Strategic Managment

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For use with Strategic Management: Competitiveness and Globalization (EMEA Edition) by Henk W. Volberda, Robert E. Morgan, Patrick Reinmoeller, Michael A. Hitt, R. Duane Ireland and Robert E. Hoskisson 1408019183© 2011 Cengage Learning

Chapter 13

ORGANISATIONAL STRUCTURE AND CONTROLS

LEARNING OBJECTIVES

Studying this chapter should provide you with the strategic management knowledge needed to:

1. Define organizational structure and controls and discuss the difference between strategic and financial controls.

2. Describe the relationship between strategy and structure.

3. Discuss the functional structures used to implement business-level strategies.

4. Explain the use of three versions of the multidivisional (M-form) structure to implement different diversification strategies.

5. Discuss how organizational structure transforms when four main international strategies are implemented.

6. Define strategic networks and discuss how strategic centre firms

implement such networks at the business, corporate and

international levels.

Opening case: Restructuring Nestlé

1. Describe Nestlé’s initial structure. How did this structure hange?

2. What has changed in the way Nestlé manages its foreign subsidiaries?

3. How can a possible diversification into new markets (e.g. pharmaceuticals or cosmetics) be governed in Nestlé’s organizational structure?

4. Can you provide an update on Nestlé’s international organisational structure?

Organisational structure and controls

Organisational structure
The firm’s reporting relationships, procedures, controls and authority and decision-making procedures
Organisational controls
Guide the use of strategy, indicate how to compare actual with expected results and suggest corrective actions
Strategic controls and financial controls

Strategy and structure

Reciprocal relationship between strategy and structure

Structure flows from selection of firm’s strategy but can also influence strategic action

Competitive advantage requires fit between the two

Evolutionary patterns of strategy and organisational structure 1

Simple structure
Functional structure
Multidivisional structure (M form)
Matches between business-level strategies and the functional structure
Using the functional structure to implement
the cost leadership strategy
The differentiation strategy
The integrated cost

leadership/differentiation strategy

Evolutionary patterns of strategy and organisational structure 2

Matches between corporate-level strategies and the multidivisional structure
Using the cooperative form of multidivisional structure to implement the related constrained strategy
Using the strategic business unit form of the multidivisional structure to implement the related linked strategy
Using the competitive form of the

multidivisional structure to implement the unrelated diversification strategy

Evolutionary patterns of strategy and organisational structure 3

Matches between international strategies and worldwide structure
Using the worldwide geographic structure to implement the multidomestic strategy
Using the worldwide product divisional structure to implement the global strategy
Using the regional structure to implement the regional strategy
Using the combination structure to implement the transnational strategy

Matches between cooperative strategies and

network structures

Implementing cooperative strategies

Business-level

Corporate-level

International

Closing case: Oticon’s “Spaghetti Organization”

1. How can Oticon’s strategy be linked to its new structure?

2. What contributed to the initial success of Oticon’s reorganization?

3. How can Oticon govern its international strategy in its “spaghetti structure”?

4. How can Oticon’s eventual transformation to a more traditional matrix organization be explained?

Summary

Structure includes reporting relationships, procedures, controls and authority and decision-making processes. Strategic and financial controls guide the use of strategy. They need to fit to provide competitive advantage.
Strategy tends to influence structure more than vice versa.
The functional structure is used for business-level strategies e.g. cost leadership, differentiation
Combinations of multidivisional structure fit corporate-level diversification strategies
Multidomestic strategy through worldwide geographic area structure emphasizes decentralization, whereas worldwide product divisional structure fits centralized global strategy
Transnational strategy is both global and local and works wit a combination structure – matrix or hybrid.
Cooperative strategies work with strategic network structures

Review questions

1. What is organizational structure and what are organizational controls? What are the differences between strategic controls and financial controls? What is the importance of these differences?

2. What does it mean to say that strategy and structure have a reciprocal relationship?

3. What are the characteristics of the functional structures used to implement the cost leadership, differentiation, integrated cost leadership/ differentiation and focused business-level strategies?

4. What are the differences among the three versions of the multidivisional (M-form) organizational structures that are used to implement the related constrained, the related linked, and the unrelated corporate-level diversification strategies?

5. What organizational structures are used to implement the multidomestic, global and transnational international strategies?

6. What is a strategic network? What is a strategic centre firm? How is

a strategic centre used in business-level, corporate-level and

international cooperative strategies?