2. Organizational Structure
• Organizational Structure: the formalized patterns of
interactions that link a firm’s tasks, technologies, and
people
• 4 types of organizational structure
1. Simple
2. Functional
3. Divisional
4. Matrix
3. Simple Structure
• Simple Structure: the oldest, and most common
structure which the owner makes most of the decisions
• Advantage: highly informal and the coordination of
tasks is accomplished by direct supervision
• Disadvantage: “informality” may lead to problems,
unclear of responsibilities
4. Functional Structure
• Functional Structure: major functions of the firm are
grouped internally
• Advantage: able to enhance its coordination and
control within each of the functional areas
• Disadvantage: differences in values and orientations
among functional areas may impede communication and
coordination
5. Divisional Structure
• Divisional Structure: a form in which products,
projects, or product markets are grouped internally
• Advantage: by having separate divisions to manage
individual product markets, there is a separation of
strategic and operating control
• Disadvantage: expensive, due to operations, and
investment since each division must staff multiple
functional departments
6. Matrix Structure
• Matrix Structure: combination of functional and
divisional structures
• Advantage: facilitates the use of specialized personnel,
equipment, and facilities
• Disadvantage: dual-reporting structures can result in
uncertainty and lead to intense power struggles and
conflict
7. International Operations:
Implications for Organizational
Structure
• Three major contingencies that influence the chosen
structure:
− Type of strategy that is driving a firm’s foreign
operations
− Product Diversity
− Extent to which a firm is dependent on foreign sales
8. Primary Structures
• Used to manage a firm’s international operation:
– International division
– Geographic-area division
– Worldwide functional
– Worldwide product division
– Worldwide matrix
9. Multi-domestic Strategies
• Driven by political and cultural imperatives requiring
managers within each country to respond to local
conditions.
• International division structure
• Geographic-area division structure
10. Global Strategies
• Driven by economic pressures that require managers to
view operations in different geographic areas to be
managed for overall efficiency.
• Worldwide Functional Structure
• Worldwide Product Division Structure
11. How an Organization’s
Structure Can Influence
Strategy Formulation
• Strategy follows structure.
• The strategy that a firm chooses dictates such structural
elements as the division of tasks, the need for
integration of activities, and authority relationships
within the organization. However, an existing structure
can influence strategy formulation.
• Once a firms structure is in place it is very difficult and
expensive to change.
12. Global Start Ups: A New
Phenomenon
• Global Start-Up Defined: a business organization that,
from inception, seeks to derive significant advantage
from the use of resources and the sale of outputs in
multiple countries.
– Geographical Boundaries of nation-states are
irrelevant for a global start up.
– Being Global necessarily involves higher
communication, coordination, and transportation
costs.
13. Linking Strategic Reward and
Evaluation Systems
• Rewards and evaluation system
– Key role in motivating management to conform with:
• Organization strategies.
• Achieve performance targets.
• Close the gap between organizational and
individual goals.
– Improper design
• Detrimental to organizational performance.
• Lower employee morale.
• Employee dissatisfaction.
14. Business-Level Strategy
• Overall Cost Leadership Strategy
– Product Lines remain stable.
– Innovation deals mostly with product process.
– Firms competing on cost.
• Incentives are based on meeting financial targets.
• Differentiation Strategy
– Development of innovative products or services.
– Requires to the use of experts to ID crucial elements.
– Difficult to evaluate using quantitative data
• Based on collaboration and info. sharing.
15. Corporate-Level Strategy
• Related Diversification Strategy
– Use core competencies and sharing across different
businesses.
• Ex. Sporting Goods Store that buys retail store to
carry other product lines.
– Use of promotion based on seniority and skills.
• Helps to ensure long-term > short-term.
• Unrelated Diversification Strategy
– Keeping acquired business as additions to the family.
• Rewards based on individual accountability.
16. Boundaryless Organizational
Design
• Organizations in which the boundaries, including
vertical, horizontal, external, and geographic are
permeable.
• These include:
− Barrier-Free Organization
− Modular Organization
− Virtual Organization
17. Barrier-Free Organization
• An organization design in which firms bridge real
differences in culture, function, and goals.
• Find common ground that facilitates information sharing
and other forms of cooperative behavior.
• Pros
– Leverages talent of employees, enhances
cooperation, enables quicker response to markets
changes.
18. Barrier-Free Organization Cont.
• Cons
– Can be difficult to overcome political and authority
boundaries.
– Lacks strong leadership and common vision.
– Time-consuming and difficult to manage democratic
processes.
19. Modular Organization
• An organization in which non-vital functions are
outsourced, uses the knowledge and expertise
of outside suppliers while retaining strategic
control.
– Ex. Nike and Reebok.
• Pros
– Able to direct firms managerial and technical talent
to most critical activates.
– Maintains full strategic control over core
competencies.
– Achieves “best in class” performance for each link in
the value chain.
20. Modular Organization Cont.
• Cons
– Inhibits common vision through reliance on
outsiders.
– Diminishes future competitive advantages if critical
technologies are outsourced.
– Increases the difficulty of bringing back into firm
activities that now add value due to market shifts.
21. Virtual Organization
• A continually evolving network of independent
companies that are linked together to share
skills, costs, and access to one another's
market.
• Pros
– Enables the sharing of costs and skills.
– Enhances access to global markets.
– Increases market responsiveness.
22. Virtual Organization Cont.
• Cons
– Harder to determine where one company ends and
another begins, due to close interdependencies
among players.
– Leads to potential loss of operational control among
players.
– Results in loss of strategic control.
23. Making Boundaryless
Organizations Work
• Achieving the coordination and integration
necessary to maximize the potential of an
organization’s human capital involves much
more than creating a new structure.
• Some Factors to consider:
– Common culture and shared values.
– Horizontal organizational structures.
– Horizontal systems and Processes.
– Communications and information technologies (IT).
– Human resource Practices.
24. Ambidextrous Organizational
Design
• Manager must be able to maintain:
– Adaptability
• When changes are rapid and unpredictable
– Alignment
• Ability to exploit assets and competencies.
– Very difficult to accomplish
• Study of different organizational studies found:
– Were effective
• Launched breakthrough products and services.
• Improved existing business performance.
