Application assignment 2

Strategic Management: Theory and Practice

Strategy Execution: Structure

Contributors: By: John A. Parnell

Book Title: Strategic Management: Theory and Practice

Chapter Title: "Strategy Execution: Structure"

Pub. Date: 2014

Access Date: March 24, 2018

Publishing Company: SAGE Publications, Ltd

City: 55 City Road

Print ISBN: 9781452234984

Online ISBN: 9781506374598

DOI: http://dx.doi.org/10.4135/9781506374598.n10

Print pages: 270-291

©2014 SAGE Publications, Ltd. All Rights Reserved.

This PDF has been generated from SAGE Knowledge. Please note that the pagination of

the online version will vary from the pagination of the print book.

Strategy Execution: Structure

Chapter Outline

Organizational Structure Vertical Growth

Horizontal Growth

Structural Forms Functional Structure

Product Divisional Structure

Geographic Divisional Structure

Matrix Structure

Assessing Organizational Structure

Corporate Involvement in Business Unit Operations

Corporate Restructuring

Summary

Key Terms

Review Questions and Exercises

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Practice Quiz

Student Study Site

Notes

The best conceived strategic plans often fail from a lack of planning for their execution. Effective strategy implementation requires managers to consider a number of issues,

including structural, cultural, and leadership concerns.1. These considerations should be made before a strategic alternative is selected and then detailed after a strategy is formulated.

This chapter emphasizes the relationship between strategy and the firm's structure—the formal side of the organization—especially within the context of strategy execution. Leadership and culture are addressed in the following chapter.

Organizational Structure

Organizational structure—the formal means by which work is coordinated in an organization — is the focus of this chapter. An organization's structure dictates reporting relationships and defines where and how the firm's work will be done. It establishes a framework for identifying the levels in the organization where decisions will be made. In many respects, the structure sets the stage for strategy execution. A given structure might be appropriate for one particular strategy but not another. For example, tight and well-defined job responsibilities and reporting relationships might work best in a firm like McDonald's, whose strategy emphasizes the delivery of very consistent, standardized service. A loose, more flexible approach might make sense for a firm like 3M, whose strategy emphasizes innovation. Although there are a number of possible organizational structures, this chapter focuses on the primary alternatives and their implications for strategy execution.

There is a long-standing debate among scholars as to whether a firm's strategy should follow its structure or vice versa. Most practitioners, however, recognize that strategy and structure are interdependent. In the short term, strategic managers should evaluate and consider the firm's structure when crafting the strategy, recognizing that modifying the structure is rarely easy or cost-free. In addition, they should be willing to modify the firm's structure as required to fit with any necessary strategic change. In the long term, because a firm's strategy is a key driver of its performance, the structure should be built around the strategy to ensure its effectiveness.

Although some new businesses are launched on a large scale, many start small with an owner/ manager and a few employees. Neither an organizational chart nor a formal assignment of responsibilities is necessary. 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. This structure may remain intact for only a few months in a fast- growing organization or for years in a small family business such as a rural convenience or hardware store. The owner/manager is able to communicate the strategic priorities directly with most members of the organization.

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In organizations with a simple structure, early survival depends on an increase in demand for the company's products or services. As the organization grows to meet this demand, however, a more permanent division of labor tends to form. The owner/manager who once was nearly involved in all functions of the enterprise begins to play more of a leadership role, and additional employees are assigned to more specialized functions. At some point, however, growth of the firm reaches a certain point where top managers must evaluate the effectiveness of the evolving system of coordinating tasks and consider modifying it—if necessary—so that the structure evolves as the strategy evolves.

Because the simple structure is inappropriate when a firm grows beyond a certain point, other alternatives must be considered. For such organizations, the structure exists to provide control and coordination for the organization. The structure designates formal reporting

relationships and defines the number of levels in the hierarchy2. (see the sample chart in Figure 10.1). There are logical reasons for organizing work along various lines. For example, work can be organized along function so employees can work only in their areas of specialty, by product so decisions about products can be made in an integrated fashion, and along geographical lines so decisions can be tailored to unique needs of various geographical regions. It is also reasonable to assume that individuals can and should work across the structure when necessary.

Figure 10.1 Security Bank Organization Chart

There is no single best structure, and the one selected for any organization will have its own set of benefits and challenges. The key is to select a structure that supports the execution of the strategy and to reassess and modify both as required. Interestingly, many large, well- known companies change structures frequently as their environments change.

The extent to which organizational activities are appropriately grouped affects how well strategy is implemented. For instance, customers may be confused when they are contacted by multiple sales representatives for the same company with each representing a different product line. In addition, it is difficult to hold a product divisional manager fully responsible for product sales when he or she has no control over either the development or the production of the product.

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In addition, firms with multiple related businesses usually require greater coordination of their business units’ activities than those operating in only one business. However, as an organization becomes more complex, coordinating activities becomes more difficult, especially in organizations with related businesses.

Vertical Growth

Growth in the organization expands its structure, both vertically and horizontally. 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 composed of many hierarchical levels and narrow spans of control whereas a flat organization (or steep organization) has few levels in its hierarchy and a wide span of control from top to bottom. In reality, organizations fall somewhere in between the two extremes. Hence, organizations are seen as being “relatively tall” or “relatively flat.”

When a structure is marked by centralization, most strategic and operating decisions are made at the top because managers at higher levels are presumed to have greater experience and expertise. Although there are clear lines of responsibility and accountability, top managers may lack the hands-on experience that managers at middle and lower levels have. Decision making occurs slowly, and the lower level managers may be less committed to those

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decisions made at higher levels.

Alternatively, when a structure is characterized by decentralization, most strategic and operating decisions are made by managers at lower levels of the organization. Decentralized firms seek to overcome the difficulties of centralization by pushing each decision to the lowest level where it can be made effectively. Decentralization enables a firm to take advantage of the intellectual capital that an organization develops across managerial ranks by empowering managers with direct knowledge about a situation to make rapid decisions. When customer service is a key component of an organization's strategy, a decentralized structure can be beneficial because managers in direct contact with customers can address problems quickly and decisively. However, decentralization can cloud lines of accountability when poor decisions are made and can often result in poor coordination across units in the organization. These potential disadvantages notwithstanding, it is not difficult to see why many progressive organizations have moved toward greater decentralization in the past two decades.

The extent to which decision making should be decentralized depends on a number of factors —one of which is organizational size. In general, very large organizations tend to be more decentralized than very small ones, simply because it is difficult for the chief executive officer (CEO) of a very large company to stay abreast of all of the organization's operations. In addition, firms with large numbers of unrelated businesses tend to be relatively decentralized whereby corporate-level management determines the overall corporation's mission, goals, and strategy, and lower-level managers make the actual operating decisions. Finally, organizations in dynamic environments must be relatively decentralized so that decisions can be made quickly whereas organizations in relatively stable environments can be managed more systematically and centrally because change is relatively slow and fairly predictable. In such cases, most decisions are routine, and procedures can often be established in advance.

John Child studied the link between firm size and number of management levels. According to Child, the average number of hierarchical levels for an organization with 3,000 employees is

seven.3. Consequently, one might consider such an organization with fewer than seven hierarchical levels to be relatively flat and one with more than seven to be relatively tall. Because tall organizations have a narrow span of control, managers in such organizations exercise a relatively high degree of control over their subordinates, and authority tends to be relatively centralized. Conversely, authority is more decentralized in relatively flat structures because managers have broad spans of control and must therefore grant more flexibility to their employees. Because decisions are more likely to be made at lower levels in flat organizations, it is advisable for employees to have a more generalist orientation.

From a strategic perspective, both organizational types possess certain advantages. Tall, centralized organizations foster more effective coordination and communication of the business's mission and goals to all employees. Planning and its execution are relatively easy to accomplish because all employees are centrally directed. As such, tall organizational structures may be best suited for environments that are relatively stable and predictable although a number of experts have begun to suggest that tall structures do not yield the advantages today that they once did.

Flat structures also have their advantages. Administrative costs tend to be lower than those in taller organizations because fewer hierarchical levels require fewer managers and support personnel. Decentralized decision making also gives managers at various levels more

authority, which may increase their satisfaction and motivation.4. The greater freedom in decision making also encourages innovation. Hence, flat structures are best suited for more

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dynamic environments, such as those in which most Internet businesses operate. Quality tends to improve when decision making is decentralized closest to the level at which the decisions will be implemented although this is not always the case.

Flatter organizations, with relatively fewer hierarchical levels and wider spans of control, tend to work more effectively in dynamic environments whereas taller organizations may operate more effectively in stable, more predictable environments. Not all of a firm's business units need to adopt the same structure. If some business units operate in relatively dynamic environments while others compete in relatively stable environments, structural differences may be necessary.

Other factors can also influence the appropriate structure for an organization. Heavy involvement in outsourcing and/or offshoring is one such factor. Because outsourcing reduces

internal activities, it can flatten the structure and increase decision-making speed.5.

Outsourcing can stifle the bureaucracy, enabling firms to concentrate on key strategic concerns such as shortening the cycle time for new products or new models of existing ones.

Horizontal Growth

Horizontal growth refers to an increase in the breadth of an organization's structure. The owner/manager and a few employees may perform all of the functions in a new business. With growth, however, each function expands so that no one individual can be involved in all of the company's functions, and the structure of the organization is broadened to accommodate the development of more specialized functions. Owners and managers who are unable to “let go” of former realms of responsibility as their responsibilities increase are often referred to disparagingly as “micromanagers.”

Increases in organizational size usually lead to additional organizational layers and bureaucracy. Although large organizations are often presumed to benefit from economies of scale and therefore be more efficient, a large firm may actually become both less efficient and less capable of meeting the needs and expectations of its customers over time. Top management often addresses the burgeoning bureaucracy by instituting a more horizontal structure—one with fewer hierarchies. The organizational restructuring and retrenchment strategies so pervasive throughout the 1980s and 1990s has often involved forming a more horizontal structure through downsizing, whereby part or all of one or more hierarchical levels—typically middle managers—are eliminated. Additionally, employee layoffs often occur in order to cut costs and eliminate some of the bureaucracy that invariably accompanies multiple organizational layers. As layers are reduced, decision making becomes more decentralized.

Interestingly, downsizing often does not achieve desired results, especially in the long term. Studies suggest that on average, firms enjoy a slight and short-term rise in stock price after

downsizing, followed by significant declines over the intermediate term.6. When cuts are applied equally to all departments, both efficient and inefficient ones lose employees without regard to performance level. When buyouts are offered to relatively high-paid, longtime employees, the firm can be faced with a drastic loss of critical experience. In addition, the positive changes in the formal organization created by downsizing often lead to dysfunctional consequences in the informal organization. Survivors (i.e., employees who remain after the cuts) are typically less loyal to the organization and wonder if they will be cut next. Hence, downsizing is a worthy strategic alternative, but one whose long-term ramifications must be

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seriously considered before it is adopted.7.

Firms occasionally seek to downsize for the specific purpose of eliminating part of the workforce so that it can be rebuilt in a different manner. Downsizing may occur after an acquisition if there are substantial cultural differences between the two firms and the acquiring firm wishes to reorient the new combined workforce.

Structural Forms

The following section describes four general alternative structures that may be adopted to meet the strategic needs of the organization. Some of these structures tend to fit with certain firm level competitive strategies although this relationship is not always clear.

Functional Structure

The initial growth of an enterprise often requires that it be organized along functional areas. In the functional structure, each subunit of the organization engages in firm-wide activities related to a particular function, such as marketing, human resources (HR), finance, or production. The chart in Figure 10.2 illustrates one example of a functional structure. Managers are grouped according to their expertise and the resources they use in their jobs. A functional structure has a number of strategic advantages. Most notably, it can improve specialization and productivity by grouping together people who perform similar tasks. When functional specialists interact frequently, improvements and innovations for their functional areas may evolve that may not have otherwise occurred without a mass of specialists organized within the same unit. Working closely on a daily basis with others who share one's functional interests also tends to increase job satisfaction and lower turnover. In addition, the functional structure can also foster economies of scale by centralizing functional activities.

Because of its ability to group specialists and foster economies of scale, the functional structure form tends to address cost and quality concerns effectively. However, this form also has its disadvantages. Because the business is organized around functions rather than around products or geographic regions, pinpointing the responsibility for profits or losses can be difficult. For example, a decline in sales could be directly linked to problems in any of a number of departments, such as marketing, production, or purchasing. Members of these departments may point at other departments when firm performance declines.

Figure 10.2 A Partial Example of Functional Structure

In addition, a functional structure is prone to interdepartmental conflict by fostering a narrow perspective of the organization among its members. Managers in functional organizations tend to view the firm totally from the perspective of their field of expertise. The marketing department might see a company problem as sales-related whereas the human resource department might view the same challenge as a training and development concern. In

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addition, communication and coordination across functional areas are often difficult because each function tends to have its own perspective and vernacular. Research and development (R & D), for example, tends to focus on long-term issues whereas the production department generally emphasizes the short run. Grouping individuals along function minimizes communication across functions and can foster these types of communication problems.

In sum, the functional structure can serve as a relatively effective and efficient means of controlling and coordinating activities. For this reason, it may be appropriate for defenders and low-cost businesses that emphasize efficiency in established markets. However, there has been a growing emphasis on customer service and speed in recent years, challenges that the functional structure may not be as well equipped to address. Depending on the specific issues facing an organization, a division along product or geographical lines may be more appropriate.

Product Divisional Structure

Some firms “outgrow” the functional structure as they expand product lines and geographies. To better coordinate their activities, such firms implement a multidivisional structure (or M- form structure). The product divisional structure divides the organization's activities into self-contained entities, each responsible for producing, distributing, and selling its own products. This structure is often adopted when a business has several distinct product lines. For example, a software developer may organize along three product lines: (1) business, (2) productivity, and (3) educational applications. Each division would have its own functional areas, such as R & D, marketing, and finance. For this reason, the product divisional structure may be most appropriate for diversified firms. The product divisional structure is used both in manufacturing and service organizations.

The product divisional structure has a number of advantages. Rather than emphasizing functions, the structure emphasizes product lines, resulting in a clear focus on each product category and a greater orientation toward customer service. 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. As such, the product divisional structure can be an attractive alternative for businesses pursuing prospector and differentiation strategies.

The product divisional structure is also ideal for training and developing managers because each product manager is, in effect, running his or her “own business.” Hence, product managers develop general management skills—an end that can be accomplished in a

functional structure only by rotating managers from one functional area to another.8.

The product divisional structure also has its disadvantages. Because product divisional firms generally have multiple departments performing the same function, the total personnel expense for manufacturing is likely to be higher than if only one department were necessary. The coordination of activities at headquarters also becomes more difficult, as top management finds it harder to ensure consistency among the various departments. This problem can become substantial in large organizations with 40 or more product divisions. Finally, because each product manager emphasizes his or her own product area, product managers tend to compete for resources instead of working together in the best interest of the company.

Geographic Divisional Structure

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When a firm's operations are dispersed through various locations, top executives often employ a geographic divisional structure, whereby activities and personnel are grouped by specific geographic locations (see Figure 10.3). This multidivisional structure may be used on a local basis (i.e., a city may be divided into sales regions), on a national basis (i.e., southern region, mid-Atlantic region, Midwest region), or even on an international basis (i.e., North American region, Latin American region, Asian region, Western European region). The primary impetus for the geographic divisional structure is the existence of two or more distinct markets that can be segmented easily along geographical lines. For this reason, differentiated businesses or those unable to standardize product or service lines because of geographical market differences may implement a geographic divisional structure.

Figure 10.3 A Partial Example of Geographic Divisional Structure

There are two key advantages to organizing geographically. First, products and services may be tailored more effectively to the legal, social, technical, or climatic differences of specific regions. For example, relatively small 220-volt appliances may be appropriate for parts of Asia where living quarters tend to be limited and the American 110-volt system is not used. In addition, insurance companies are often organized along state and national boundaries because of legal differences. Second, producing or distributing products in different locations may give the organization a competitive advantage. Many firms, for example, produce components in countries that have a labor cost advantage and assemble them in countries with an adequate supply of skilled labor. Hence, like the product divisional structure, the geographic divisional approach may also be appropriate for businesses embarking on a prospector or differentiation strategy. Porter's notion of a focus strategy can also fit well with geographic divisions if the focus is based on nations, states, or regions.

The disadvantages of a geographic divisional structure are similar to those of the product divisional structure. Often, more functional personnel are required because each region has its own functional departments. Coordination of company-wide functions is often more difficult, and area managers may emphasize their own geographic regions to the exclusion of a company-wide viewpoint.

Matrix Structure

In a general sense, the functional and divisional structures—both product and geographical— can be viewed as opposites on ends of a continuum. The traditional demands for quality and price may pull an organization toward the functional end whereas demands for service and speed may pull the organization toward the divisional end. To address these demands, top managers may settle on one of the two poles or may attempt to position the organization

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between the extremes. One such approach that has gained considerable popularity in recent years is the matrix structure.

Unlike the other structures that are characterized by a single chain of command, the matrix structure is a combination of the functional and product divisional structures (see Figure 10.4). Hence, personnel within the matrix have two (or more) supervisors: (1) a “functional boss” and (2) a “project boss.” In one project, a project manager might pull together some members of the organization's functional departments. After the project is completed, the personnel in the project return to their functional departments. Hence, some individuals may be assigned to more than one team at the same time.

Consider that many common organizational tasks require expertise from a variety of backgrounds. Effective new product development requires contributions from such areas as R & D, marketing, and production. Enhancing a consumer product firm's e-commerce capability requires contributions from information technology, marketing, supply chain management, and merchandising. An initiative to improve customer satisfaction requires expertise in sales, inventory management, and production. The matrix structure is designed to address these multifaceted problems because it pools together the necessary expertise required.

The matrix structure is inappropriate for many organizations, especially those emphasizing cost leadership. It is most commonly used in organizations that operate in industries with a high rate of technological change, such as software development, management consulting, and telecommunications. Because of its complexity, the matrix structure is not as common as the other structures. However, recent developments in network technology have helped managers in many matrix organizations overcome some of the confusion and duplication that can accompany the structure. As such, matrix approaches are likely to continue to expand, especially in industries governed by technology.

A variation to the traditional project form of the matrix structure is reflected in the form of organization pioneered by Procter & Gamble (P&G) in 1927. At P&G, rather than a project manager being in charge of a temporary project, each of P&G's individual products has a brand manager. Like a project manager, the brand manager pulls various specialists, as they are needed, from their functional departments. Each brand manager reports to a category manager, who is in charge of all related products in a single category. The category manager coordinates the advertising and sales efforts so that competition among P&G products is minimized. Interestingly, P&G continues to modify its brand management approach as the

environment changes, and has recently undergone a shift toward a more global orientation.9.

Figure 10.4 Matrix Organizational Structure

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The matrix structure offers four key advantages. First, by combining the functional and product divisional structures, a firm can enjoy many of the advantages of both forms. Second, a matrix organization is flexible because employees may be transferred with ease between projects with different time frames. Third, a matrix permits lower-level functional employees to become heavily involved in projects and gain valuable experience. Finally, top management in a matrix is freed from day-to-day involvement in the operations of the enterprise in order to focus on strategic leadership.

The matrix also has a number of disadvantages. First, because coordination across functional areas and across projects is so important, matrix personnel spend considerable time in meetings exchanging information, ultimately growing the bureaucracy and raising personnel costs. Second, matrix structures are characterized by considerable conflict both between project and functional managers over budgets and personnel and among the project managers themselves over similar resource allocation issues. Finally, reporting to two managers simultaneously violates a basic premise of management (i.e., each employee should report to only one boss) and can create role conflict when different bosses provide conflicting instructions.

Assessing Organizational Structure

Structures in some firms are relatively easy to assess by examining the organization chart. It is not as easy to delineate in other firms, however. Functional, product divisional, geographic divisional, and matrix structures are often combined to create an approach uniquely tailored to the strategic needs of the firm (Figure 10.5 illustrates a combination structure). It is interesting to note that a number of firms combine two or more of the structures according to the specific needs of the firm and the philosophy of its top executives. Yum Brands, for example, has a division for each of its domestic restaurant holdings (e.g., KFC, Pizza Hut, Taco Bell, Long John Silver's, and A&W Restaurants). Another division, however, is based on geography and includes units in all three of the restaurant brands located outside the United States. Hence, implementing a single, pure structure is not necessary.

Figure 10.5 A Partial Example of a Combination Structure

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1. 2. 3. 4. 5. 6.

Summarizing the previous sections, the appropriate structure for a given firm can depend on a number of factors, including the following:

The level of corporate involvement in business unit operations The compatibility of the existing structure with the firm- and business-level strategies The 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 across groups T h e e x t e n t t o w h i c h t h e s t r u c t u r e a l l o w s f o r a p p r o p r i a t e c e n t r a l i z a t i o n o r decentralization of authority

The next section addresses the first of these factors in more detail.

Corporate Involvement in Business Unit Operations

Top management philosophy is a key determinant of an organization's structure, especially in large firms with multiple business units. 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.

The appropriate type of corporate involvement can greatly influence business profitability.10.

For example, some firms have diversified into unrelated businesses and tend to operate in a relatively decentralized fashion, however. In decentralization, firms tend to employ small corporate staffs and allow the business unit managers to make the most of their own strategic and operating decisions, including functional areas such as purchasing, inventory management, production, finance, R & D, and marketing. Alternatively, firms whose business

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units are in the same industry or in related industries usually follow a centralization pattern whereby major decisions affecting the business units tend to be made at corporate headquarters. Many corporations operate between these two extremes.

Organizations seeking the benefits of centralization often select a functional structure. The more commonality in those functional activities across the firm's business units, the greater the tendency is to coordinate those activities at the corporate level. Centralization can result in efficiencies and consistencies across all business units. For instance, quantity discounts are larger if the purchases are negotiated at the corporate level for all business units rather than having each business purchase them separately.

Centralization, however, can also be inefficient especially when a firm attempts to tightly control the activities of a diverse array of business units. As the organization grows, larger corporate staffs are required, increasing the distance between corporate management and the business units. Top managers are forced to rely increasingly on their staff for information, and they communicate downward to the business units through their staff. These processes can lead to a number of communication and coordination problems, as well as to a proliferation of bureaucracy.

Although synergy among business units may not be minimized, decentralized corporations can often eliminate these problems because highly decentralized firms maintain only skeletal

corporate staffs.11. Many firms seeking the benefits of decentralization organize along a matrix structure. It is common in organizations with matrix structures for decisions to be made by content experts regardless of department or management level. In general, product divisional and geographic divisional structures tend to lie between the functional and matrix structures in terms of centralization and decentralization. Although there is a clear link between structure and degrees of centralization and decentralization, an organization can pursue greater centralization or decentralization within any of the structures.

Corporate Restructuring

After a firm matures, its structure may change very little over the years. This is not common, however. Structures may be modified from time to time as the firm changes markets, moves into new industries, performs poorly, or gets a new CEO.

A major structural change may be considered when an organization is performing well. It is most common, however, when performance is poor and a retrenchment strategy is pursued. In this situation, retrenchment is often accompanied by a reorganization process known as corporate restructuring. Corporate restructuring refers to a change in the organization's structure designed 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.12. While corporate restructuring can refer to a simple change in structure—perhaps from a functional approach to a product divisional approach—it often accompanies more aggressive changes as well.

Progressive firms restructure when it becomes clear that a change is necessary—ideally before performance declines are substantial. Unfortunately, some managers resist change and ultimately may be forced to do so. Firms that voluntarily restructure when necessary ordinarily do not have to be concerned with hostile takeover bids or externally forced

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involuntary restructuring. However, firms that do not manage for value may eventually be forced to restructure by outsiders—a process that is usually more costly.

Even well-known leading companies progress through product and economic cycles that require them to restructure on occasion. Before Nestle CEO Peter Brabeck stepped down in 2008, he embarked on a restructuring that eliminated thousands of items, cut production costs, and changed the way innovative food product ideas are evaluated and pushed to

market.13.

When properly executed, minor or major corporate restructuring efforts can enable a firm to execute its strategies more effectively. Structural changes have a downside, however. Actions such as closing or combining offices, eliminating positions, and modifying reporting relationships may not only increase costs for a firm but can result in other negative effects as well. Specifically, the concept of restructuring tends to conflict with emphasis on HR as the key source of a firm's competitive advantage. The job cuts typically associated with restructuring can damage morale, encourage survivors to consider leaving before they are laid off, and place a greater focus on minimizing costs rather than fostering creativity and excellence. Hence, the long-term effects of corporate restructuring— especially downsizing—

should be seriously considered before a plan is implemented.14.

Summary

Successful strategy implementation requires a fit between strategy and structure. Strategic managers may choose to structure the organization around functions, products, or geography, or they may choose a matrix approach. Each structure has its own advantages and disadvantages.

There are a number of considerations when assessing an organization's structure. In the functional structure, each subunit of the organization engages in firm-wide activities related to a particular function, such as marketing, HR, finance, or production. The product divisional structure divides the organization's activities into self-contained entities, each responsible for producing, distributing, and selling its own products. When a firm's operations are dispersed through various locations, top executives often employ a geographic divisional structure, whereby activities and personnel are grouped by specific geographic locations. The matrix structure is a combination of the functional and product divisional structures.

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.

Key Terms

Brand Manager: The project manager in P&G's version of the matrix structure. Centralization: An organizational decision-making approach with most strategic and operating decisions made by managers at the top of the organization structure (at corporate headquarters). Corporate Restructuring: A change in the organization's structure to improve efficiency and firm performance, including such activities as realigning divisions in the firm, reducing the amount of cash under the discretion of senior executives, and acquiring or divesting

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1.

2.

3. 4.

business units. Decentralization: An organizational decision-making approach with most strategic and operating decisions made by managers at the business unit level. Downsizing: A means of organizational restructuring that eliminates part or all of one or more hierarchical levels from the organization and pushes decision-making downward in the organization. Flat Organization: An organization characterized by relatively few hierarchical levels and a wide span of control. Functional Structure: A form of organizational structure whereby each subunit of the organization engages in firm-wide activities related to a particular function, such as marketing, HR, finance, or production. Geographic Divisional Structure: A form of organizational structure in which jobs and activities are grouped on the basis of geographic location—for example, northeast region, Midwest region, and far west region. Horizontal Growth: An increase in the breadth of an organization's structure. Horizontal Structure: An organizational structure with fewer hierarchies designed to improve efficiency by reducing layers in the bureaucracy. Matrix Structure: A form of organizational structure that combines the functional and product divisional structures. Multidivisional Structure: A structural form with two or more divisions based on products (a product divisional structure) or geography (a geographic divisional structure); also called an M-form. Organizational Structure: The formal means by which work is coordinated in an organization. Product Divisional Structure: A f o r m o f o r g a n i z a t i o n a l s t r u c t u r e w h e r e b y t h e organization's activities are divided into self-contained entities, each responsible for producing, distributing, and selling its own products. Profit Center: A well-defined organizational unit headed by a manager accountable for its revenues and expenditures. Simple Structure: An organizational form whereby each employee often performs multiple tasks, and the owner/ manager is involved in all aspects of the business. Span of Control: The number of employees reporting directly to a given manager. Tall Organization: An organization characterized by many hierarchical levels and a narrow span of control. Vertical Growth: An increase in the length of the organization's hierarchical chain of command.

Review Questions and Exercises

What is the difference between a tall organization and a flat organization? What are the advantages and disadvantages of each? What forms of organizational structure are available to strategic managers? What are the primary advantages and disadvantages of each? What is the matrix structure? Why has it become so popular in recent years? What is corporate restructuring?

Practice Quiz

True of False?

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A. B. C. D.

A. B. C. D.

A. B. C. D.

A. B. C. D.

A. B. C.

1. Corporate restructuring seeks to improve efficiency and performance through 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. 2. A flat organization is composed of many hierarchical levels and narrow spans of control. 3. Horizontal structures have fewer managerial levels than vertical structures. 4. In general, a functional structure tends to be most appropriate for differentiated businesses. 5. Corporate restructuring can be voluntary or involuntary. 6. Progressive firms restructure only when firm performance declines.

Multiple Choice

7.

The formal means by which work is coordinated in an organization is called the_______.

organizational structure organizational culture organizational dynamic none of the above

8.

An increase in the breadth of an organization's structure is known as_______.

centralization decentralization horizontal growth vertical growth

9.

Which of the following structures tends to be the most centralized?

functional structure product divisional geographic divisional structure matrix structure

10.

The notion of a profit center is consistent with which form of organizational structure?

functional structure product divisional geographic divisional structure matrix structure

11.

Which form of organizational structure is actually a combination of two other forms?

functional structure product divisional geographic divisional structure

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D.

A. B. C. D.

matrix structure 12.

Which of the following structures tends to be the most decentralized?

functional structure product divisional geographic divisional structure matrix structure

Student Study Site

Visit the student study site at www.sagepub.com/parnell4e to access these additional materials:

Answers to Chapter 10 practice quiz questions Web quizzes SAGE journal articles Web resources eFlashcards

Notes

1. M. P. Miles, J. G. Covin, and M. B. Heeley, “The Relationship Between Environmental Dynamism and Small Firm Structure, Strategy, and Performance,” Journal of Marketing Theory & Practice 8, no. 2 (2000): 63-78; G. Duysters and J. Hagedoorn, “Do Company Strategies and Structures Converge in Global Markets? Evidence from the Computer Industry,” Journal of International Business Studies 32 (2001): 347-356.

2. J. Hagel, “Fallacies in Organizing Performance,” The McKinsey Quarterly 2 (1994): 97-108. Also see J. Child, Organization: A Guide for Managers and Administrators (New York: Harper & Row, 1977), 10.

3. J. Child, Organization.

4. L. G. Love, R. L. Priem, and G. T. Lumpkin, “Explicitly Articulated Strategy and Firm Performance Under Alternative Levels of Centralization,” Journal of Management 28 (2002): 611-627.

5. J. B. Quinn, “Strategic Outsourcing: Leveraging Knowledge Capabilities,” Sloan Management Review 40, no. 4 (1999): 9-22; J. Heikkila and C. Cordon, “Outsourcing: A Core or Non-Core Strategic Management Decision,” Strategic Change 11, no. 3 (2002): 183-193.

6. D. Sirota, L. A. Mischkind, and M. I. Meltzer, The Enthusiastic Employee (Upper Saddle River, NJ: Wharton Publishing).

7. D. Rigby, “Look Before You Lay Off,” Harvard Business Review 80, no. 4 (2002): 1-2; I. S u a r e z - G o n z a l e z , “ D o w n s i z i n g S t r a t e g y : D o e s I t R e a l l y I m p r o v e O r g a n i z a t i o n a l Performance?” International Journal of Management 18 (2001): 301-307.

8. P. Wright, M. Kroll, and J. A. Parnell, Strategic Management: Concepts (Upper Saddle

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River, NJ: Prentice Hall, 1998).

9. J. Neff, “The New Brand Manager,” Advertising Age 70, no. 46 (1999): 2-3; B. Dumaine, “P&G Rewrites the Marketing Rules,” Fortune, November 6, 1989, pp. 34-48; A. Swasy, “In a Fast-Paced World, Procter & Gamble Sets Its Store in Old Values,” The Wall Street Journal, September 21, 1989, 1; Z. Schiller, “No More Mr. Nice Guy at P&G—Not by a Long Shot,” Business Week, February 3,1992, 54-56.

10. S. Chang and H. Singh, “Corporate and Industry Effects on Business Unit Competitive Position,” Strategic Management Journal21 (2000): 739-752.

11. S. Hill, R. Martin, and M. Harris, “Decentralization, Integration and the Post-Bureaucratic Organization: The Case of R & D,” Journal of Management Studies 37 (2000): 563-585; C. Hales, “Leading Horses to Water? The Impact of Decentralization on Managerial Behaviour,” Journal of Management Studies 36 (1999): 831-851.

12. J. F Weston, “Restructuring and Its Implications for Business Economics,” Business Economics, January 1998, 41-46.

13. D. Ball, “After Buying Binge, Nestle Goes on a Diet,” Wall Street Journal, July 23, 2007, A1.

14. W. F Cascio, “Strategies for Responsible Restructuring,” Academy of Management Executive 16, no. 3 (2002): 80-91.

Strategy + Business Reading: Design for Frugal Growth

With the right kind of organization, you can expand while cutting costs.

by Jaya Pandrangi, Steffen Lauster, and Gary L. Neilson

The control of costs had been its greatest strength. But it was now the greatest weakness. The company had spent so many years trying to reduce expenses that this imperative was hardwired into its practices, processes, and organizational design. When executives tried to shift gears, to expand into new markets and introduce new products, those old ways of doing business also had to change.

That was the story of the Amberville Corporation, a major U.S. brand-name consumer packaged goods (CPG) manufacturer. (This company is fictional, a composite of three companies; although all three have been disguised, the details are based on in-depth observation and are typical of many companies in the industry.) Like many other consumer products companies, Amberville had once been an avid innovator, responsible for many new household-name products. But its priorities had swung, like a pendulum, from growth in the 1980s to cost cutting in the 1990s. Now, in 2006, the pendulum was swinging back to growth.

But the company was ill-equipped for the transition. To keep costs down and control its large and far-flung product line, Amberville had built up a vast central operation at

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headquarters. New product launches had to be approved at four different levels: brand, division, region, and headquarters. Senior executives in functional areas were expected to weigh in at least twice during the development cycle on such issues as capital costs and feasibility. Managing the computer systems and functions to support dozens of brand-based and regional operations groups was an immense task involving hundreds of people and a major focus on HR systems, reporting relationships, and recruiting programs.

Meanwhile, consumers were growing increasingly sophisticated. They wanted more information about Amberville's products. So did institutional customers, such as schools and restaurant chains. Some Amberville marketers saw the opportunity to build Web sites and use other online channels to connect directly with consumers. But these efforts faltered amid the sheer complexity of multiple product categories. And their failure led many people in the company to conclude that even the business units that were closest to Amberville customers had lost their market focus and speed.

There was other evidence that all was not well. For example, when the company expanded its branded line of ice cream, the unit was consistently slower than competitors in launching new flavors. Business unit leaders spent much of their time looking inward, negotiating with the executives at headquarters who made the final decisions about personnel, product launch timelines, and many other operational issues.

Amberville's dilemma is typical of many consumer packaged goods companies in North America and Europe today. Their most familiar home markets are stagnant; for the past 20 years, consumption of consumer goods in most product categories has grown only at the rate of population growth plus inflation. And consumer behavior is fragmenting; supermarket shoppers are increasingly likely to switch stores and brands. At the same time, mergers and acquisitions among manufacturers have consolidated the industry, creating larger competitors with global reach. But new consumers in emerging nations —those in Asia, Latin America, eastern Europe, and the Middle East—are eager for products. Simultaneously, around the world, global retail chains like Tesco and Wal- Mart are applying their expertise at squeezing manufacturers’ margins.

As consumer packaged goods companies have struggled to create and execute growth strategies, investor expectations for the sector have remained high, and raiders continue to stalk the producers of popular brands. It's no wonder that the industry has devoted its attention, for at least a generation, to reducing cost, streamlining operations and creating economies of scale by consolidating research, manufacturing, and distribution. This approach has paid off in the past; most CPG companies have survived. But now, having turned themselves, in effect, into supercharged cost-cutting machines, how can these companies suddenly invest in the risky arenas of emerging markets and fundamental innovation? And if they can't, how will they compete when frugality alone is no longer sufficient?

Although the choice between growth and frugality is passionately debated in many companies, it represents a false dichotomy. Growth and cost efficiency should reinforce each other. Logically, cost efficiencies should make it easier to devote more resources to growth, and the launch of new products and services should lead to innovations in efficiency. Why don't things work that way in practice? Often because of organizational designs that, consciously or not, were put in place during the years of cost cutting. A

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CPG company, in particular, cannot move forward unless its leaders can diagnose and fix the barriers to growth that have gradually become a fixture of their enterprise.

The Limits of Good Intentions

When leaders in the sector begin a growth initiative, they often start by declaring a commitment to the new strategy, enlisting employee hearts and minds, and assuming that some kind of cultural and behavioral transformation is needed. But they overlook the organizational design, which actually drives behaviors and indirectly determines whether the rest of the growth strategy can be executed correctly.

For example, in many large organizations, the way the incentives are set up frequently clashes with the growth strategy. The corporate leaders promote bold and big innovations. But they leave in place the target demanding that all new products show a profit within two years or face being shut down. This creates almost irresistible incentives for business unit leaders to provide “work-arounds” that make them appear to generate the requisite profits, at least in the short run. They might bury costs in the most successful product lines or manipulate shipping times so that the numbers will look more favorable.

At Amberville, the core demanded a major new commitment to customer service from the business units, and they all complied—but in a halfhearted way that faded from view within six months. It would be easy to say that the local business unit leaders were resistant to change, but the truth was much more complicated. These leaders saw the value of customer service, but they had neither control nor influence over the customer service process, they lacked easy and regular communication with the leaders of that function, and their incentives favored other priorities. It was much easier to focus on other ways to deliver the results against which they would be measured. All the goodwill and strategic understanding in the world could not overcome those organizational disabilities.

The leaders at Amberville did, however, ultimately change their behavior, and not just superficially. They revamped the organization in ways that dramatically increased revenues without increasing investment. We have seen the same sorts of results firsthand in several other consumer products manufacturers in recent years. One independent condiment company, after redesigning itself, doubled its value in less than five years. All of these manufacturers have initiated significant changes in their day-to-day practice through a shift in their organizational design — specifically, by setting in place five critical enablers of accountable, innovative, autonomous, and linked behavior. (See Exhibit 1.)

The list of enablers in the growth triangle will not be a surprise to many managerial veterans. These factors are known for their impact on growth in a variety of industries. Who could argue with having truly accountable business units, a genuine capacity for customer-focused innovation, functions that successfully serve the needs of the frontline business units, capabilities that meet the needs of a differentiated customer base, or the ability to take practices and products to scale around the world? But companies often struggle to achieve these enablers, and sometimes give up trying. With a substantial shift in organizational design, the behaviors and practices of frugal growth naturally follow.

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Exhibit 1 The “Design for Frugal Growth” Triangle

Accountable Business Units

Just before its redesign, Amberville had 25 global divisions, all located in the company's headquarters in the United States. Over the course of the following year, they were reconfigured into 64 market-facing business units—some devoted to regions such as southeast Asia, others to product brands in categories such as ice cream and chewing gum. Quadrupling the number of Amberville's business units also meant quadrupling the number of business leaders, and giving each responsibility for his or her operations.

Businesspeople often talk about “owning” their assignment, but it's not always clear what that means. At Amberville, “ownership” meant taking on a dramatically increased level of accountability. The managers of business units now defined their market, operations, and strategic space to decide how they would deliver superior growth. Business units were granted greater control over the cross-functional resources assigned to them, including the sales and customer service staff. Business unit managers could deploy these resources flexibly on the basis of shifts in market needs. Information technology staff were assigned to work with each business unit to help it obtain faster, more complete access to market and customer data.

Before the reorganization, the P&L-based budgets for marketing, R&D, sales, and other functions had been set by the core, and the business units had to operate within these limits. For example, if a business unit had received US$100 million for its R&D budget, that was the limit of its innovation spending. Now, each business unit leader had a top-line revenue and a bottom-line profit target. All the funds in between could be deployed as needed. If one product's strategy depended heavily on innovation, the business unit leader could invest $150 million in R&D, taking the money from other functions. Meanwhile, a business unit whose strategy was based on operational excellence might cut back on R&D and invest instead in production skills.

Amberville's core was now treating the business units the same way a heavily involved private equity investor might treat its favored companies. The business unit leaders rapidly learned firsthand what it was like to be an entrepreneur. They defined their

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strategy, they executed it, and they reaped personal rewards if they succeeded and suffered personal consequences if they failed to deliver their targets. Their own money wasn't at risk, but their career advancement was, and they had fewer institutional means of masking poor performance. Business unit leaders came to think of their new system as “autonomy with boundaries”: They could accomplish much more on their own, but their limits and reporting responsibilities were clearer and less ambiguous than they had been before.

Meanwhile, the jobs of the division heads and core leaders shifted from operational involvement to guidance. They could approve requests for funds, help develop investment plans, give advice on the hiring of key players, and assist with customer relationship development. They did not have the authority to create strategies or manage operations, but their own careers were closely dependent on the success of the more junior business unit leaders. “It's like being a football coach,” said one core leader. “You're not directly playing, but you're still responsible for the business. If your team loses three years in a row, you'll still get fired.”

Amberville's experience is typical. When business units—whether organized by geographic region or product and service category—are accountable for their strategy and operations, they deliver superior growth. They can execute their plans far more quickly, without having to wait for approval and second-guessing the internal politics of the core. They have more to gain from delivering results, and no place to hide when p e r f o r m a n c e f a l l s s h o r t . D e c i s i o n r i g h t s g o t o t h o s e w h o h a v e t h e c l o s e s t understanding of consumers and the external market. Because accountable business unit leaders pay close attention to business practices, the learning curve of the entire operation accelerates. Indeed, the business unit becomes more skilled at reducing overhead than ever before, because its leaders know that they can rapidly apply their cost savings to profitable investments as they see fit. So much for cost and growth consciousness being at odds.

Providing this type of virtual entrepreneurship to business units requires several organizational shifts. The local line leaders need the authority to make decisions, the capabilities to take consumer information into account, and a sustained trust that the core will not block progress and will appreciate results. The IT and information- management systems are consciously designed to deliver the right information to the right parts of the organization at the right time. For example, extensive day-to-day data stays in the business unit; if it reached the corporate core, that would be an invitation to micromanage. But quarterly reports to the core include more detail than in the past, so that division heads and business unit leaders can talk about long-range patterns in customer response or costs.

One powerful means of creating autonomy with boundaries is the “CEO contract”: an agreement with the business unit leaders that specifies top- and bottom-line targets, along with the rewards (including personal bonuses) for achieving those targets and the penalties for missing them. The Amberville CEO contract was a very informal document, with three critical features. First, every business unit leader got one. Second, each contract was specifically designed for its business unit, spelling out particular goals for revenues, profit, and two or three other numerical metrics. Third, the contract specified the qualitative metrics that encouraged teaming across thethe contract specified the qualitative metrics that encouraged teaming across the organization.

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This last feature of the CEO contract helped mitigate one unfortunate tendency of accountable business units: their natural disinclination to share ideas, knowledge, or resources with the rest of the company. For example, shared advertising expenses, particularly for major marketing events, had long been a bone of contention. Every business unit was expected to pay a share, but some divisions benefited far more than others. Now, thanks to the contract, it was made clear: There would be only a limited number of shared ad campaigns, but each division would contribute.

The contract also established a few minimum standards and policies that protected the corporation, such as employee safety practices. For example, many factories in emerging nations do not require people to wear safety goggles on the shop floor, but Amberville factories always did, because the performance contract insisted on it. In other respects—for example, in the details of plant construction and the design of the assembly line—the local business unit maintained control.

Aptitude for Innovation

In consumer products, the most profitable innovations vary widely by category. In food, for example, rapid introduction of new flavors can be critical. There are also opportunities for breakthrough innovation, as Groupe Danone discovered with its Activia yogurt line, which contains live bacteria with a claim of aiding digestion. More opportunities for breakthrough innovation exist in personal and home care, as Procter & Gamble Company has shown with products including the Swiffer mop and antiwrinkle creams. (See “P&G's Innovation Culture,” by A.G. Lafley, s+b, Autumn 2008.)

But the most critical factor is the connection of innovation to consumer insight. The most effective way to facilitate this connection is with a change in the organizational relationship between the business units and the corporate core. The corporate core should be funded to conduct longer-range research that business units would not undertake (for example, the kind of fundamental research in biotics that led to the launch of Activia). Individual business units should develop the product extensions and process innovations that they need to stay close to their consumer markets. And some internal market-style mechanism should allow successful innovations to be quickly shared across the enterprise.

At Amberville, the R&D staff at the corporate core had traditionally worked on three- to five-year projects that they had proposed themselves. Business unit leaders had usually reacted by saying, in effect, “This has nothing to do with what we are trying to do.” Now, as part of the redesign, Amberville created an internal R&D market where innovation leaders sought buyers for their ideas. If they could not interest a business unit leader, they were free to take the idea outside the company.

Pull-based Functional Relationships

One aspect of organizational design that inhibits growth is the relationship between business units and functions. Although functions often operate in all three components of the organization—the core, the business units, and the infrastructure all have

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information technology, human resources, and finance staffs—the highest leverage lies in the relationship between business units and the infrastructure.

The way to increase the value of support services is through pull-based functional relationships. The business units pull services from the infrastructure, specifying their requirements and sometimes codesigning them, instead of having the services pushed on them in a company-wide package.

Pull-based functional relationships have existed for years. Many businesspeople still find the idea discomfiting; it means giving internal functions the autonomy to behave like a third-party provider. But a well-designed pull-based functional relationship becomes like the relationship between a loyal customer and a regular supplier. The supplier (the functional infrastructure team) cares about the customer's opinion; the customer (the business unit leader) treats the functional staff as he or she would treat any favored external supplier, not like an internal team forced to jump through hoops. This level of mutual respect, when it occurs, is a far cry from the unfortunate dynamic i n m a n y c o m p a n i e s , i n w h i c h t h e b u s i n e s s u n i t l e a d e r s a n d t h e f u n c t i o n a l infrastructure team tend to see each other as adversaries.

How can a company enable this type of relationship? One approach is to employ the same kind of service-level agreement (SLA) that companies use for shared services and outsourcing vendors. The trick is setting up the SLA internally and making it simple but effective. This contract establishes the types of services to be delivered, the internal cost of providing them (which can increase as the service improves), and the requirements for each side. At Amberville, SLAs are now required for all functional services, including logistics, finance, and IT. Any functional team, reporting through the infrastructure chain of command, effectively has a pool of 64 customers— the business units—and an incentive to learn from its services to each of them.

Differentiated Capabilities

No organization can be best at everything. The capabilities of a company are limited by the resources available, the skills of its population, the evolution of its existing infrastructure, and its experience. Choices must be made at the corporate core about the capabilities in which the organization will invest and the support to give them. The most important capabilities to invest in are those that distinguish a company from its competitors—or, as Alexander Kandybin and Surbhee Grover put it, those that can't be copied. (See “The Unique Advantage,” s+b, Autumn 2008.)

One well-known example of a differentiated advantage is the “hot-fill” capability that PepsiCo Inc. gained in 2001 when it merged with the Quaker Oats Company (and thus acquired the Gatorade brand). Hot-fill technology, used to bottle beverages such as juices and vitamin drinks without the need for preservatives, had previously been limited to relatively small brands such as Snapple (which had invented it); now Pepsi rolled out the technology in its Tropicana brand and in a new joint venture in bottled teas with Lipton, which was the first offering of its kind and which has since enjoyed an advantage over competitors.

A portfolio of capabilities is built primarily at the corporate core, because it involves significant long-term investment. (As with Pepsi, it may also involve acquisition.) The

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first step is a systematic evaluation of the “lever-ageable” assets of the company, those distinctive capabilities that determine what types of growth might be supported. Capabilities can be found in a wide range of functions, such as supply chain, m a n u f a c t u r i n g , p r o d u c t d e v e l o p m e n t , c o n s u m e r i n s i g h t , m a r k e t i n g , b r a n d management, and customer management. Business units may be invited to collaborate in this assessment, making the case for the capabilities that they find most useful in the market. But ultimately, the corporate core makes these choices and investments.

The difficulty of this task and the critical role of the core executive team are often underestimated. Not every capability is a candidate for the core portfolio; some contribute strongly to growth while others lag. Corporate leaders must place bets on which business units will be most adept at using, learning from, and developing the company's distinctive skills and technologies. These business units need aggressive funding; others should be more consciously managed for the bottom line, with a short- term focus on innovation.

Ability to Leverage Scale

As consumer products companies meet global demand, they bring capabilities along. Products and brands must be customized for new markets. A wide variety of retailers must be engaged as customers. And old practices must be adapted to new cultures and locales.

Leveraging of knowledge and capabilities on this global scale requires direct networking among business units, removing the bottleneck at the corporate core. Because Amberville had never built up those sorts of contacts, its leaders studied companies, like Johnson & Johnson, that had a good track record. J&J moves people among its business units frequently, encouraging employees to maintain their presence in informal networks with their former coworkers.

Amberville is now finding its own ways to foster global networking. For example, its Middle East business unit leads research and development in the frozen-drinks category, because several frozen-drink researchers are located there; the rest of the regions adapt the flavors that come out of their work.

Management fashion is full of stark choices: Centralize or decentralize? Global or local? Cost or growth? There's a long-standing proverb in the system dynamics field: “You can have everything you want, but not all at once.” In the 1990s, many consumer products companies decided that they would give up growth in order to have the security of lower expenses. Now they are riding the pendulum back to growth. But in the end, those who succeed in growing their company will do so with all their frugality intact. With an organization design in place that balances the roles of the core, the business units, and the functional infrastructure, they should be able to have it all.

Reprint No. 08305

Author Profiles:

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Jaya Pandrangi is a principal with Booz & Company in Cleveland. Her work focuses on strategy as well as sales and marketing effectiveness for consumer products companies.

Steffen Lauster is a partner with Booz & Company in Cleveland who focuses on strategy development and revenue management initiatives for consumer products clients in the U.S. and Europe.

Gary L. Neilson is a senior partner with Booz & Company in Chicago. He helps companies diagnose and solve problems associated with strategy implementation, organizational effectiveness, and efficiency.

Also contributing to this article was Booz & Company partner Leslie Moeller.

http://dx.doi.org/10.4135/9781506374598.n10

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