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
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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
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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
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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
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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
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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
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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
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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
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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
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Multi-Divisional Structure (M-form)
CEO
Corporate
R&D
Division
Finance
Corporate
Finance
Division
Strategic
Planning
Corporate
Marketing
Division
Production Engineering Accounting
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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
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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
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Cost Leadership
Chief Executive Officer (CEO)
Centralised staff
Finance
Production
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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
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Differentiation
Chief Executive Officer
and limited staff
R&D
Finance
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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
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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
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Cooperative Form
HQ
Chief Executive Officer
Corporate
Marketing
Govt.
Affairs
Corporate
Finance
Product
Division
Strategic
Planning
Product
Division
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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
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SBU Form
HQ
Chief Executive Officer
Corporate
Finance
Strategic
Planning
Corporate
Marketing
Corporate
HR
SBU
Division
Division
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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
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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
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Competitive Form
HQ
Chief Executive Officer
Legal
Affairs
Division
Division
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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
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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
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Global Structures
Worldwide Geographic Area Structure
Worldwide Product Divisional Structure
Combination Structure
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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
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Worldwide Geographic Area Structure
Worldwide Geographic Area Structure
HQ coordinates financial resources
Divisions are independent
Operations are decentralised
Disadvantages
Unable to create global efficiency
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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
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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
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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
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Combination Structure
A trans-national international strategy
Local responsiveness and
Global efficiency
Uses combination structure
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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
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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
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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
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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
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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
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Strategic Networks – Horizontal Integration
Usually unstable due to rivalry
Difficult to agree on strategic centre firm
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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
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A Distributed Strategic Network
Main
Strategic
Centre Firm
Distributed Strategic Centre Firms