Transcript [Company Name] - Thammasat University

Bourgeois, Duhaime,
& Stimpert
Chapter 10
Organizational Structure and
the Implementation of Strategy
Copyright © 1999 by Harcourt Brace & Company
All rights reserved. Requests for permission to make copies of any part of the work should be mailed to the following
address: Permissions Department, Harcourt Brace & Company, 6277 Sea Harbor Drive, Orlando, Florida 32887-6777.
Chapter Objectives



Define structure and describe its role in the
implementation of strategy.
Identify and describe the different components of
organizational structure.
Identify some of the problems associated with
organizing.
 Describe
how the various components of
organizational structure can be used to overcome
these problems that are common to all firms and
businesses.
Copyright © 1999 by Harcourt Brace & Company
All rights reserved
Chapter Objectives
(cont.)

Discuss some of the emerging issues that are likely to
have an impact on organizing and organizational
structures in the future.
Copyright © 1999 by Harcourt Brace & Company
All rights reserved
Historical Overview

Large, complex business organizations began to emerge
in USA in mid-1800s.
 Railroad
construction projects required large
organizations.
 New administrative and organizational structures
needed to handle decision-making and resource
allocation tasks.
Copyright © 1999 by Harcourt Brace & Company
All rights reserved
Characteristics of Business
Organizations

Division of labor
 Employee

specialists
Hierarchy
 “Tall”
or “flat”
 Span of control: number of subordinates reporting
to a manager.
Copyright © 1999 by Harcourt Brace & Company
All rights reserved
Characteristics of Business
Organizations (cont.)

Decisions based on rules, policies, and standard
operating procedures that seek to promote efficiency.
 Employees
may not do whatever they want in any
way they wish.

Organizations tend to become inflexible and resist
change.
 Rigid
adherence to rules and policies.
 Most are hostile to innovation and tend to resist
change.
Copyright © 1999 by Harcourt Brace & Company
All rights reserved
Definition of Organizational
Structure

Includes any mechanisms which facilitate the
formulation and implementation of strategy and the
overall coordination of the business.
 Hierarchical
reporting relationships.
 Policies, standard operating procedures, and
control systems.
 Information systems and flows of information
moving through organizations.
 Culture.
Copyright © 1999 by Harcourt Brace & Company
All rights reserved
Definition of Organizational
Structure (cont.)

Challenge confronting general managers is to
combine these mechanisms into organizational
structures that:
 Effectively
implement chosen strategies; and
 Make their firms responsive to leadership of
owners and managers, as well as to changes in the
larger competitive environments in which firms
operate.
Copyright © 1999 by Harcourt Brace & Company
All rights reserved
Exhibit 10.1: Model of Strategic
Management
Decisions about
Business Definition
Managers' Mental Models
+ Industry environments
+ How to compete
+ Appropriate size/diversity,
how businesses are related,
how diversification should
be managed
+ How to organize
Decisions about
Business Strategy
Decisions about
Corporate Strategy
and Diversification
Market Position,
Resources, and
Capabilities
Performance
and
Competitive
Advantage
Decisions about
Organizational
Structure
Feedback
reinforces or
suggests changes
in managers'
mental models
Copyright © 1999 by Harcourt Brace & Company
All rights reserved
Components of
Organizational Structure

Hierarchy
 Functional
structure
• Organizes activities around functional departments.
• Advantage is that it allows employees to specialize
and become increasingly adept at what they do.
• Problems
– Communication and motivation can be problematic
(information must flow up before it can flow across).
– Profit centers without revenue-generating responsibility.
– Tend to overload top managers.
Copyright © 1999 by Harcourt Brace & Company
All rights reserved
Exhibit 10.2: Functional Structure
Shareholders
CEO
Marketing
Operations
Legal
Copyright © 1999 by Harcourt Brace & Company
All rights reserved
Components of
Organizational Structure
 Multidivisional
(cont.)
(product, geographical) structure
• based on reality that many firms consist of several
distinct operating segments.
– This structure divides those segments into autonomous
units or divisions.
• Advantages
– Decentralizes decision-making so top managers can
focus on strategic issues.
– Improves accountability -- corporate staff holds division
managers responsible for their units.
– Can improve allocation of resources (ROA, ROS).
Copyright © 1999 by Harcourt Brace & Company
All rights reserved
Components of Organizational
Structure (cont.)
 Multidivisional
(product, geographical) structure
(cont.)
• Disadvantages
– Duplication of functional activities.
– Top managers become very far removed from divisional
activities.
– Transfer pricing dilemma.
– Can result in short-term focus and an undesirable level
of competition for resources among divisions.
Copyright © 1999 by Harcourt Brace & Company
All rights reserved
Exhibit 10.3: Multidivisional
Structure (Product)
CEO
Corporate
Staff
Finance
Mfg
R&D
Marketing
Mkt
Mfg
R&D
Mkt
Operations
Mfg
R&D
Mkt
Copyright © 1999 by Harcourt Brace & Company
All rights reserved
Exhibit 10.4: Multidivisional Structure
(Geographical)
CEO
Corporate
Staff
North
America
Mfg
R&D
Mkt
Europe
Mfg
R&D
Far East
Mkt
Mfg
R&D
Mkt
Copyright © 1999 by Harcourt Brace & Company
All rights reserved
Components of Organizational
Structure (cont.)
 Matrix
structure
• Functional structure is overlaid or placed on top of a
multidivisional structure.
• Major advantage: Information distributed more
efficiently throughout organization.
• Disadvantages
– “Two boss problem”
– Tendency for cross-functional team members to believe that
every decision needs to be made as a group.
– Specialist working on a product team become so involved
in working on that product that they lose touch with their
specialty area.
Copyright © 1999 by Harcourt Brace & Company
All rights reserved
Exhibit 10.5: Matrix Structure
Engineering
Sales &
Marketing
Production
Small Car
Large Car
Minivan
Jeep/Truck
Copyright © 1999 by Harcourt Brace & Company
All rights reserved
Components of Organizational
Structure (cont.)

Policies, standard operating procedures, and control
systems.
 Organizations
strive to standardize many activities
and functions in order to increase efficiency and
reduce variability.
• High performance is almost always associated with
an effective set of policies, procedures, or systems.
• At the same time, highly routinized policies and
procedures can limit organizational flexibility and
can increase resistance to change.
Copyright © 1999 by Harcourt Brace & Company
All rights reserved
Components of Organizational
Structure (cont.)
• Policies and procedures can also reward the wrong
types of behaviors.
– Dexter Corp. was growing at 20% annually while market
was growing at v30% -- they were losing market share
and didn’t know it because (1) they had no system for
gauging company performance against the competitive
environment, and (2) their compensation incentives were
not geared for higher growth rates.
Copyright © 1999 by Harcourt Brace & Company
All rights reserved
Components of
Organizational Structure

(cont.)
Information systems and information flows.
 Implementation
of strategy is becoming
increasingly dependent on acquisition, storage,
distribution, and application of information.
• Can be source of competitive advantage.
– Wal-Mart: inventory management.
– IT can handle flow of materials and labor through
manufacturing process.
– Airlines: yield management.
Copyright © 1999 by Harcourt Brace & Company
All rights reserved
Components of Organizational
Structure (cont.)

Organizational culture
 More
informal than policies and procedures.
 Transmitted to new employees through stories and
myths from veteran employees, company signs, and
training programs.
 Can be source of competitive advantage.
• Provide employees with sense of meaning and
purposefulness.
• Motivates types of behaviors that are important to
organizational success.
Copyright © 1999 by Harcourt Brace & Company
All rights reserved
Components of
Organizational Structure

(cont.)
Organizational culture (cont.)
 Negative
aspects of culture
• Can retard organizational adaptation to change.
Copyright © 1999 by Harcourt Brace & Company
All rights reserved
Central Issues/Problems
in Organizing

Centralization vs. decentralization
 Centralized
decision-making facilitate rapid
implementation of strategies, improves coordination,
and provides effective management of related
diversification strategies.
 Decentralization allows lower-level
managers/employees more opportunities to
participate in decision-making, generally leads to
better decisions and can improve organizational
flexibility and responsiveness to environmental
change.
Copyright © 1999 by Harcourt Brace & Company
All rights reserved
Central Issues/Problems
in Organizing (cont.)

Communication and language problems.
 Organizations
rarely have more than eight
hierarchical levels due to limits imposed by problems
of communication.
• These problems intensify as organizational size and
diversity increase.
 It
has not enabled firms to overcome these problems.
• Self-interested employees will alter or slow-down bad
news or news that adversely affects that employee.
Copyright © 1999 by Harcourt Brace & Company
All rights reserved
Central Issues/Problems
in Organizing (cont.)
 Many
firms have adopted matrix structures to
improve communication, coordination, and
information flows.

Conflict
 Inevitable
part of all organizations.
• Functional rivalries
 Evidence
suggests that “superordinate goals” will
alleviate this problem.
• Compensation plan designed to motivate employees to
work to achieve overall organizational objectives.
Copyright © 1999 by Harcourt Brace & Company
All rights reserved
Central Issues/Problems
in Organizing (cont.)
 Conflict
is not entirely negative.
• Fosters different opinions.

Subordination of owners’ and managers’ interests and
problems of motivation.
 “Agency
problem:” tendency for interests of
principals (owners) and their agents (managers) to
diverge.
• Employees naturally work harder on those tasks
which benefit them.
• Firms must develop a sense of ownership among
employees.
Copyright © 1999 by Harcourt Brace & Company
All rights reserved
Emerging Issues

Changing nature of work
 Shift
toward more knowledge-intensive
products/services requires a more educated and
knowledgeable workforce.
 Workers are increasingly becoming important for
the knowledge and expertise they possess.
Copyright © 1999 by Harcourt Brace & Company
All rights reserved
Emerging Issues

(cont.)
Human resource management issues.
 How
jobs are designed, how work is organized, and
how knowledge will be accumulated, stored, and
shared with other employees, customers, and
suppliers.
 Organize work in such a way that employees
become managers of their own processes, that they
take responsibility for developing their skills, and
that they have opportunities for sharing their
knowledge.
Copyright © 1999 by Harcourt Brace & Company
All rights reserved
Emerging Issues

(cont.)
Human resource management issues (cont.)
• Employees become 3 times more productive after 10
years with the same employer than when they
started work.
– Their knowledge is key to keeping customers -- whose
longevity is source of repeat sales and referrals.
Copyright © 1999 by Harcourt Brace & Company
All rights reserved
New Types of
Organizational Structure

New structures need to meet the information
requirements of the new work.
 More
cross-functional team and matrix structures.
 Outsource many activities now performed by
today’s workers.
• Resulting virtual or modular organizations will
focus on the few activities which are critical to the
firm’s success, while outsourcing nearly all other
functional activities.
Copyright © 1999 by Harcourt Brace & Company
All rights reserved
New Types of Organizational
Structure (cont.)
 Rationale
for outsourcing:
• Service activities now occupy critical spots in most
companies’ value chains, and if they are not “best in
world” at these activities, then they are sacrificing
competitive advantage by performing those activities
internally.
• Each company should focus its investments and
attention on those activities where it can achieve and
maintain “best in world” status.
• Strategically approached, outsourcing can decrease
internal bureaucracies, flatten organizations, and
improve competitive responsiveness.
Copyright © 1999 by Harcourt Brace & Company
All rights reserved
Conclusions



Optimal organizational structure involves balancing
conflict, employee motivation, degree of centralization,
and communication and language problems.
Managers will place ever greater pressure on their
firms’ structures to acquire and disseminate
information and to facilitate individual and
organizational learning.
Managers will continue to rethink their value chains
and respond to changes in their competitive
environments.
Copyright © 1999 by Harcourt Brace & Company
All rights reserved
Key Points Introduced
in Chapter 10


Organizational structure includes the mechanisms
which facilitate the formulation and
implementation of strategy and the overall
coordination of the business enterprise.
The objectives of structure are:
 To
implement strategies; and
 To make organizations responsive to their owners
(shareholders), managers, and the competitive
environment.
Copyright © 1999 by Harcourt Brace & Company
All rights reserved
Key Points Introduced
in Chapter 10 (cont.)


Structure includes hierarchical reporting relationships,
formal organizational control systems, flows of
information, and organizational culture.
Three traditional types of hierarchical structures are the
functional, multidivisional, and matrix forms, each
having some advantage as well as disadvantages and
limitations.
Copyright © 1999 by Harcourt Brace & Company
All rights reserved
Key Points Introduced
in Chapter 10 (cont.)


Though less visible than hierarchical structures,
organizational control system, flows of information, and
organizational culture are important components of
organizational structure.
Any structure will face a number of issues and problems,
including communication and motivational problems,
control loss, and the danger that owners’ interests will be
subordinated to managers’ interests.
 Effective organizational structures can mitigate, but
not completely eliminate, these problems.
Copyright © 1999 by Harcourt Brace & Company
All rights reserved
Key Points Introduced
in Chapter 10 (cont.)

The competitive environment and the changing
nature of work will lead companies to adapt new
human resource management practices and to
develop new structures, including virtual forms of
organization.
Copyright © 1999 by Harcourt Brace & Company
All rights reserved
Exhibit 10.6: Multidivisional Structure for
Hypothetical Global Company
CEO
New York
Corporate
Staff
New York
North
America
Europe
Far East
London
Hong Kong
New York
Mfg
R&D
Mkt
Mfg
R&D
Mkt
Mfg
R&D
Mkt
Copyright © 1999 by Harcourt Brace & Company
All rights reserved
Exhibit 10.7:
Matrix Structure Adopted
by One Global Company
United
States
Europe
Far East
Latin
America
Canada
Consumer
Products
Scientific
Products
Electronics
Products
Medical
Products
Television
Products
Opthalmic
Products
Refractory
Products
Lighting
Products
Copyright © 1999 by Harcourt Brace & Company
All rights reserved