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Organisational Structure

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  1. Organisational Structure Week 10

  2. Organisational Structure • Organisational Structure is a firm’s: • Role configuration • Procedures • Governance & control mechanisms • Authority & decision making processes

  3. Organisational Structure • Proper use of: • organisational structure and • accompanying integrating mechanisms & controls Contribute to a firm’s competitiveness • Competitive advantage is created when there is a match between strategy and structure

  4. Structure Types • All organisations require some form of organisational structure to implement and manage their strategies • Firms frequently alter their structure as they grow in size and complexity • Three basic structure types: • Simple structure • Functional structure • Multi-divisional structure (M-form)

  5. Multi-divisionalStructure SimpleStructure FunctionalStructure Sales growth coordination & control problems Strategy & Structure Growth Pattern

  6. Simple Structure • Owner/manager makes all major decisions directly and monitors all activities • Staff serve as an extension of the Manager’s supervisory authority • Information systems are unsophisticated • Typically offers a single product line in a single geographical market

  7. Simple Structure • Often used for focused strategies • Communication is frequent & direct • New products are introduced to market quickly • Important to the nations economy • Created 92% of new jobs in Australia in early 1990’s

  8. Simple Structure • Difficult to maintain this structure as the firm grows in size and complexity • Lack skills necessary to manage specialised & complex tasks of multiple organisational functions

  9. Functional Structure • First stage beyond a simple structure • Appropriate for single- or dominant-business firms • Consists of • CEO • Functional line managers in dominant organisational areas

  10. Functional Structure Chief Executive Officer (CEO) Differentiation business-level strategy usually employs a decentralised structure and emphasises product R&D and sales & marketing Low cost business-level strategy usually employs a centralised structure and emphasises process R&D and operations Sales & Marketing Human Resources Finance Production R&D Accounting

  11. Functional Structure • Allows specialisation of tasks, for example: • Production • Finance • Engineering • Accounting • Sales & Marketing • Human Resources • This facilitates • knowledge sharing • Idea development

  12. Functional Structure • Overcomes information-processing limits of single owner/manager • Functional department heads report to CEO, who integrates decisions and actions from a companywide point of view • Risks conflicts between myopic function managers

  13. Multi-Divisional Structure • Each division is operated as a separate business • Results from • CEO information overload • Increased diversification • Conflict between functional managers • Appropriate for related-diversified businesses

  14. Multi-Divisional Structure (M-form) CEO Corporate Human Resources Corporate R&D Corporate Finance Strategic Planning Corporate Marketing Division Division Division Division Sales & Marketing Human Resources Finance Production Engineering Accounting

  15. Multi-Divisional Structure • Enables corporate office to more accurately monitor performance of each business • Facilitates comparisons between divisions which improves resource allocation • Stimulates managers to improve poor performance

  16. Multi-Divisional Structure • Key task of corporate managers is to exploit synergies among divisions • Managers use a combination of: • Strategic controlsSubject long term & strategically relevant criteria • Financial controlsObjective criteria that evaluate returns of business units & managerial performance

  17. Structure & Business Level Strategy Cost Leadership • Strong task specialisation • Centralised decision making • Formalisation of work rules • Low cost culture • Emphasis on process engineering • Infrequent product changes

  18. Centralised staff Cost Leadership Chief Executive Officer (CEO) Sales & Marketing Human Resources Finance Production R&D Accounting

  19. Structure & Business Level Strategy Differentiation • Teams that can coordinate & integrate with each other • Decision making • Consensus • Decentralised • Rapid changes in work processes • Emphasis on R&D and marketing • Frequent product changes

  20. Sales & Marketing Human Resources Finance Production Accounting Differentiation Chief Executive Officer and limited staff R&D

  21. Structure & Business Level Strategy Cost Leadership\Differentiation • Conflicting organisational structure requirements • Functional structure supplemented by horizontal coordination • Strong organisational structure • Moderate level of product change

  22. Multi-Divisional Structure (M-form) Three variations of the multi-divisional structure: StrategyType RelatedConstrained RelatedLinked CompetitiveForm Multi-Divisional Form Cooperative Form Strategic Business Unit Structure Unrelated/HoldingCompany Centralisation Bureaucratic cost

  23. Cooperative Form • Fosters cooperation and integration • Divisional liaisons • Temporary teams • Matrix organisation • Sharing of strategic assets • Centralisation • Reward managers on overall results as there can be an unequal flow of benefits of integration to divisions

  24. Corporate Marketing CorporateHR CorporateR & D ProductDivision ProductDivision ProductDivision ProductDivision ProductDivision ProductDivision Cooperative Form HQ Chief Executive Officer Govt. Affairs CorporateFinance StrategicPlanning LegalAffairs

  25. Strategic Business Unit Form (SBU) • Three levels • Corporate Headquarters • SBU Groups • Divisions • Integration within SBUs • Independence between SBUs

  26. SBU SBU Corporate Marketing CorporateHR CorporateR & D Division Division Division Division Division Division SBU Form HQ Chief Executive Officer CorporateFinance StrategicPlanning

  27. Strategic Business Unit Form (SBU) • Corporate HQ • Conducts strategic Planning • Staff serve as consultants to SBUs • SBUs are • Profit centres • largely unrelated to each other • Divisions are grouped by relatedness • Structural flexibility is important

  28. Competitive Form • Corporate HQ has small staff • Finance & Auditing are most prominent HQ functions • Legal Affairs for acquisition\divestiture of assets • Divisions • are independent • Retain strategic control • Compete for corporate resources

  29. Finance Auditing Division Division Division Division Division Division Competitive Form HQ Chief Executive Officer LegalAffairs

  30. Type of Related- Mixed-Related Unrelated Strategy Constrained or Unrelated Degree of Centralised Decentralised Centralised at Corporate Office Centralisation in SBUs to Division Use of Extensive Moderate Nonexistent Integrating Synergies Synergies Synergies Mechanisms Divisional Subjective/ Strategic & Financial Performance Strategic Financial Criteria Appraisal Criteria Criteria Linked to Linked to Linked to Corporate Corporation, Divisional Performance Division & SBU Performance Attributes of Various Structural Forms Cooperative M-Form SBU M-Form Competitive M-Form Structural Characteristics Divisional Incentive Compensation

  31. Multi-Divisional Structure • Firms with a complex multi-divisional structure may be simultaneously centralised and decentralised, depending upon the various business-level strategies employed throughout the firm’s individual businesses

  32. Holding Company Structure • Appropriate for widely diversified firms operating in many unrelated businesses • Each business is treated as a separate profit or investment centre competing for corporate resources • Corporate office acts as a central capital market • Corporate staff evaluates financial performance • Portfolio of business units or companies is balanced through acquisitions or divestitures • Corporate staff generally lack deep understanding of strategic issues facing individual businesses • Creates no obvious benefit to shareholders, who can diversify on their own

  33. Global Structures • Worldwide Geographic Area Structure • Worldwide Product Divisional Structure • Combination Structure

  34. Worldwide Geographic Area Structure • Multi-domestic strategy • Strategy & operating decisions are decentralised to business units in each country • Allows products to be tailored to local markets • Firms seek to isolate their business units from global forces

  35. Worldwide Geographic Area Structure • Worldwide Geographic Area Structure • HQ coordinates financial resources • Divisions are independent • Operations are decentralised • Disadvantages • Unable to create global efficiency

  36. Evolution of Multi-Divisional Structure CEO Corporate Office (Staff) North America Latin America Europe Asia Africa Australia Product A Product C Product B Product D A structural evolution based on geographic lines usually implies a multi-domestic international strategy

  37. Worldwide Product Divisional Structure • Global Strategy • Standardised products are offered across country markets • Seeks economies of scale and scope • Firm’s organisational functions are sourced to the most effective worldwide providers

  38. Worldwide Product Divisional Structure • Worldwide Product Divisional Structure • Centralised decision making • Home office dictates strategy • HQ allocates financial resources in a cooperative way • Use of integrating mechanisms • Standardised policies and procedures • Disadvantages • Coordination of decisions • Unable to respond quickly

  39. Evolution of Multi-Divisional Structure CEO Corporate Office (Staff) Product A Product B Product C Product D A structural evolution based on product lines usually implies a global international strategy

  40. Combination Structure • A trans-national international strategy • Local responsiveness and • Global efficiency • Uses combination structure

  41. Combination Structure • Structure that results in emphasis on both geographic and product structures • Must be simultaneously • centralised and decentralise • Integrated and non-integrated • Formalised and non-formalised • Encourage employees to understand cultural diversity • Shared vision and leadership

  42. Multi-Divisional Structure • Managers try to strike a balance between: • Competition among divisions for scarce capital resources • Creating opportunities for cooperation to develop synergies • The goal is to maximise overall firm performance

  43. Multi-Divisional Structure • The structure will evolve over time with: • Changes in strategy • Degree of diversification • Geographic scope • Nature of competition • Firms which diversify too much will change strategy to divest non-performing assets

  44. Evolution of Multi-Divisional Structure CEO Corporate Office (Staff) Product B Product A Sales & Marketing Human Resources Production Engineering Accounting Finance Sales & Marketing Human Resources Finance Production Engineering Accounting

  45. Evolution of Multi-Divisional Structure CEO Corporate Office (Staff) Product A Product B Product C Product D North America Europe Asia Human Resources Sales & Marketing Finance Production Engineering Accounting

  46. Strategic Networks • A strategic network is a group of organisations that is formed to create value through participation in an array of cooperative arrangements, such as a strategic alliance • A strategic centre firm often manages the network

  47. Strategic Networks • The strategic centre firm identifies actions that increase the opportunity for each firm to achieve success through participation in the network • The strategic centre firm creates incentives that reduce the probability of any single firm taking advantage of its network partners

  48. Strategic Centre Firm A Strategic Network Network firms

  49. Strategic Networks Critical functions of the strategic centre firm are: • Strategic Outsourcing • Capability Development • Technology Sharing • Network Learning

  50. Strategic Outsourcing Strategic centre firm • Outsources and partners with more firms than other firms • Coordinates outsourcing among partners, • Initiates actions and coordinates problem solving among members • Encourages partners to • Solve problems • Initiate competitive courses of action