Organizational Structure
 A firm’s formal role configuration, procedures,
governance & control mechanisms, and authority
and decision making process
 Determination of how a firm completes its given
work
 Strategy’s potential achieved when Structure
congruent with Strategy
 New structural arrangements required as Firms
evolve
 Existing Structures influence the future selection
of strategies

Simple Functional Structure
 An organizational form in which the owner
manager makes all the major decisions directly
and monitors all the activities
 Staff serves as an extension of the manager’s
supervision authority
 Little specialization of tasks, Few rules, &
limited formalization
 Information systems are relatively
unsophisticated
 Firms offerings single product line in a single
geographic market

Simple Structure
Owner/Manager
Employees Employees Employees Employees

Simple Structure
 Advantages:
 Control of all Business Operations
 Frequent Communication
 Openness to Innovation
 Great Structural Flexibility
 Simple & Informal Motivation/ Reward/ Control Systems
 Rapid decision making
 Competitive advantage due to introduction of new products
quickly and quicker responses as per environment needs
 No coordination problems
 Disadvantages:
 Lack of specialization and hence, complex tasks deterrent
 Very demanding on the Owner Manager
 Does not facilitate development of Future Managers
 Day to day matters & not future Strategic Orientation

Functional Structure
 Consists of a CEO with limited corporate staff,
with functional line managers in dominant
organizational areas such as production,
accounting, marketing, R&D, engineering &
human resources
 Central task of CEO is to in integrate the
decisions and actions of individual business
functions for the benefit of the entire corporation
 Firms with low levels of Business Diversification
 One or Few related Products/Markets
 Groups similar tasks and activities in each
divisions

Functional Structure
CEO
Corporate
Staff
Sales & Finance &
Production Personnel
Marketing Accounting

Functional Structure
 Advantages:
 Efficiency Through Specialization
 Differentiates & Delegates day-to-day operating decisions
 Functional Specialization thereby facilitating knowledge
sharing & Idea Development
 Facilitates career paths & professional development in
specialized functional areas
 Retains centralized control of Strategic Decisions
 Disadvantages:
 Promotes narrow specialization & potential functional rivalry
or conflict
 Difficulty in functional coordination & inter functional
decision making
 Tendency to focus on local vs. overall company strategic issues
 Only successful in Limited Diversification

Divisional Structure
 Functional Structure becomes inadequate for
serving distinct different customer groups
 Divisional Structure provides the control required
to deal effectively with additional levels of
diversification
 Comprises of operating divisions each
representing a separate business or distinct
customer segment
 Coordination demands on Top Management are
beyond the capacity of a functional Structure

Divisional Structure
 Advantages:
 Coordination & authority to appropriate level of rapid
response
 Divisions unique environment hence, unique Strategic
Orientation
 CEOs focus on Strategic Orientation
 Performance Accountability
 Disadvantages:
 Divisions Manager’s line of Authority
 Policy Inconsistencies between divisions
 Corporate Resource Allocation in terms of Resources
and costs

Strategic Business Units
 Multidivisional Structure consisting of three levels, the
top level being the corporate headquarters, The SBU
groups, and final level division grouped by relatedness
 Business Portfolio is organized into divisions related to
one another within an SBU group
 Divisions within groups are related but groups are largely
unrelated to each other
 Divisions with similar products or technology are
organized to achieve synergy
 Each SBU is a Profit center controlled by firms corporate
office

Strategic Business Units
 Advantages:
 Coordination between divisions with similar
strategic concerns & product/Market environments
 Distinct & In depth business planning and Strategic
orientation for each SBU
 Channels accountability to distinct business units
 Disadvantages:
 Degree of autonomy for each SBU
 Dysfunctional competition for corporate resources
may increase

Matrix Organization
 Dual Channels of Authority, Performance
Responsibility & Evaluation & Control
 Subordinates are assigned to both a basic
functional area & a Project manager or
product manager
 Advantages of Functional Specialization &
Product/Project Specialization
 Balance between Strategic & Operating
channels

Matrix Organization
 Resources are allocated on the same basis
 Increases the number of Middle level
managers exercising General Management
responsibilities and exposure to strategic
concern
 Flexibility according to Functional
Specialization

Matrix Organization
 Permanent Structure
 Temporary/Flexible Structure
 Accomplish a Particular Strategic Task
 Temporary Advantage of Matrix Type Team
 Simplify & Amplify the focus of resources on
narrow but strategically important product,
Project or Market

Matrix Organization
 Advantages:
 Variety of Project Oriented Business Activity
 Efficient use of Functional Managers
 Creativity & Multiple Sources of Diversity
 Middle Management Exposure to Strategic Issues
 Disadvantages:
 Dual Accountability can create confusion and
contradictory prices
 Necessities tremendous horizontal & Vertical
Coordination

Strategy & Structure
 Considerations:
 All Forms of Organizational Structures are not equally
effective
 Structures seem to have a limited life
 Sheer Growth gives rise to new structures
 Diversification
 Choice of Structure:
 Size
 Product/Service Diversity
 Competitive Environment & Volatility
 Internal Political Considerations
 Information/ Coordination Needs for each component

Corporate Stages of
Development
 Simple, Small Business - Simple to Functional
 One Product/ Service or one line of products/ Services
 Singular or Closely related line of products/
Services - Functional to
Divisional
 Expanded but related lines of Products/
Services: Divisional to matrix
 Diverse but unrelated lines: Divisional to SBUs