Ch. 10

When a firm expands its operations into foreign markets, what are the three most important factors to take into account in deciding what type of structure is most appropriate? What are the types of international structures discussed in the text, and what are the relationships between strategy and structure?

1) Factor #1: the extent of int'l expansion 2) Factor #2: Type of strategy (global, multidomestic, or transnational) 3) Factor #3: Degree of product diversity also could be: 1) Contingency #1: the type of strategy that is driving a firm's foreign oper- ations 2) Contingency #2: Product diversity 3) Contingency #3: the extent to which a firm is dependent on foreign sales Types of Int'l Structures: 1) International Division 2) Geographic-area division 3) Worldwide functional 4) Worldwide product division 5) Worldwide matrix Relationships between strategy & structure: Global strategies require firms to coordinate operations across countries & are consistent w/ the WORLDWIDE FUNCTIONAL & the WORLDWIDE PRODUCT DIVISION STRUCTURES. Firms w/ low levels of product diversity tend to benefit from WORLDWIDE FUNCTIONAL structures. Firms w/ high product diversity benefit from WORLDWIDE MATRIX structures.

Int'l Organizational Structures

1) Int'l Divisional 2) Geographic Area 3) Worldwide Product Division 4) Worldwide Functional 5) Worldwide Matrix

4 Main Types of Organizational Structures

1) Simple 2) Functional 3) Divisional - 2 Variants: Strategic Business Unit & Holding Company 4) Matrix

4 Types of Boundaries that place limits on organizations

1) Vertical boundaries between levels in the organization's hierarchy. 2) Horizontal boundaries between functional areas. 3) External boundaries between the firm and its customers, suppliers, and regulators. 4) Geographic boundaries between locations, cultures, and markets

"stove pipes or silos"

One of the disadvantages of the Functional Structure; departments view themselves as isolated, self-contained units with little need for interaction and coordination with other departments.

Why is it important for managers to carefully consider the type of organizational structure that they use to implement their strategies?

Organization structure is the formalized patterns of interactions that link a firm's tasks, technologies, & people. Structures ensure that firms use resources effectively to accomplish the org. mission. Firms also need structure to balance the need to divide tasks into meaningful groups & integrate between them to ensure efficiency & effectiveness.

What are the relative advantages and disadvantages of the types of organizational structure—simple, functional, divisional, matrix—discussed in the chapter?

Simple Structure Advantages: - Effective & Efficient in the coordination of activities - Control systems & performance evaluation that are efficient & informal - Decision-making that is centralized & clear Simple Structure Disadvantages: - Possible misunderstandings of tasks & responsibilities, because they are frequently unwritten, which may lead to conflict & confusion - Employees who may act out of self-interest due to the lack of clarity in boundaries & sanctions. - ltd. potential upward mobility of employees Functional Structure Advantages: - Centralizing & coordinating activities w/ in each functional area - Decision making is centralized & clear - More efficient/effective use of managerial talent - Facilitated career paths w/ in each functional area Functional Structure Disadvantages: - Difficult coordination due to the functional-specific perspectives in each dept. that leads to stovepipes or silos w/in the org. - Short-term thinking based on what is best for the functional area & not the org. as a whole - Top execs distracted by the need to settle conflicts between depts. - Difficulties w/ establishing performance evaluation standards that are consistent across depts. Division Structure Advantages: - Enables division managers to set strategies that are effective w/in the division's business environment - Less conflict between functional depts - Greater coordination & integrations between all divisions & functional areas due to multiple levels of general managers in the organization Division Structure Disadvantages: - Expense of maintaining large numbers of GM's - Dysfunctional competition between divisions - Consistent manager evaluation that promotes distributive bargaining between divisions & inhibits sharing of resources - Inconsistent corporate image across various products & markets - tendency to focus on short-term performance Matrix Structure Advantages: - Better use of specialized personnel, equipment, & facilities - Less duplication of functions - Resource sharing enables collaboration & more effective response to changes in the business environment - Org. flexibility that gives managers greater range of responsibility , which helps to develop their skills & competencies Matrix Structure Disadvantages: - Uncertainty of priorities dues to dual-reporting structure - Possible power struggles & conflict over performance evaluations, resources, & personnel - Complicated working relationships, w/ a possible over reliance on group processes - Diffusion of responsibility & accountability

Briefly trace the dominant growth pattern of major corporations from simple structure to functional structure to divisional structure. Discuss the relationship between a firm's strategy and its structure.

Simple structure (owner-manager makes the decisions) --> Functional structure (corp divides problems into manageable chunks by function) --> corp adds on multiple related divisions, each w/ a functional structure aka a divisional structure. For the divisional structure, the divisions are interdependent & the corp. follows a single, coherent mission. Corporations w/ functional structures that follow a vertical integration strategy maintain their functional structures but w/ more integration. As these vertically integrated corporations pursue related diversification, they tend to adopt division structures. Corporations w/ functional structures that follow unrelated diversification strategies tend to develop holding company structures, which have business units that do not follow related business strategies. As these holding companies develop relatedness in their products & markets, their business unit strategies converge & the corporations tend to evolve into division structures.

Strategic Business Unit (SBU) Structure

Variant of the divisional org. structure; With an SBU structure, divisions with similar products, markets, and/or technologies are grouped into homogeneous units to achieve some synergies. Advantages: - The SBU structure makes the task of planning and control by the corporate office more manageable. - with greater decentralization of authority, individual busi- nesses can react more quickly to important changes in the environment than if all divisions had to report directly to the corporate office Disadvantages: - may become difficult to achieve synergies across SBUs. - additional level of man- agement increases the number of personnel and overhead expenses - additional hierarchical level removes the corporate office further from the individual divisions.

Forward Integration

Vertical integration to secure channels of distribution

Backwards Integration

Vertical integration to secure sources of supply

global start-up

a business organization that, from inception, seeks to derive significant advantage from the use of resources and the sale of outputs in multiple countries.

Matrix Organizational Structure

a combination of the functional and divisional structures; an organizational form in which there are multiple lines of authority and some individuals report to at least two managers Advantages: - facilitates the use of specialized personnel, equipment, and facilities - Resource sharing & collaboration - The flexibility inherent in a matrix structure provides profes- sionals with a broader range of responsibility. Disadvantages; - The dual-reporting structures can result in uncertainty and lead to intense power struggles and conflict over the allocation of personnel and other resources. Working relationships become more complicated. This may result in excessive reliance on group processes and teamwork, along with a diffusion of responsibility, which in turn may erode timely decision making.

Virtual Organization

a continually evolving network of independent companies that are linked together to share skills, costs, and access to one another's markets. Pros: - Enables the sharing of costs and skills. - Enhances access to global markets. - Increases market responsiveness - Creates a "best of everything" organization since each partner brings core competencies to the alliance. - Encourages both individual and organizational knowledge sharing and accelerates organizational learning 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 partners. - Results in loss of strategic control over emerging technology. - Requires new and difficult-to-acquire managerial skills.

worldwide functional structure

a functional structure in which all departments have worldwide reponsibilities.

worldwide product division structure

a product division structure in which all divisions have worldwide responsibilities.

geographic-area division structure

a type of divisional organizational structure in which operations in geographic regions are grouped internally.

worldwide matrix structure

a type of matrix organizational structure that has one line of authority for geographic- area divisions and another line of authority for worldwide product divisions.

Modular Organization

an organization in which nonvital functions are outsourced, using the knowledge and expertise of outside suppliers while retaining strategic control. Pros: - Directs a firm's managerial and technical talent to the most critical activities. - Maintains full strategic control over most critical activities— core competencies. - Achieves "best in class" performance at each link in the value chain. - Leverages core competencies by outsourcing with smaller capital commitment. - Encourages information sharing and accelerates organizational learning. Cons: - Inhibits common vision through reliance on outsiders. - Diminishes future competitive advantages if critical technologies or other competencies are outsourced. - Increases the difficulty of bringing back into the firm activities that now add value due to market shifts. - Leads to an erosion of cross-functional skills - Decreases operational control and potential loss of control over a supplier.

barrier-free organization

an organizational design in which firms bridge real differences in culture, function, and goals to find common ground that facilitates information sharing and other forms of cooperative behavior Pros: - Leverages the talents of all employees - Enhances cooperation, coordination, and information sharing among functions, divisions, SBUs, and external constituencies. - Enables a quicker response to market changes through a single-goal focus - Can lead to coordinated win-win initiatives with key suppliers, customers, and alliance partners. Cons: - Difficult to overcome political and authority boundaries inside and outside the organization - Lacks strong leadership and common vision, which can lead to coordination problems. - Time-consuming and difficult-to-manage democratic processes - Lacks high levels of trust, which can impede performance.

International Division Structure

an organizational form in which international operations are in a separate, autonomous division. Most domestic operations are kept in other parts of the organization.

Divisional Organizational Structure

an organizational form in which products, projects, or product markets are grouped internally. Advantages: - separation of strategic and operating control. - problems associated with sharing resources across functional departments are minimized. - development of general management talent is enhanced - The focus on a division's products and markets—by the divisional executives—provides the corporation with an enhanced ability to respond quickly to important changes. Disadvantages: - increased costs due to the duplica- tion of personnel, operations, and investment since each division must staff multiple func- tional departments - dysfunctional competition among divisions - Divisional man- agers are often evaluated on common measures such as return on assets and sales growth. - If goals are conflicting, there can be a sense of a "zero-sum" game that would discourage sharing ideas and resources among the divisions for the common good of the corporation. - Since each division is evaluated in terms of financial measures such as return on investment and revenue growth, there is often an urge to focus on short-term performance - With many divisions providing different products and services, there is the chance that differences in image and quality may occur across divisions.

Functional Structure

an organizational form in which the major functions of the firm, such as production, marketing, R&D, and accounting, are grouped internally. Advantages: - By bringing together specialists into functional departments, a firm is able to enhance its coordination and control within each of the functional areas. - Centralized decision-making - more efficient use of managerial and technical talent since functional area expertise is pooled in a single depart- ment (e.g., marketing) instead of being spread across a variety of product-market areas. - career paths and professional development in specialized areas are facilitated. Disadvantages - The differences in values and orientations among functional areas may impede communication and coordination - "Stove Pipes" "Silos" - short-term thinking based largely upon what is best for the functional area, not the entire organization - Overburden of top execs - difficult to establish uniform performance standards across the entire organization

Simple Structure

an organizational form in which the owner- manager makes most of the decisions and controls activities, and the staff serves as an extension of the top executive. Advantages: - Highly informal - Coordination of tasks accomplished by direct supervision. - Highly centralized decision-making - Little specialization of tasks - Few rules & regulations - Informal evaluation & reward system Disadvantages: - Employees may not clearly understand their responsibilities (conflict & confusion) - Employees may take advantage of the lack of regulations and act in their own self-interes - ltd opportunities for upward mobility

Holding Company Structure (A conglomerate)

an organizational form that is a variation of the divisional organizational structure in which the divisions have a high degree of autonomy both from other divisions and from corporate headquarters. Advantages: - cost savings associated with fewer personnel - lower overhead resulting from a small corporate office and fewer hier- archical levels - autonomy of the holding company structure increases the motivational level of divisional executives and enables them to respond quickly to market opportunities and threats Disadvantages: - inherent lack of control and dependence that corporate-level executives have on divisional executives - Major problems could arise if key divisional executives leave the firm, because the corporate office has very little "bench strength"— additional managerial talent ready to quickly fill key positions. - If problems arise in a divi- sion, it may become very difficult to turn around individual businesses because of limited staff support in the corporate office.

Alignment

managers' clear sense of how value is being created in the short term and how activities are integrated and properly coordinate

Adaptability

managers' exploration of new opportunities and adjustment to volatile markets in order to avoid complacency.

ambidextrous organizational designs

organizational designs that attempt to simultaneously pursue modest, incremental innovations as well as more dramatic, breakthrough innovations. Firms that achieve both adaptability and alignment are considered ambidextrous organizations— aligned and efficient in how they manage today's business but flexible enough to changes in the environment so that they will prosper tomorrow.

horizontal organizational structures

organizational forms that group similar or related business units under common management control and facilitate sharing resources and infrastructures to exploit synergies among operating units and help to create a sense of common purpose.

boundaryless organizational design

organizations in which the boundaries, including vertical, horizontal, external, and geographic boundaries, are permeable.

Organizational Structure

the formalized patterns of interactions that link a firm's tasks, technologies, and people.

Facilitating Coordination/Integration (Boundaryless Organizations)

∙ Common culture and shared values. - Horizontal organizational structures. - Horizontal systems and processes. - Communications and information technologies. - Human resource practices.