic &FinancialCriteria
Linked to Corporate
Performance
Linked toCorporation,
Division & SBU
Linked toDivisional
Performance
NonexistentSynergies
Subjective/StrategicCriteria
Attributes of Various Structural Forms
UnrelatedMixed-Relatedor Unrelated
Copyright Guy Harley 2004
Multi-Divisional Structure Firms with a complex multi-divisional structure may
be simultaneously centralised and decentralised, depending upon the various business-level strategies employed throughout the firm’s individual businesses
Copyright Guy Harley 2004
Holding Company Structure Appropriate for widely diversified firms operating in many
unrelated businesses Each business is treated as a separate profit or
investment centre competing for corporate resources Corporate office acts as a central capital market Corporate staff evaluates financial performance Portfolio of business units or companies is balanced
through acquisitions or divestitures Corporate staff generally lack deep understanding
of strategic issues facing individual businesses Creates no obvious benefit to shareholders, who can
diversify on their own
Copyright Guy Harley 2004
Global Structures
Worldwide Geographic Area Structure Worldwide Product Divisional Structure Combination Structure
Copyright Guy Harley 2004
Worldwide Geographic Area Structure
Multi-domestic strategy Strategy & operating decisions are
decentralised to business units in each country
Allows products to be tailored to local markets Firms seek to isolate their business units from
global forces
Copyright Guy Harley 2004
Worldwide Geographic Area Structure
Worldwide Geographic Area Structure HQ coordinates financial resources Divisions are independent Operations are decentralised
Disadvantages Unable to create global efficiency
Copyright Guy Harley 2004
Corporate Office (Staff)
CEO
Evolution of Multi-Divisional Structure
A structural evolution based on geographic lines usually implies a multi-domestic international strategy
North America
AustraliaEurope AsiaLatin
AmericaAfrica
Product A Product CProduct B Product D
Copyright Guy Harley 2004
Worldwide Product Divisional Structure
Global Strategy Standardised products are offered across
country markets Seeks economies of scale and scope Firm’s organisational functions are sourced to
the most effective worldwide providers
Copyright Guy Harley 2004
Worldwide Product Divisional Structure
Worldwide Product Divisional Structure Centralised decision making Home office dictates strategy HQ allocates financial resources in a cooperative way Use of integrating mechanisms Standardised policies and procedures
Disadvantages Coordination of decisions Unable to respond quickly
Copyright Guy Harley 2004
Corporate Office (Staff)
CEO
Evolution of Multi-Divisional Structure
Product A Product B Product C Product D
A structural evolution based on product lines usually implies a global international strategy
Copyright Guy Harley 2004
Combination Structure
A trans-national international strategy Local responsiveness and Global efficiency
Uses combination structure
Copyright Guy Harley 2004
Combination Structure
Structure that results in emphasis on both geographic and product structures
Must be simultaneously centralised and decentralise Integrated and non-integrated Formalised and non-formalised
Encourage employees to understand cultural diversity
Shared vision and leadership
Copyright Guy Harley 2004
Multi-Divisional Structure
Managers try to strike a balance between: Competition among divisions for scarce
capital resources Creating opportunities for cooperation to
develop synergies The goal is to maximise overall firm performance
Copyright Guy Harley 2004
Multi-Divisional Structure The structure will evolve over time with:
Changes in strategy Degree of diversification Geographic scope Nature of competition
Firms which diversify too much will change strategy to divest non-performing assets
Copyright Guy Harley 2004
Finance
ProductionFinance Engineering AccountingSales &
MarketingHuman
Resources
Production Engineering AccountingSales &
MarketingHuman
Resources
Corporate Office (Staff)
CEO
Product A Product B
Evolution of Multi-Divisional Structure
Copyright Guy Harley 2004
Corporate Office (Staff)
CEO
Evolution of Multi-Divisional Structure
Product A
North America
Europe Asia
Product B Product C Product D
ProductionFinance Engineering AccountingSales &
Marketing
Human Resources
Copyright Guy Harley 2004
Strategic Networks
A strategic network is a group of organisations that is formed to create value through participation in an array of cooperative arrangements, such as a strategic alliance
A strategic centre firm often manages the network
Copyright Guy Harley 2004
Strategic Networks
The strategic centre firm identifies actions that increase the opportunity for each firm to achieve success through participation in the network
The strategic centre firm creates incentives that reduce the probability of any single firm taking advantage of its network partners
A Strategic NetworkA Strategic Network
Network firms firms
Strategic Strategic Centre Firm Firm
Copyright Guy Harley 2004
Strategic Networks
Critical functions of the strategic centre firm are: Strategic Outsourcing Capability Development Technology Sharing Network Learning
Copyright Guy Harley 2004
Strategic Outsourcing
Strategic centre firm Outsources and partners with more firms than
other firms Coordinates outsourcing among partners, Initiates actions and coordinates problem solving
among members Encourages partners to
Solve problems Initiate competitive courses of action
A Strategic Network – Strategic OutsourcingA Strategic Network – Strategic Outsourcing
Strategic Strategic Centre Firm Firm
Copyright Guy Harley 2004
Capability Development
The Strategic Centre firm Has core competencies that are not shared with
all network partners Attempts to develop each partner’s core
competencies Provides incentives for partners to share
capabilities & competencies
A Strategic Network – CapabilityA Strategic Network – Capability
Strategic Strategic Centre Firm Firm
Copyright Guy Harley 2004
Technology
The Strategic Centre firm Manages the development and sharing of
technology between partners
Copyright Guy Harley 2004
Network Learning
The Strategic Centre firm Emphasises to partners the competitive worth of
a network of value chains Seeks to develop a competitive advantage in
primary or support activities Promotes the need for each firm to be strong for
the benefit of the entire network value chain Encourages friendly rivalry Builds links to facilitate learning Manages the learning process among partners
A Strategic Network – Race to LearnA Strategic Network – Race to Learn
Strategic Strategic Centre Firm Firm
Copyright Guy Harley 2004
Strategic Networks – Vertical integration
Stable Strategic centre firm
Negotiates long term contracts Encourages partners to modernise Promotes communication along value chain
The strategic centre firm’s structure becomes a sustainable competitive advantage
Copyright Guy Harley 2004
Strategic Networks – Horizontal Integration
Usually unstable due to rivalry Difficult to agree on strategic centre firm
Copyright Guy Harley 2004
Distributed Strategic Networks International Cooperative Strategies often
require the use of more complex networks due to different regulatory frameworks
Many large multinational firms form distributed strategic networks with multiple regional strategic centres to manage their array of cooperative arrangements with partner firms
Breaking large networks into multiple manageably sized networks helps manage the complexity of maintaining many relationships
A Distributed Strategic NetworkA Distributed Strategic Network
Distributed Strategic Centre FirmsDistributed Strategic Centre Firms
Main Main Strategic Strategic
Centre FirmCentre Firm