Chapter
Ten
Implementing Strategy:
Creating Effective
Organizational Designs
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Learning
Objectives
After studying this chapter, you should have
a good understanding of:
• The importance of organizational structure and the concept of the
“boundary-less” 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 structures
• The implications of a firm’s international operations for
organizational structure
• The different types of boundary-less organizations—barrier-free,
modular, and virtual—and their relative advantages and
disadvantages
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Exhibit 10.1
Growth Patterns of Large Corporations
Phase 1
Strategy: Low revenue base; simple product-market scope
Structure: Simple
Phase 2
Strategy: Increase in revenues; engage in vertical integration (backward
and/or forward)
Structure: Functional
Phase 3
Strategy: Expand into new, related product-markets and/or geographical areas
Structure: Divisional
Phase 4
Strategy: Expand into international markets
Structure: International Division, Geographic Area, Worldwide Product
Division, Worldwide Functional, or Worldwide Matrix
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Exhibit 10.2
Functional Structure: Advantages and
Disadvantages
Chief Executive
Officer or President
Manager
Manager
Manager
Production Engineering Marketing
Manager
R&D
Manager
Manager
Personnel Accounting
Lower-level managers, specialists, and operating personnel
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Exhibit 10.3
Divisional Structure: Advantages and
Disadvantages
Chief Executive
Officer or
President
Corporate Staff
Manager
Production
Manager
Engineering
Division A
Division B
Division C
General Manager
General Manager
General Manager
Manager
Marketing
Manager
R&D
Manager
Personnel
Manager
Accounting
Lower-level managers, specialists, and operating personnel
Organized
similarly to
Division 1
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Organized
similarly to
Division 1
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Exhibit 10.4
Matrix Structures: Advantages and
Disadvantages
Chief Executive
Officer or
President
Manager
Administration
and Human
Resources
Manager
Projects
Manager
Manufacturing
Manager
Engineering
Corporate
Staff
Manager
Marketing
Manager Public
Relations
Project A
Project B
Project C
Project D
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Exhibit 10.5
Functional, Divisional, and Matrix Structures:
Advantages and Disadvantages
Functional Structure
Advantages
Disadvantages
• Pooling of specialists enhances coordination and control
• Centralized decision making enhances an organizational perspective
across functions
• Efficient use of managerial and technical talent
• Career paths and professional development in specialized areas are
facilitated
Divisional Structure
Advantages
•
•
•
•
•
Disadvantages
Increases strategic and operational control, permitting corporate-level
executives to address strategic issues
Quick response to environmental changes
Increased focus on products and markets
Minimizes problems associated with sharing resources across
functional areas
Facilitates development of general managers
Matrix Structure
Advantages
• Increased costs incurred through duplication of personnel,
operations, and investment
• Dysfunctional competition among divisions may detract from
overall corporate performance
• Difficulty in maintaining uniform corporate image
• Overemphasis on short-term performance
Disadvantages
• Increases market responsiveness through collaboration and synergies
among professional colleagues
• Allows more efficient utilization of resources
• Improves flexibility, coordination, and communication
• Increases professional development through broader range of
responsibility
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• Differences in functional area orientation impede communication
and coordination
• Tendency for specialists to develop short-term perspective and
overly narrow functional orientation
• Functional area conflicts may overburden top level decision
makers
• Difficult to establish uniform performance standards
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• Dual reporting relationships can result in uncertainty regarding
accountability
• Intense power struggles may lead to increased levels of conflict
• Working relationships may be more complicated and human
resources duplicated
• Excessive reliance on group processes and teamwork may
impede timely decision making
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Exhibit 10.6
Pros and Cons of the Barrier-Free Structures
Pros
Cons
• Leverages the talents of all
employees
• Enhances cooperation,
coordination, and informationsharing among functions,
divisions, SBUs, and external
constituencies
• Enables a quicker response to
market changes through a singlegoal focus
• Can lead to coordinated “win-win”
initiatives with key suppliers,
customers, and alliance partners.
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• Difficult to overcome political and
authority boundaries both inside and
outside the organization
• Lacks strong leadership and common
vision which can lead to coordination
problems.
• Time-consuming and difficult-tomanage democratic processes
• Lacks high levels of trust which can
impede performance
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Exhibit 10.7
Pros and Cons Of Modular Structures
Pros
Cons
• Directs a firm’s managerial and
technical talent to the most critical
activities
• Maintains full strategic control
over most critical activities—core
competencies
• Achieves “best in class”
performance at each link in the
value chain
• Leverages core competencies by
outsourcing with smaller capital
commitment
• Encourages information sharing
and accelerates organizational
learning
• Inhibits common vision through
reliance on outsiders
• Diminishes future competitive
advantages if critical technologies
or other competences are
outsourced
• Increases the difficulty of bringing
back into the firm activities that
now add value due to market shifts
• May lead to an erosion of crossfunctional skills
• Decreases operational control and
potential loss of control over a
supplier
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Exhibit 10.8
Pros and Cons of Virtual Structure
Pros
Cons
• Enables the sharing of costs and
skills
• Enhances access to global
markets
• Increases market responsiveness
• Creates a “best of everything”
organization since each partner
brings core competencies to the
alliance
• Encourages both individual and
organizational knowledgesharing and accelerates
organizational learning
• Harder to determine where one
company ends and another begins
due to close interdependencies
among players
• Leads to potential loss of
operational control among partners
• Results in loss of strategic control
over emerging technology
• Requires new and difficult-toacquire managerial skills
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