Chapter 11: Organizational Structure and Controls

Organizational Structure

Specifies the firm’s formal reporting relationships, procedures, controls, and authority and decision-making processes OR the functions that must be completed to implement strategy

Firm structure helps determine…

(1) Decisions to be made and (2) The work needed to be completed by everyone within an organization

Structural stability

The capacity the firm requires to consistently and predictably manage its daily routines

Structural flexibility

Makes it possible for the firm to identify opportunities and then allocate resources to pursue them as a way of being prepared to succeed in the future

Organizational inertia often inhibits efforts to change structure meaning….

Even when performance is suffering, changing the structure of an organization requires a vast amount of resources and time

Organizational Controls

Guide the use of strategy, indicate how actual results compare with expected results, and suggest corrective actions to take when the difference is unacceptable; CORE function of the strategic planning process

Organizational Control Cycle parts

(1) formulate strategies based on internal/external analysis, (2) develop objectives based on desired outcomes, (3) detailed plan of action, and (4) return and report

Strategic Controls

A largely subjective criteria which verifies that a firm is using appropriate strategies for the conditions in the external environment and the company’s competitive advantages; THE “What it might do, and what it can do” in terms of resources’ The content of actions 

Financial Controls

Largely objective criteria used to measure the firm’s performance against the previously established quantitative standards; Current performance against pervious performance, competitors performance, or industry averages

Strategy and Structure have a reciprocal relationship meaning…

structure flows or follows the firm’s strategy and the effect of strategy on structure is super strong

Business strategy need to be flexible to…. and stable to…

help develop future advantages; use current competitive advantages

Sales growth creates…

coordination and control problems because the scale has changed and systems are no longer efficient 

Organizational growth creates….

opportunites for a firm to change its strategy and become even more successful

Three Major Organization Structures

(1) Simple, (2) Functional, and (3) Multidivisional

Across time it is typcial for firms to move from …. to a …. structure as a way of…

simple; multidivisional; supporting changes in their growth strategies

Simple Structure

an organizational form in which the owner-manger makes all major decisions and the staff serves as an extension of the manager’s authority

Simple structure charactertistics

(1) informal relationships, (2) few rules, (3) limited task specialization, and (4) unsophisticated information systems

Functional Structure

an organizational form which consists of a chief executive officer, a limited corporate staff, and functinoal line managers in dominant areas of business like production, accounting, or marketing

Multidivisional Structure

an organizational form that consists of a corporate office and operating divisions, with each division repersenting a distinct, self-contained business with its own hierarchy

Three Benefits of M-Form or Multidivisional Firms

(1) enables corporate officers to accurately monitor the performance of each business, (2) facilitates comparison between divisions to improve resource allocation, and (3) stimulates managers of poorly performing divisions to look for ways of improving 

Three structural characteristics

(1) specialization, (2) centralization, and (3) formalization

Specialization

the type of number of jobs required to complete work

Centralization

the degree to which decisoin-making authority is retained at higher mangerial levels

Formalization

the degree to which formal rules and procedures govern work

Functional Structure and Cost Leadership

Characterized by simple reporting relationships, centralized staff, specialized jobs, highly formalized rules, and a focus on process improvemnts

Functional Structue and Differntiation Strategy

Characterized by flexible reporting relationships, cross-functional product development, strong focus on marketing, low specialization of jobs, and few formal rules 

Cooperative Form

an M-form structure where horizontal integration is used to create interdivisional cooperation

Matrix organization

an organization with a dual structure combining both functional specialization and product/project specialization; complicated but can improve overall coordination

Strategic Business Unit Form (SBU)

An M-form organization consisting of three levels which are (1) corporate headquaters, (2) Strategic business units and (3) SBU Divisions — each division is related in terms of sharing pro