Application assignment 2

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Strategic Management Concepts

Chapter 10

Strategy Execution- Organizational Structure

Chapter 10: Key Issues

The Building Blocks of Organizational Structure

Four Alternative Organizational Structures

Factors to Consider When Selecting an Organizational Structure

Corporate Restructuring

Strategy Implementation: 2 Key Points

Consider the plan for implementation before adopting a strategic alternative.

The greater the strategic change, the more complex the implementation.

10-1 Organizational Structure

Organizational structure refers to the formal means by which work is coordinated in an organization. The structure exists to provide control and coordination for the organization.

In a new business, each employee often performs multiple tasks and the owner/manager is involved in all aspects of the business, a form of organization often called a simple structure.

10-1 Vertical Growth

Vertical growth refers to an increase in the length of the organization’s hierarchy (i.e., levels of management).

The number of employees reporting to each manager represents that manager’s Span of control.

A Tall organization is comprised of many hierarchical levels and narrow spans of control, whereas a flat organization has few levels in its hierarchy and a wide span of control from top to bottom.

Centralization and Decentralization

In a firm marked by centralization, most strategic and operating decisions are made by managers at the top of the organization structure.

When a structure is characterized by decentralization, most strategic and operating decisions are made by managers at lower levels of the organization.

10-1b Horizontal Growth

Horizontal Growth refers to an increase in the breadth of an organization’s structure.

Downsizing occurs when one or more hierarchical levels—typically middle managers—is eliminated.

10-2 Structural Forms Four Options

Functional Structure- organize by functions.

Product Divisional Structure- organize by products.

Geographic Divisional Structure- organize by geography.

Matrix Structure- combine functional and product divisional structures.

Product and geographic divisional structures are also called multidivisional or M-form structures.

10-3 Functional Structure

Each subunit of the organization engages in firm-wide activities related to a particular function, such as marketing, human resources, finance, or production.

Common to new organizations

Emphasizes specialization

Fosters development of economies of scale

Product Divisional Structure

Divides the organization’s activities into self-contained entities, each responsible for producing, distributing, and selling its own products.

Focus on products, the “real source” or success for the firm

Pinpointing the responsibility for profits or losses is also easier because each product division becomes a profit center—a well-defined organizational unit headed by a manager accountable for its revenues and expenditures.

Geographic Divisional Structure

Activities and personnel are grouped by specific geographic locations.

Useful when two or more divisions can be dissected easily along geographical lines

Attractive when there are substantial differences in various geographical regions

Matrix Structure

A combination of the functional and product divisional structures

Members have “two (or more) bosses,” one for the functional area and one or more for the project area(s)

Attractive when the organization faces a high degree of technological change, but can be confusing and complex

10-2e Assessing Organizational Structure

Functional, product divisional, geographic divisional, and matrix structures are pure forms. In reality, they are often combined to create an approach uniquely tailored to the strategic needs of the firm.

Considerations When Selecting A Structure

Level of corporate involvement in business unit operations

Compatibility of the structure with the corporate profile and the corporate strategy

Number of hierarchical levels in the organization

The extent to which the structure permits the appropriate grouping of activities

The extent to which the structure promotes effective coordination

The extent to which the structure allows for appropriate centralization or decentralization of authority

10-3 Corporate Involvement in Business Unit Operations

The extent to which corporate managers are involved in business-level operations varies from one firm to another.

Involvement is sometimes seen as a stabilizing force and is welcomed by top executives in business units. However, some business unit managers refer to “corporate” in a less than positive light and may view such involvement as “interference” or stifling to progress.

10-4 Corporate Restructuring

Corporate restructuring refers to a change in the organization’s structure to improve efficiency and firm performance.

Restructuring efforts can include such actions as realigning divisions in the firm, reducing the amount of cash under the discretion of senior executives, and acquiring or divesting business units.

Corporate Restructuring (cont’d)

Progressive firms restructure when it becomes clear that a change is necessary.

Restructuring is common in large organization and should not be delayed until survival is at risk.