Transcript Slide 1

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
Simple
Structure
Functional
Structure
Multidivisional
Structure
Sales growth coordination &
control problems
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
Functional Structure
Chief Executive Officer (CEO)
Low cost business-level
strategy usually
employs a centralised
structure and
emphasises process
R&D and operations
Finance
Production
Copyright Guy Harley 2004
R&D
Differentiation businesslevel strategy usually
employs a decentralised
structure and emphasises
product R&D and sales &
marketing
Accounting
Sales &
Marketing
Human
Resources
Functional 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
Multi-Divisional Structure (M-form)
CEO
Corporate
R&D
Division
Finance
Corporate
Finance
Division
Strategic
Planning
Corporate
Marketing
Division
Production Engineering Accounting
Copyright Guy Harley 2004
Corporate
Human
Resources
Division
Sales &
Marketing
Human
Resources
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 controls
Objective 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
Cost Leadership
Chief Executive Officer (CEO)
Centralised staff
Finance
Production
Copyright Guy Harley 2004
R&D
Accounting
Sales &
Marketing
Human
Resources
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
Differentiation
Chief Executive Officer
and limited staff
R&D
Finance
Copyright Guy Harley 2004
Sales &
Marketing
Production Accounting
Human
Resources
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)
Three variations of the multi-divisional structure:
Strategy
Type
Related
Constrained
Related
Linked
Multi- Cooperative
Strategic
Divisional
Form
Business
Form
Unit Structure
Centralisation
Copyright Guy Harley 2004
Bureaucratic cost
Competitive
Form
Unrelated/
Holding
Company
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
Cooperative Form
HQ
Chief Executive Officer
Corporate
Marketing
Govt.
Affairs
Corporate
Finance
Product
Division
Strategic
Planning
Product
Division
Copyright Guy Harley 2004
Legal
Affairs
Product
Division
Corporate
HR
Product
Division
Corporate
R&D
Product
Division
Product
Division
Strategic Business Unit Form (SBU)
 Three levels
 Corporate Headquarters
 SBU Groups
 Divisions
 Integration within SBUs
 Independence between SBUs
Copyright Guy Harley 2004
SBU Form
HQ
Chief Executive Officer
Corporate
Finance
Strategic
Planning
Corporate
Marketing
Corporate
HR
SBU
Division
Division
Copyright Guy Harley 2004
Corporate
R&D
SBU
Division
Division
Division
Division
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
Competitive Form
HQ
Chief Executive Officer
Legal
Affairs
Division
Division
Copyright Guy Harley 2004
Finance
Division
Division
Auditing
Division
Division
Attributes of Various Structural Forms
Structural
Characteristics
Cooperative
M-Form
SBU
M-Form
Competitive
M-Form
Type of
Strategy
RelatedConstrained
Mixed-Related
or Unrelated
Unrelated
Degree of
Centralised
Centralised at
Centralisation Corporate Office
in SBUs
Decentralised
to Division
Use of
Integrating
Mechanisms
Extensive
Synergies
Moderate
Synergies
Nonexistent
Synergies
Divisional
Performance
Appraisal
Subjective/
Strategic
Criteria
Strategic &
Financial
Criteria
Financial
Criteria
Divisional
Incentive
Compensation
Linked to
Linked to
Linked to
Corporate
Corporation,
Divisional
Performance Division & SBU Performance
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
Evolution of Multi-Divisional Structure
CEO
Corporate Office (Staff)
North
America
Europe
Asia
Latin
America
Product A
Product B
Product C
Product D
Africa
Australia
A structural evolution based on geographic lines usually
implies a multi-domestic international strategy
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
Evolution of Multi-Divisional Structure
CEO
Corporate Office (Staff)
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
Evolution of Multi-Divisional Structure
CEO
Corporate Office (Staff)
Product A
Finance
Production
Product B
Engineering Accounting
Finance
Engineering
Copyright GuyProduction
Harley 2004
Accounting
Sales &
Marketing
Human
Resources
Sales &
Marketing
Human
Resources
Evolution of Multi-Divisional Structure
CEO
Corporate Office (Staff)
Product A
Product B
North
America
Finance
Copyright GuyProduction
Harley 2004
Europe
Product C
Product D
Asia
Engineering Accounting
Sales &
Marketing
Human
Resources
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
Copyright Guy Harley 2004
A Strategic Network
Network firms
Strategic Centre Firm
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
Copyright Guy Harley 2004
A Strategic Network – Strategic Outsourcing
Strategic Centre Firm
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
Copyright Guy Harley 2004
A Strategic Network – Capability
Strategic Centre Firm
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
Copyright Guy Harley 2004
A Strategic Network – Race to Learn
Strategic Centre Firm
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
Copyright Guy Harley 2004
A Distributed Strategic Network
Main
Strategic
Centre Firm
Distributed Strategic Centre Firms