Strategic Management Ch12

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Strategic Management

Strategic Management

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  • 1. Organizational Structure & Controls Chapter Twelve © 2006 by Nelson, a division of Thomson Canada Limited.
  • 2. The Strategic Management Process Chapter 8: Acquisition & Restructuring Chapter 9: International Strategy Chapter 10: Cooperative Strategy Strategy Formulation Chapter 11: Corporate Governance Ch. 12: Org. Structure & Controls Chapter 13: Strategic Leadership Chapter 14: Org. Renewal & Innovation Strategy Implementation Strategic  Actions  Chapter 3: The External Environment Strategic Competitiveness Strategic Mission & Strategic Intent Strategic Objectives & Inputs Chapter 1: Strategic Management Ch. 2: Strat. Mgmt . & Performance Chapter 3: The External Environment Chapter 3: The External Environment Chapter 4: The Internal Environment Chapter 5: Bus.-Level Strategy Chapter 6: Competitive Dynamics Chapter 7: Corp.-Level Strategy Ch. 12: Org. Structure & Controls Strategic Competitiveness
  • 3. Organizational Structure & Controls
    • Knowledge Objectives:
    • Discuss organizational structure & controls & discuss the difference between strategic & financial controls
    • Describe the relationship between strategy & structure
    • Discuss the functional structures used to implement business-level strategies
    • Explain the use of 3 versions of multidivisional (M-Form) structure to implement different diversification strategies
    • Discuss the organizational structures used to implement three international strategies
    • Define strategic networks & strategic centre firms
  • 4. Organizational Structure
    • Organizational structure & the controls that are a part of it affect firm’s performance.
    • When the firm’s strategy is not matched with the most appropriate structure & controls, performance declines.
    • Specifies the firm’s formal reporting relationships, procedures, controls & authority, and decision making process.
  • 5. Organizational Structure
    • Influences how managers work & the decisions resulting from that work.
    • Specifies the work to be done & how to do it given the firm’s strategy or strategies.
    • Provides the stability a firm needs to successfully implement it’s strategies & maintain it’s competitive advantages.
  • 6. Organizational Structure
    • Structural Flexibility: Provides the opportunity
    • to explore competitive possibilities & allocate
    • resources to activities that will shape the
    • competitive advantages of the firm that it will
    • need to be successful in the future.
    • Structural Stability: Provides the capacity the
    • firm requires to consistently & predictably
    • manage it’s daily work routines.
  • 7. Organizational Controls
    • Guide the use of strategy.
    • Indicate how to compare actual with expected results.
    • Suggest corrective action when differences between actual & expected results are unacceptable.
    • Evaluate the degree to which the firm focuses on the
    • the requirements to implement its strategies.
    • Concerned with examining the fit between what the
    • firm might do and what it can do
  • 8. Financial Controls
    • Largely financial objective criteria used to measure the firm’s performance against previously established quantitative standards.
  • 9. Structure Types All organizations require some form of organizational structure to implement and manage their strategies. Firms frequently alter their structure as they grow in size and complexity. Three basic structure types: Functional Structure Multi-divisional Structure (M-form) Simple Structure
  • 10. Strategy & Structure Growth Patterns Simple Structure Functional Structure Efficient implementation of formulated strategy Multidivisional Structure Efficient implementation of formulated strategy Sales Growth Coordination & Control Problems Sales Growth Coordination & Control Problems
  • 11. Simple Structure Owner/Manager makes all major decisions directly and monitors all activities. Difficult to maintain this structure as the firm grows in size and complexity. Owner / Manager
  • 12. Functional Structure * Production * Finance * Engineering * Accounting * Sales & Marketing * Human Resources First stage beyond a Simple Structure Fine for single or dominant-business firms Allows specialization of tasks Overcomes information processing limits of single owner/manager Functional department heads report to Chief Executive Officer who integrates decisions & actions from a company-wide point of view. Risks conflict between myopic functional managers
  • 13. Functional Structure Production Finance Engineering Accounting Sales & Marketing Human Resources Chief Executive Officer Corporate Finance Corporate R&D Corporate Marketing Corporate Human Resources Strategic Planning
  • 14. Functional Structure for Cost Leadership Strategy
    • Operations are the main function
    • Formalized procedures allow for low-cost culture
    • Structure is mechanical; job roles are highly structured
    • Process engineering is emphasized rather than new product R&D
    Relatively large centralized staff coordinates functions Office of the President Centralized Staff Marketing Engineering Operations Personnel Accounting
  • 15. Functional Structure for Differentiation Strategy
    • Marketing is the main function for tracking new product ideas.
    • New product R&D is emphasized.
    • Most functions are decentralized.
    • Formalization is limited to foster change & promote new ideas.
    • Overall structure is organic; job roles are less structured.
    Marketing New Product R&D Operations Human Resources Finance R&D Marketing President and Limited Staff
  • 16. Multi-Divisional Structure Each division is operated as a separate business. Appropriate for related-diversified businesses. Key task of corporate managers is exploiting synergies among divisions. Managers use a combination of strategic controls and financial controls. The goal is to maximize overall firm performance. Competing among divisions for scarce capital resources Creating opportunities for cooperation to develop synergies Managers try to strike a balance between: and
  • 17. Multi-Divisional Structure Balance of these dimensions may change over time The decision-making of managers in a Multi-Divisional structure may be: Structure will evolve over time with: Changes in strategy Degree of diversification Geographic scope Nature of competition Centralized or Decentralized Bureaucratic or Non-bureaucratic
  • 18. Multi-Divisional Structure Corp. Head quarters Division Division Division Division Chief Executive Officer Corporate Finance Corporate R&D Corporate Marketing Strategic Planning Corporate Human Resources Production Finance Engineering Accounting Sales & Marketing Human Resources
  • 19. Three Variations of the Multi-Divisional Structure Multi-Divisional Structure (M-form) Related-Constrained Strategy Related-Linked Strategy Unrelated /Holding Company Strategy Cooperative Form Strategic Business Unit (SBU) Structure Competitive Form
  • 20. Cooperative Form Related-Constrained Strategy
    • Structural integration devices create tight links among divisions
    • Large corporate office with R&D likely to be emphasized
    • Culture emphasizes cooperative sharing
    Corp. Headquarters Product Division Product Division Product Division Product Division Product Division President Strategic Planning Corporate R&D Lab Corporate Human Resources Corporate Marketing Corporate Finance Legal Affairs Government Affairs
  • 21. Product & Functional Matrix 2 Dimensions Each Unit reports to Functional AND Project Managers Each Project has Functional Units Product Functional Operations Unit Marketing Unit Finance Unit People Unit Operations Unit Marketing Unit Finance Unit People Unit Operations Marketing Finance People Operations Unit Marketing Unit Finance Unit People Unit Operations Unit Marketing Unit Finance Unit People Unit Manager Product A Manager Product B Manager Product C Manager Product D Senior Management
  • 22. SBU Form Related-Linked Strategy President
    • Structural integration exists among divisions within but not across SBUs
    • Each SBU may have its own budget for staff to foster integration
    • Corp. headquarter’s staff serve as consultants to SBUs & divisions
    Corp. Headquarters Division Division Division Division Division Division Strategic Business Unit A Strategic Business Unit C Strategic Business Unit B Strategic Business Unit D Corporate Finance Corporate R&D Corporate Marketing Strategic Planning Corporate Human Resources
  • 23. Competitive Form Unrelated /Holding Company Strategy
    • Corporate headquarters (HQ) has a small staff
    • Finance and auditing are the most prominent functions in the HQ
    • Divisions are independent & separate for financial evaluation
    • Divisions retain strategic control, but cash is managed by corp. office
    • Divisions compete for corporate resources
    President Legal Affairs Finance Auditing Division Division Division Division Division Corp. Headquarters
  • 24. Characteristics of Diversification Strategies Structural Characteristics Centralization Of Operations Use of Integrating Mechanisms Divisional Performance Appraisal Divisional Incentive Compensation Type of Strategy Cooperative M-Form SBU M-Form Competitive M-Form Centralized at Corporate Office Centralized in SBUs Decentralized to Division Linked to Corporate Performance Linked to Corporation, Division & SBU Linked to Divisional Performance Extensive Synergies Moderate Synergies Nonexistent Synergies Financial Criteria Strategic & Financial Criteria Subjective/ Strategic Criteria Related- Constrained Related Linked Unrelated
  • 25. Worldwide Geographic Area Structure
    • Product characteristics tailored to local preferences
    Multidomestic Strategy
    • Isolation from global competition
      • establish protected
      • market positions,
      • compete in industry
      • segments most
      • affected by
      • differences among
      • local countries
    Multinational Headquarters Europe United States Middle East/ Africa Canada Asia Latin America
  • 26. Worldwide Product Divisional Structure
    • Standardized products across countries
    • Economies of scope and scale
    Global Strategy
    • Outsource some primary or support activities to the world’s best providers
    • Decision-making authority centralized in worldwide division headquarters
    Global Corporate Headquarters Worldwide Products Division Worldwide Products Division Worldwide Products Division Worldwide Products Division Worldwide Products Division Worldwide Products Division
  • 27. Strategic Networks A Strategic Network is a grouping of organizations that has been formed to create value via participation in a set of cooperative arrangements (such as a strategic alliance). A Strategic Centre firm often manages the network The Strategic Centre firm identifies actions that increase the opportunity for each firm to achieve success through its participation in the network. The Strategic Centre firm creates incentives that reduce the probability of any single firm taking advantage of its network partners.
  • 28. A Strategic Network Strategic Centre Firm Centre firm is engaged in four primary tasks – Strategic Outsourcing, Competencies, Technology & A Race to Learn.
  • 29. Primary tasks of the Strategic Centre Firm
    • Strategic Outsourcing: Outsourcing and partnering with more firms than the other network firms.
      • Competencies: Seeks ways to support each member’s efforts to develop core competencies that can benefit the network.
    Technology: Responsible for managing the development & sharing of technology based ideas among network members. Race to Learn: Guides participants in efforts to form network-specific competitive advantages.
  • 30. A Distributed Strategic Network Main Strategic Centre Firm Distributed Strategic Centre Firms International Cooperative Strategies often require more complex networks. Many large multinational firms form distributed strategic networks with multiple regional strategic centres to manage their array of cooperative arrangements with partner firms. Breaking big networks into multiple manageably-sized ones helps to manage the complexity of maintaining many relationships.
  • 31. The Strategic Management Process Chapter 8: Acquisition & Restructuring Chapter 9: International Strategy Chapter 10: Cooperative Strategy Strategy Formulation Chapter 11: Corporate Governance Ch. 12: Org. Structure & Controls Chapter 13: Strategic Leadership Chapter 14: Org. Renewal & Innovation Strategy Implementation Strategic  Actions  Chapter 3: The External Environment Strategic Competitiveness Strategic Mission & Strategic Intent Strategic Objectives & Inputs Chapter 1: Strategic Management Ch. 2: Strat. Mgmt . & Performance Chapter 3: The External Environment Chapter 3: The External Environment Chapter 4: The Internal Environment Chapter 5: Bus.-Level Strategy Chapter 6: Competitive Dynamics Chapter 7: Corp.-Level Strategy Ch. 12: Org. Structure & Controls Strategic Competitiveness