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of 33Chapter 10, MGT 195

Version 131509

© 2008 McGraw-Hill © 2009 UMT

Business Policy and StrategyBusiness Policy and Strategy

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Version 131509


Chapter 10. Creating Effective Chapter 10. Creating Effective

Organizational DesignsOrganizational Designs

Dess, G.G, Lumpkin, G.T., & Eisner, A.B., Strategic Management: Creating

Competitive Advantages (4th ed.) © 2008 McGraw-Hill. ISBN 978-0-07-338121-3


Visit UMT online at www.umtweb.eduVersion 131509


Copyright WarningCopyright Warning

This presentation is the intellectual property of the textbook publisher McGraw-Hill 2008. Students are hereby advised that they may not copy or distribute this work to any third party




Learning ObjectivesLearning Objectives

After reading this chapter, you should have a good understanding of:

The importance of organizational structure and the concept of the “boundaryless” organization in implementing strategies.

The growth patterns of major corporations and the relationship between a firm’s strategy and its structure.

Each of the traditional types of organizational structure: simple, functional, divisional, and matrix

The relative advantages and disadvantages of traditional organizational structure

The implications of a firm’s international operations for organizational structure




Learning ObjectivesLearning Objectives

After reading this chapter, you should have a good understanding of:

Why there is no “one best way” to design strategic reward and evaluation systems, and the important contingent roles of business- and corporate-level strategies.

The different types of boundaryless organizations—barrier-free, modular, and virtual—and their relative advantages and disadvantages

The need for creating ambidextrous organizational designs that enable firms to explore new opportunities and effectively integrate existing operations




Traditional Forms of Traditional Forms of Organizational StructureOrganizational Structure

Organizational structure refers to formalized patterns of interactions that link a firm’s

Tasks

Technologies

People

Structure provides a means of balancing two conflicting forcesNeed for the division of tasks into meaningful groupings

Need to integrate the groupings for efficiency and effectiveness




QuestionQuestion

Most organizations begin very small and ______.A) grow to become a medium sized organization

B) continually grow

C) remain small

D) often decrease in size




Dominant Growth Patterns Dominant Growth Patterns of Large Corporationsof Large Corporations

Adapted from Exhibit 10.1 Dominant Growth Patterns of Large CorporationsSource: Adapted from J. R. Galbraith and R. K. Kazanjian, Strategy Implementation: The Role of Structure and Process, 2nd ed. (St. Paul, MN: West Publishing Company, 1986), p. 139.




Patterns of Growth of Patterns of Growth of Large CorporationsLarge Corporations

Simple Structure

Simple structure is the oldest and most common organizational form

Staff serve as an extension of the top executive’s personality

Highly informal

Coordination of tasks by direct supervision

Decision making is highly centralized

Little specialization of tasks, few rules and regulations, informal evaluation and reward system




Patterns of Growth of Patterns of Growth of Large CorporationsLarge Corporations

Functional Structure

Adapted from Exhibit 10.2 Functional Organizational Structure




Patterns of Growth Patterns of Growth of Large Corporationsof Large Corporations

Functional StructureFound where there is a single or closely related product or service, high production volume, and some vertical integration

AdvantagesEnhanced coordination and control

Centralized decision making

Enhanced organizational-level perspective

More efficient use of managerial and technical talent

Facilitated career paths and development in specialized areas




Patterns of Growth Patterns of Growth of Large Corporationsof Large Corporations

DisadvantagesImpeded communication and coordination due to differences in values and orientations

May lead to short-term thinking (functions vs. organization as a whole)

Difficult to establish uniform performance standards




Divisional StructureDivisional Structure

Adapted from Exhibit 10.3 Divisional Organizational Structure





Organized around products, projects, or markets

Each division includes its own functional specialists typically organized into departments

Divisions are relatively autonomous and consist of products and services that are different from those of other divisions

Division executives help determine product-market and financial objectives





AdvantagesStrategic business unit (SBU) structure

Separation of strategic and operating control

Quick response to important changes in external environment

Minimal problems of sharing resources across functional departments

Development of general management talent is enhanced





Disadvantages Can be very expensive

Can be dysfunctional competition among divisions

Can be a sense of a “zero-sum” game that discourages sharing ideas and resources among divisions

Differences in image and quality may occur across divisions

Can focus on short-term performance





Strategic business unit (SBU) structureDivisions with similar products, markets, and/or technologies are grouped into homogenous SBUs

Task of planning and control at corporate office is more manageable

May become difficult to achieve synergies across SBUs

Appropriate when the businesses in a corporation’s portfolio do not have much in common

Lower expenses and overhead, fewer levels in the hierarchy

Inherent lack of control and dependence of CEO-level executives on divisional executives




Matrix StructureMatrix Structure

Adapted from Exhibit 10.4 Matrix Organizational Structure





A combination of the functional and divisional structures

Individuals who work in a matrix organization become responsible to two managers

The project manager

The functional area manager





AdvantagesFacilitates the use of specialized personnel, equipment and facilities

Provides professionals with a broader range of responsibility and experience

DisadvantagesCan cause uncertainty and lead to intense power struggles

Working relationships become more complicated

Decisions may take longer




International Operations: International Operations: Implications for Organizational Implications for Organizational

StructureStructureThree major contingencies influence structure adopted by firms with international operations

Type of strategy driving the firm’s foreign operations

Product diversity

Extent to which the firm is dependent on foreign sales

Structures used to manage international operationsInternational division

Geographic-area division

Worldwide functional

Worldwide product division

Worldwide matrix




ExampleExample

Nike culture used to encourage local managers to focus on market share rather than profitability.

This lead to Wall Street to comment on the lack of managerial control at Nike.

Nike decided to implement a matrix structure to resolve this issue.

This matrix structure clearly stated local managers’ responsibilities by region and product.

Nike headquarters establishes which products to focus on and how to do it under the new matrix structure.

Source: “The New Nike,” Business Week. September 20, 2004




QuestionQuestion

Does the relationship between strategy and structure imply that structure follows strategy? Explain.




Relationships between Rewards & Relationships between Rewards & Evaluation Systems and Business-level Evaluation Systems and Business-level

and Corporate-level Strategiesand Corporate-level Strategies




Boundaryless Organizational Boundaryless Organizational DesignsDesigns

Boundaries that place limits on organizationsVertical boundaries between levels in the organization’s hierarchy

Horizontal boundaries between functional areas

External boundaries between the firm and its customers, suppliers, and regulators

Geographic boundaries between locations, cultures and markets




Making Boundaries More PermeableMaking Boundaries More Permeable

First approach

Permeable internal boundariesHigher level of trust and shared interests

Shift in philosophy from executive development of organizational development

Greater use of teams

Flexible, porous organizational boundaries

Communication flows and mutually beneficial relationships with internal and external constituencies

Barrier-free type Barrier-free type of organizationof organization




Pros and Cons of Pros and Cons of Barrier-Free StructuresBarrier-Free Structures

Adapted from Exhibit 10.7 Pros and Cons of Barrier-Free Structures





Second approach

Outsources nonvital functions, tapping into knowledge and expertise of “best in class” suppliers but retains strategic control

Three advantagesDecrease overall costs, leverage capital

Enables company to focus scarce resources on areas where it holds competitive advantage

Adds critical skills and accelerates organizational learning

Modular type of Modular type of organizationorganization




Pros and Cons of Modular Pros and Cons of Modular StructuresStructures

Adapted from Exhibit 10.8 Pros and Cons of Modular Structures





Third approach

Continually evolving network of independent companies linked together to share skills, costs, and access to one another’s markets

Suppliers

Customers

Competitors

Each gains from resulting individual and organizational learning

May not be permanent

Virtual type of Virtual type of organizationorganization




Pros and Cons of Virtual StructuresPros and Cons of Virtual Structures

Source: R. E. Miles and C. C. Snow, “Organizations: New Concepts for New Forms,” California Management Review,” Spring 1986, pp. 62-73; R. E. Miles and C. C. Snow, “Causes of Failure in Network Organizations,” California Management Review, Summer 1999, pp. 53-72; and H. Bahrami, “The Emerging Flexible Organization: Perspectives from Silicon Valley,” California Management Review, Summer 1991, pp. 33-52.

Adapted from Exhibit 10.9 Pros and Cons of Virtual Structures




Boundaryless Organizations: Boundaryless Organizations: Making Them WorkMaking Them Work

Factors facilitating effective coordination and integration of key activities

Common culture and shared values

Horizontal organization structures

Horizontal systems and processes

Communications and information technologies

Human resource practices




Creating Ambidextrous Creating Ambidextrous Organizational DesignsOrganizational Designs

Two contradictory challenges faced by firmsAdaptability

Alignment

Ambidextrous organizations Aligned and efficient in how they manage in today’s business

Flexible enough to changes in the environment so they will prosper tomorrow

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