Ch 11 Capstone

Strategy and Structure Alignment

Performance declines when a firm's strategy is not matched with the most appropriate structure and controls

Organizational Structure

Specifies formal reporting relationships, procedures, controls, and authority/decision-making processes. Provides stability and flexibility. Organizational inertia can make structural changes difficult

Organizational Controls

Guide the use of strategy, compare actual with expected results, and suggest corrective actions. Essential for exploiting competitive advantages

Strategic Controls

Subjective criteria verifying the appropriateness of strategies based on environmental conditions and competitive advantages. Focus on the fit between "what the firm might do" and "what it can do." Used with differentiation and related diversification strategies

Financial Controls

Objective criteria measuring performance against quantitative standards (previous outcomes, competitors, industry averages). Examples include ROI, ROA, economic value added. Used with cost leadership and unrelated diversification strategies

Reciprocal Relationship of Strategy and Structure

Structure generally follows strategy, but structure can also influence strategic choices. Matching strategy and structure provides stability and flexibility.

Evolutionary Patterns of Strategy and Structure

As firms grow, they typically transition from a simple structure to a functional structure, and then to a multidivisional structure to accommodate growth and diversification strategies.

Simple Structure

Owner-manager makes all decisions, staff are extensions of authority. Informal relationships, few rules, limited specialization. Suited for focus strategies in small firms

Functional Structure

CEO and limited staff with functional line managers (production, marketing, R&D, etc.). Facilitates specialization within functions but can hinder inter-functional communication. Supports business-level strategies and low diversification corporate strategies

Multidivisional (M-Form) structure

Corporate office and operating divisions (profit centers), with responsibility delegated to division managers. Improves performance monitoring, resource allocation, and motivates improvement. Widely used with diversification strategies (related and unrelated)

Functional Structure Variations for Business-Level Strategies: Cost Leadership

Simple reporting, few layers, centralized staff, focus on process improvements (manufacturing), low-cost culture, centralized decision-making, high specialization, formalized rules/procedures.

Differentiation (Under M-form structure)

Complex and flexible reporting, cross-functional teams, focus on marketing and product R&D, development-oriented culture, decentralized decision-making, low specialization, few formal rules/procedures

Integrated Cost Leadership/Differentiation

Partially centralized/decentralized, semi-specialized jobs, mix of formal/informal rules, flexibility to emphasize cost or differentiation functions.

Multidivisional Structure Variations for Corporate-Level Strats: Cooperative Form (Related Constrained)

Horizontal integration for interdivisional cooperation, divisions formed around products/markets, sharing resources/activities for economies of scope. Uses integrating mechanisms, centralized strategic planning/HR/marketing, likely centralized R&D, subjective rewards emphasizing corporate performance, cooperative culture. Can evolve into a matrix organization.

Strategic Business Unit (SBU) Form (Related Linked)

Three levels (corporate HQ, SBUs, divisions). Divisions within an SBU are related, but SBUs are independent. Divisions share competencies for economies of scope/scale. SBUs are profit centers evaluated by HQ. Uses financial controls for SBUs and strategic controls for divisions/portfolio. Complex and may hinder cross-SBU cooperation.

Competitive Form (Unrelated Diversification)

Complete independence among divisions, compete for corporate resources, lack of sharing/integration. Based on efficient internal capital market. Benefits include flexibility, challenging the status quo, and motivating effort. Small HQ staff, prominent finance/auditing, arms-length relationship with divisions, reliance on strategic/financial controls, competitive cash allocation

International Strategies and Worldwide Structures

Matching international strategies with appropriate structures is crucial for global competitive success

Multidomestic Strategy

Decentralizes decisions to tailoring products to local preferences. Uses the worldwide geographic area structure, emphasizing national interests and facilitating local differences. Little formal integration needed. Challenge is inability to create global efficiencies.

Global Strategy

Standardized products across markets. Success depends on economies of scale and serving customers with standardized needs. Uses the worldwide product divisional structure, with centralized authority in division HQ. Uses integrating mechanisms (direct contact, liaison roles, task forces, teams). Disadvantages include coordination difficulties and inability to quickly respond to local needs

Transnational Strategy

Combines local responsiveness (multidomestic) with efficiency (global). Uses the combination structure, drawing from both geographic area and product divisional structures. Can be a global matrix structure (local/product expertise in teams, promotes flexibility) or a hybrid global design (some divisions product-oriented, others area-oriented). Difficult to manage due to simultaneous centralization/decentralization, integration/nonintegration, formalization/nonformalization.

Cooperative Strategies and Network Structures: Network Strat

Partners form alliances to improve the network's performance.

Strategic Network

Group of firms in multiple cooperative arrangements, can be a source of competitive advantage. Used for business-level, corporate-level, and international cooperative strategies.

Strategic Center Firm

Core of the network, around which relationships revolve. Manages complex interactions, aligns incentives, performs strategic outsourcing, supports competency development, manages technology sharing, guides "race to learn.

Digital Platform Structure

Similar to network structure, with the platform creator acting like a strategic center firm. Creator establishes rules and manages transactions. Global nature offers huge market potential but faces challenges with language, culture, and regulations.

Business-Level Cooperative Strategies

Vertical alliances (different value chain stages), horizontal alliances (same value chain stage).

Corporate Level Cooperative Strategies

Reduce costs, facilitate diversification (franchising). Potential for synergy.

International Cooperative Strategies

Firms competing in multiple countries. Differences in regulatory environments add complexity. Managed through distributed strategic networks with regional strategic center firms.

Financial Controls are emphasized by companies using

cost leadership strategy

an unrelated diversification strategy

Strategic Controls are emphasized by companies using

related diversification strategy

differentiation strategy

3 Structural Characteristics

Specialization, Centralization, Formalization

Specialization

type and number of jobs required to complete work

Centralization

the extent to which decision-making authority is concentrated at higher levels in the organization.

Formalization

the degree to which rules, procedures, and communication are written and enforced in an organization

Matrix Organization

an organizational structure in which there is dual structure combining both functional specialization and business product or project specialization

4 Main tasks of the Strategic Center Firm

Strategic Outsourcing

Competencies

Technology

Race to Learn