Strategy and Structure
Major kinds of organizational form
Simple tasks performed by a small group of
people can be structured in several ways:
Individually
Self-managed team
Hierarchy of authority
Complex Hierarchies
involve organizing large numbers of groups
within extensive and potentially overlapping
schemes
arises from the need not just to organize
individuals into groups, but to organize groups
into larger groups
Complex hierarchies are designed to address
the following two issues :
- Departmentalization
- Coordination of activities
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Departmentalization
Formal groupings in large organizations can
be based on functional areas, geography,
products, types of customers and so on
A firm should decide on the organizing
dimensions based on
o economies of scale and scope
o transactions costs
o agency costs
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Coordination and Control
Coordination involves
the flow of information to facilitate decisions that
further the organizations objectives and
the distribution of decision making rights and rule
making authority within the organization.
Coordination and control choices will affect both
technical efficiency and agency efficiency.
Organizational Structure & Controls
Some structural characteristics defined
Specialization
Centralization
Formalization
Other structural characteristics
Authority, Responsibility, Degree of Integration, how
Coordination is achieved, Reporting relationships,
Standardization
The Relationship Between Strategy and
Structure
Modifying current strategy or selecting a new one calls for
changes to organizational structure
Reciprocal relationship - change to one causes change in
the other
No one structure is superior to the others
No best or optimal structure for all firms
Strategy-structure fit can lead to a competitive advantage
and above average returns
Structure must match strategy
Structural choice should be based on control, coordination,
and motivation issues
Several structure forms can be used to implement
strategies
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Organizational Structure
Types of organizational structures
Unitary Functional Structure (U-form)
Multidivisional (M-form)
Matrix Structure
Network Structure
U-form
Each department in the firm is responsible for a
particular functional area such as finance or
marketing.
U-form promotes performance within the department
but makes coordination across departments difficult.
The unitary functional structure is suitable for stable
conditions when operating efficiency is the prime
consideration.
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The Functional (U-form) Structure
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M-form
The multidivisional firm is organized along
such dimensions as
- product line
- geography or
- type of customers
Divisional managers will be responsible for
operating decisions and the top management
will handle strategic decisions.
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The Multidivisional (M-form)
Structure
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Advantages of the M-form
Measuring divisional performance is easier
under M-form.
Pay for performance schemes are easier to
implement in managerial compensation.
Divisional managers compete for funds in the
internal capital markets based on their
operating performance in the past.
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Matrix Structure
A firm that uses a matrix structure is
organized along two (or more) dimensions for example, product line and geography.
In a two-dimensional matrix, an employee
belongs to two hierarchies and has two
bosses.
The demands of competing dimensions
should be roughly equal.
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Matrix Structure
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Advantages of Matrix Structure
Matrix structure can help exploit economies of scale and
scope.
A firm may need national coordination to achieve
economies of scale for manufacturing a particular
product and regional coordination to negotiate with large
buyers for different products.
Matrix structure allows a firm to economize on scarce
human resources
Having a firm wide engineering department (or
marketing department) will be more efficient than
maintaining a separate engineering group for each
product.
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Network Structure
Designed around the worker rather than the
task.
Workers or worker groups contribute to
multiple organizational tasks.
Work groups are reconfigured when the tasks
change.
Network of autonomous firms can function as
a virtual firm.
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Network Structure
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Network Structure
Preferred when coordination costs do not outweigh
the gains in technical efficiency.
Facilitates the flow of diverse information, leading to
high level of new product development in high
technology companies
Becoming more popular as the cost of organizing has
fallen.
Internet provides a less expensive infrastructure for
network organizations than traditional means of data
exchange.
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Organizational Structure & Controls
Organizational Controls
Guide the use of strategy, indicate how to compare actual
results with expected results, and suggest corrective actions
to take when the difference is unacceptable
Are an important aspect of structure
Help managers recognize when it is time to adjust structure
Firms use strategic, financial, and behavioral controls to
support their strategies
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Contingency theory
Three factors that affect the relative efficiency
of different structures
Technology and task interdependence
Information flow
The tension between integration and
differentiation
Contingency factors are not sufficient for
understanding a firm structure.
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