Chapter 11
Organizational Structure
and Controls
Michael A. Hitt
R. Duane Ireland
Robert E. Hoskisson
©2000 South-Western College Publishing
Ch11-1
Strategic
Inputs
Chapter 2
External
Environment
Strategic Intent
Strategic Mission
Chapter 3
Internal
Environment
Strategy Implementation
Chapter 4
Business-Level
Strategy
Chapter 5
Competitive
Dynamics
Chapter 6
Corporate-Level
Strategy
Chapter 10
Corporate
Governance
Chapter 11
Structure
& Control
Chapter 7
Acquisitions &
Restructuring
Chapter 8
International
Strategy
Chapter 9
Cooperative
Strategies
Chapter 12
Strategic
Leadership
Chapter 13
Outcomes
Strategic
Strategic
Actions
Strategy Formulation
The Strategic
Management
Process
Feedback
Entrepreneurship
& Innovation
Strategic
Competitiveness
Above Average
Returns
Ch11-2
Structure Types
All organizations require some form of organizational
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)
Ch11-3
Strategy & Structure
Growth Patterns
Multidivisional
Structure
Sales Growth Coordination
and Control Problems
Efficient implementation
of formulated strategy
Functional
Structure
Sales Growth Coordination
and Control Problems
Efficient implementation
of formulated strategy
Simple
Structure
Ch11-4
Simple Structure
Owner / Manager
Owner/Manager makes all major decisions
directly and monitors all activities
Difficult to maintain this structure as
the firm grows in size and complexity
Ch11-5
Functional Structure
First stage beyond a Simple Structure
Appropriate for single or dominant-business firms
Allows specialization of tasks
* Production
* Finance
* Engineering
* Accounting
* Sales & Marketing
* Human Resources
Overcomes information processing limits of
single owner/manager
Functional department heads report to Chief
Executive Officer who integrates decisions and
actions from a company-wide point of view
Risks conflicts between myopic function managers
Ch11-6
Functional Structure
Chief Executive Officer
Corporate
R&D
Finance
Corporate
Finance
Strategic
Planning
Production Engineering
Corporate
Marketing
Accounting
Corporate
Human
Resources
Sales &
Marketing
Human
Resources
Ch11-7
Functional Structure for
Cost Leadership Strategy
Office of the President
• Operations is main function
• Process engineering is
emphasized rather than new
product R&D
Centralized
Staff
• Formalized procedures allow
Relatively large
centralized staff
coordinates
functions
for low-cost culture
• Structure is mechanical; job
roles are highly structured
Engineering Marketing
Operations
Personnel
Accounting
Ch11-8
Functional Structure for
Differentiation Strategy
President and
Limited Staff
R&D
New Product
Marketing
R&D
Marketing
Operations
Human
Resources
Finance
• Marketing is the main function for tracking new product ideas
• New product R&D is emphasized
• Most functions are decentralized
• Formalization is limited to foster change and promote new ideas
• Overall structure is organic; job roles are less structured
Ch11-9
Multi-Divisional Structure
Each division is operated as a separate business
Appropriate for related-diversified businesses
Key task of corporate managers is exploiting synergies
among divisions
Managers use a combination of strategic controls and
financial controls
Managers try to strike a balance between:
Competing among divisions for scarce capital resources
Creating opportunities for cooperation to develop synergies
The goal is to maximize overall firm performance
Ch11-10
Multi-Divisional Structure
The decision-making of managers in a MultiDivisional structure may be:
Centralized or Decentralized
Bureaucratic or Non-bureaucratic
Balance on these dimensions may change over time
Structure will evolve over time with:
Changes in strategy
Degree of diversification
Geographic scope
Nature of competition
Ch11-11
Multi-Divisional Structure
Chief Executive Officer
Corporate
R&D
Division
Finance
Corporate
Finance
Strategic
Planning
Division
Production Engineering
Corporate
Marketing
Corporate
Human
Resources
Division
Accounting
Sales &
Marketing
Division
Human
Resources
Ch11-12
Variations of the
Multi-Divisional Structure
Multi-Divisional
Structure
(M-form)
Cooperative
Form
Related-Constrained
Strategy
Strategic Business Unit
(SBU) Structure
Related-Linked
Strategy
Competitive
Form
Unrelated /Holding
Company Strategy
Ch11-13
Cooperative Form
Related-Constrained Strategy
President
Government
Affairs
Legal
Affairs
Corporate
R&D Lab
Strategic
Planning
Corporate
Human
Resources
Corporate
Marketing
Product
Division
Product
Division
Product
Division
Product
Division
Corporate
Finance
Product
Division
• Structural integration devices create tight links among all divisions
• Large corporate office with R&D likely to be centralized
• Culture emphasizes cooperative sharing
Ch11-14
SBU Form
Related-Linked Strategy
President
Corporate
R&D
Strategic
Business
Unit A
Corporate
Finance
Strategic
Planning
Strategic
Business
Unit B
Division
Division
Division
Corporate
Marketing
Strategic
Business
Unit C
Division
Corporate
Human
Resources
Strategic
Business
Unit D
Division
Division
• Structural integration exists among divisions within SBUs, but not across SBUs
• Each SBU may have its own budget for staff to foster integration
• Corporate headquarters staff serve as consultants to SBUs and divisions
Ch11-15
Competitive Form
Unrelated /Holding Company Strategy
President
Legal
Affairs
Division
Finance
Division
Division
Auditing
Division
Division
• Corporate headquarters has a small staff
• Finance and auditing are the most prominent functions in the headquarters
• Divisions are independent and separate for financial evolution purposes
• Divisions retain strategic control, but cash is managed by the corporate office
• Divisions compete for corporate resources
Ch11-16
Multi-Divisional Structure
The choice between centralization and decentralization
is frequently based on the business-level strategy
implemented in each division
Differentiation
Cost Leadership
Decentralization
Centralization
Complex Multi-Divisional structure firms may be
simultaneously centralized and decentralized ,
depending upon the various business-level strategies
employed throughout the firm’s individual businesses
Multi-Divisional structure firms use a combination of:
Strategic Controls
Financial Controls
Ch11-17
Attributes of Various Structural Forms
Structural
Characteristics
Cooperative
M-Form
SBU
M-Form
Competitive
M-Form
Type of
Strategy
RelatedConstrained
Related
Linked
Unrelated
Degree of
Centralized
Centralized at
Centralization Corporate Office
in SBUs
Decentralized
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
Ch11-18
Evolution of Multi-Divisional Structure
Chief Executive Officer
Corporate Office (Staff)
North
America
Europe
Asia
Latin
America
Product A
Product B
Product C
Product D
Africa
Australia
Product A
Ch11-19
Evolution of Multi-Divisional Structure
Chief Executive Officer
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
Ch11-20
Implementation of a Multidomestic Strategy
Worldwide
Geographic
Area
Structure
United
States
Asia
Latin
America
Multinational
Headquarters
Australia
Europe
Middle
East/
Africa
• Green circles indicate decentralization of operations
• Emphasis is on differentiation by local demand to fit a culture
• Corporate headquarters coordinates financial resources among
independent subsidiaries
• The organization is like a decentralized federation
Ch11-21
Evolution of Multi-Divisional Structure
Chief Executive Officer
Corporate Office (Staff)
Product A
Product B
Product C
Product D
A Structural evolution based on Product lines
usually implies a Global International Strategy
Ch11-22
Implementation of a Global Strategy
Worldwide
Product
Divisional
Structure
Worldwide
Products
Division
Worldwide
Products
Division
Worldwide
Products
Division
Multinational
Headquarters
Worldwide
Products
Division
Worldwide
Products
Division
Worldwide
Products
Division
• Green circle indicates centralization to coordinate information
flow among worldwide products
• Headquarters uses many intercoordination devices to facilitate
global economies of scale and scope
• Headquarters also allocates financial resources cooperatively
• The organization is like a centralized federation
Ch11-23
Evolution of Multi-Divisional Structure
A Transnational International Strategy is likely
to utilize a structure and that results in emphasis
on both geographic and product structures
Ch11-24
Strategic Networks
A Strategic Network is a grouping of organizations
that has been formed to create value through
participation in an array of cooperative arrangements,
such as a strategic alliance
A Strategic Center Firm often manages the network
The Strategic Center Firm identifies actions that
increase the opportunity for each firm to achieve
success through its participation in the network
The Strategic Center Firm creates incentives that
reduce the probability of any single firm taking
advantage of its network partners
Ch11-25
A Strategic Network
Network Firms
Strategic
Center
Firm
Ch11-26
Strategic Center Firm’s Critical Functions
Strategic Outsourcing
Strategic
Center
Firm
Capability Development
Technology Sharing
Building Linkages to
Facilitate Learning
Ch11-27
Strategic Outsourcing
Strategic
Center
Firm
Center firm coordinates outsourcing among partners,
initiates actions and coordinates problem solving
Ch11-28
Strategic Center Firm’s Critical Functions
Strategic Outsourcing
Capability Development
Technology Sharing
Strategic
Center
Firm
Building Linkages to
Facilitate Learning
Ch11-29
Capability and Technology
Strategic
Center
Firm
Center firm attempts to develop each partner’s core
competencies and provides incentives for network firms to
share their capabilities and competencies with partners
Strategic center firm manages the development and sharing
technology-based ideas among network partners
Ch11-30
Strategic Center Firm’s Critical Functions
Strategic Outsourcing
Capability Development
Technology Sharing
Building Linkages to
Facilitate Learning
Strategic
Center
Firm
Ch11-31
Building Linkages to Facilitate Learning
Strategic
Center
Firm
Strategic center firm emphasizes to partners the need to build
linkages between value chains and networks of value chains.
The strategic network seeks to develop a competitive
advantage in primary or support activities
Ch11-32
A Distributed Strategic Network
Main
Strategic
Center
Firm
Distributed Strategic Center Firms
International Cooperative Strategies often require more complex networks
Many large multinational firms form distributed strategic networks with
multiple regional strategic centers to manage their array of cooperative
arrangements with partner firms
Breaking large networks into multiple manageably-sized networks
helps to manage the complexity of maintaining many relationships
Ch11-33