The document discusses organizational structure and its role in strategy implementation. It covers key aspects of structure including differentiation, integration, vertical and horizontal differentiation, centralization vs decentralization, functional vs multidivisional vs matrix structures. Structure must be designed to coordinate strategy implementation, motivate performance, and minimize bureaucratic costs. Structure should follow strategy, with the organizational design and executive staffing matching the strategic objectives and needs of the business. Organizational culture and strategic reward systems also influence how well structure supports the implementation of strategy.

1. Strategy Implementation
HCAD 5390

2. Organizational Structure
Organizational design
– Selecting the structure and control
systems that are most strategically
effective for pursuing sustainable
competitive advantage.
The role of structure and control
– To coordinate strategy implementation.
– To motivate and provide incentives for superior
performance.

3. The Role of Organizational
Structure
Building blocks of organizational structure
– Differentiation in the allocation of people and
resources to create value.
 Vertical differentiation in the
distribution of decision-making
authority.
 Horizontal differentiation in
dividing up people and tasks
into functions and divisions.
– Integration
 The means used in coordinating people and functions
to accomplish organizational tasks.

4. Differentiation, Integration,
Bureaucratic Costs
Bureaucratic costs and strategy implementation:
– Bureaucratic costs increase with
organizational complexity.
– More differentiation = more managers.
– More integration = more coordination.
– Better strategy implementation = better bottom-line
performance and profitability.

5. Vertical Differentiation
Span of control (division of authority)
– The number of subordinates that a single manager
directly manages.
Organizational hierarchy choices
– Flat structures
 Few organizational levels
 Wide spans of control
– Tall structures
 Many organizational levels
 Narrow spans of control

6. Tall and Flat Structures

7. Problems with Tall Structures
Principle of minimum chain of command
– Maintaining a hierarchy with the least number of
levels of authority needed to achieve a strategy.
Sources of bureaucratic costs:

8. Centralization or Decentralization
Authority patterns in organizations:
– Centralized
 Decision making retained in the
hands of upper-level managers.
– Decentralized
 Decisions delegated to lower
levels in the organization.

9. Centralization (Structural) Choice?
Advantages of
decentralization
– Reduced information
overload on upper
managers.
– Increased motivation and
accountability throughout
organization.
– Fewer managers; lower
bureaucratic costs.
Advantages of
centralization
– Easier coordination of
organizational activities.
– Decisions fitted to broad
organizational objectives.
– Exercise of strong
leadership in crisis.
– Faster decision making and
response.

10. Horizontal Differentiation
Focus is on division and grouping of tasks to
meet business objectives.
Simple structure:
– Characteristic of small entrepreneurial companies.
– Entrepreneur takes on most managerial roles.
– No formal organization arrangements.
– Horizontal differentiation is low.

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 Structure Follows Strategy:
– Changes in corporate strategy lead to
changes in organizational structure

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 Structure Follows Strategy:
• New strategy is created
• New administrative problems emerge
• Economic performance declines
• New appropriate structure is invented
• Profit returns to its previous levels

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 Stages of corporate development
 Simple Structure
 Functional Structure
 Divisional Structure
 Beyond SBU’s

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 Simple Structure:
– Stage I:
 Entrepreneur
– Decision making tightly controlled
– Little formal structure
– Planning short range/reactive
– Flexible and dynamic

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 Functional Structure:
– Stage II:
 Management team
 Functional specialization
 Delegation decision making
 Concentration/specialization in industry

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 Divisional Structure:
– Stage III:
 Diverse product lines
 Decentralized decision making
 SBU’s
 Almost unlimited resources

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 Beyond SBU’s:
– Stage IV:
 Increasing environmental uncertainty
 Technological advances
 Size & scope of worldwide businesses
 Multi-industry competitive strategy
 Better educated personnel

18. Functional Structure
Advantages
– Task grouping facilitates
specialization and
productivity.
– Better monitoring of work
processes, reduced costs.
– Greater control over
organizational activities.
Disadvantages
– Functional orientation
creates communication
problems.
– Performance and
profitability measurement
problems.
– Location versus function
problems (coordination).
– Strategic problems due to
structural (vertical and
horizontal) mismatches.

19. Functional Structure

20. Mutlitdivisional Structure
Advantages
– Enhanced corporate
control by division
– Enhanced strategic
control of each SBU in
portfolio
– Growth is easier. New
units don’t have to be
integrated across
organization
– Stronger pursuit of
internal efficiencies.
Performance of individual
units is readily
measurable.
Disadvantages
– Establishing the divisional-
corporate authority
relationship
– Distortion of information by
divisions
– Competition for resources
by divisions
– Transfer pricing problems
between divisions
– Short-term research and
development focus
– Bureaucratic costs

21. Multidivisional Structure

22. Matrix Structure
Advantages
– Flexibility of the structure and membership
– Minimum of direct hierarchical control
– Maximizes use of employees’ skills
– Motivates employees;
frees up top management
Disadvantages
– High bureaucratic costs
– High costs (time and money) for building
relationships
– Two-boss employee’s role conflict

23. Matrix
Structure
 Two-boss employee

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 Network Structure:
– “non structure” – elimination of in-house
business functions
– Termed “virtual organization”
 Useful in unstable environments
 Need for innovation and quick response

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Network StructureNetwork Structure
Packagers
Designers Suppliers
Distributors
Corporate
Headquarters
(Broker)
Promotion/
Advertising
Agencies
Manufacturers

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 Effective implementation requires:
– Leadership
 Leading people to use their abilities and skills
most effectively and efficiently to achieve
organizational objectives

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 Staffing follows strategy:
– Matching the manager to the strategy
 Executive type
– Executives with a particular mix of skills and
experiences

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 Executive Types:
– Dynamic industry expert
– Analytical portfolio manager
– Cautious profit planner
– Turnaround specialist
– Professional liquidator

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Matching Chief Executive “Types” with
Strategy
Average
HighLow
Business Strength/Competitive Position
Strong
Growth—Concentration
Dynamic Industry Expert
Stability
Cautious Profit Planner
Retrenchment—
Close Company
Professional
Liquidator
Retrenchment—
Save Company
Turnaround
Specialist
IndustryAttractiveness
Medium
Weak
Growth—Diversification
Analytical Portfolio
Manager

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 Managing corporate culture:
– Corporate culture
 Affects firm’s ability to shift its strategic direction
 Strong tendency to resist change
 Corporate culture should support the strategy

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 Strategy-Culture Compatibility:
– Consider the following:
 Is the planned strategy compatible with the firm’s
current culture?
 Can the culture be easily modified to make it more
compatible with new strategy?
 Is management willing to make major
organizational changes?
 Is management committed to implementing the
strategy?

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 Managing corporate culture:
– Communication
 Key to effective management of change
 Rationale for strategic change should be
communicated to all

33. What Is Organizational Culture?
Culture
– The collection of values and norms shared by people and
groups in an organization.
– Shared values and a common culture increase integration
and improve coordination.
Values
– Beliefs and ideas about common goals and proper
behaviors.
Norms
– Act as guidelines or expectations that prescribe acceptable
behavior by organizational members.

34. Organizational Culture
Ways of transmitting organizational culture:

35. Culture and Strategic Leadership
The influence of the founder
– Initial cultural values and management
style is imprinted on the organization
by its founder.
Organizational structure
– Structure follows strategy.
Strategic leadership affects
the cultural norms and values
that develop in the organization.

36. Strategic Reward Systems
Individual reward systems
– Piecework plans
– Commission systems
– Bonus plans
– Promotion
Group and organizational
reward systems
– Group-based bonus systems
– Profit sharing systems
– Employee stock option systems
– Organization bonus systems