bus 498 Ch. 11

E. other network structure

allows the firm to connect centers of excellence, whatever their global location -The firm benefits from communities of practice, which store important organizational learning and expertise.

structure

can be defined as the design of organization through which the enterprise is administered...structure follows strategy. -organizational structure must follow strategy in order for firms to achieve superior performance -organizational design must be flexible enough to accommodate the formulated strategy and future growth and expansion.

Strategy implementation

concerns the organization, coordination, and integration of how work gets done

building blocks of an organizational structure are

▪ Specialization ▪ Formalization ▪ Centralization ▪ Hierarchy

mechanistic organization.

- Characterized by a high degree of specialization and formalization and by a tall hierarchy that relies on centralized decision making. are -Mechanistic structures allow for standardization and economies of scale, and often are used when the firm pursues a cost-leadership strategy at the business level. Ex. McDonald's fits this description quite well. Each step of every job such as deep-frying fries is documented in minute detail (e.g., what kind of vat, the quantity of oil, how many fries, what temperature, how long, and so on). Decision power is centralized at the top of the organization: McDonald's headquarters provides detailed instructions to each of its franchisees so that they provide comparable quality and service across the board although with some local menu variations. Page 386Communication and authority lines are top-down and well defined. To ensure standardized operating procedures and consistent food quality throughout the world, McDonald's operates Hamburger University

DISADVANTAGES OF MATRIX STRUCTURE

- Difficult to implement: implementing two layers of organizational structure creates significant organizational complexity and increases administrative costs - Reporting structures often not clear→ employees can have trouble reconciling goals presented by two or more supervisors→ can undermine accountability by creating multiple principal-agent relationships, which can make performance appraisals more difficult - Adding layer can slow decision making/ increase bureaucratic costs

D. MATRIX STRUCTURE

-Organizational structure that combines the functional structure with the M-form. -to reap the benefits of both the M-form and the functional structure, many firms employ a mix of these two organizational forms, -The idea behind the matrix structure is to combine the benefits of the M-form (domain expertise, economies of scale, and the efficient processing of information) with those of the functional structure (responsiveness and decentralized focus). -lows the firm to feed local learning back to different SBUs and thus diffuse it throughout the organization -traditional matrix structure, cross-functional teams work together on different projects. teams in a matrix structure tend to be more permanent rather than project-based with a predetermined time horizon.

four types of corporate diversification (ref to chart)

1. single business and 2. dominant business, the corporate level gain at least 70 percent of their revenues from their primary activity; employ a functional structure. 3.related diversification: Firms using the M-form organizational structure to support a related-diversification strategy tend to concentrate decision making at the top of the organization. - allows a high level of integration. It also helps corporate headquarters leverage and transfer across different SBUs the core competencies 4.unrelated: Firms using the M-form structure to support an unrelated-diversification strategy often decentralize decision making. Doing so allows general managers to respond to specific circumstances, and leads to a low level of integration at corporate headquarters.

inertia

A firm's resistance to change the status quo, which can set the stage for the firm's subsequent failure.

organizational structure

A key to determining how the work efforts of individuals and teams are orchestrated and how resources are distributed.

organizational design

The process of creating, implementing, monitoring, and modifying the structure, processes, and procedures of an organization. key components of organizational design are -- -structure, -culture -control. -allows managers to effectively translate their chosen strategy into a realized one.

>hierarchy

hierarchy An organizational element that determines the formal, position-based reporting lines and thus stipulates who reports to whom. determines the formal, position-based reporting lines and thus stipulates who reports to whom. -many levels of hierarchy exist between the frontline employee and the CEO in Firm A, it has a tall structure. -few levels of hierarchy in Firm B, it has a flat structure. *Span of control: The number of employees who directly report to a manager -In tall organizational structures (Firm A), the span of control is narrow. In flat structures (Firm B), the span of control is wide, meaning one manager supervises many employees. -firms have de-layered by reducing the headcount (often middle managers), making the organizations flatter and more nimble. This, however, puts more pressure on the remaining managers who have to supervise and monitor more direct reports due to an increased span of control.

C.M-FORM AND CORPORATE STRATEGY

to achieve an optimal match between strategy and structure, different corporate strategies require different organizational structures. In Chapter 8, we identified four types of corporate diversification

Different stages in a firm's growth require different organizational structures.

organizational structures range from simple functional multidivisional matrix.

DISADVANTAGES OF FUNCTIONAL STRUCTURE

-functional structure facilitates rich and extensive communication between members of the same department, it frequently lacks effective communication channels across departments. -functional structure is that it cannot effectively address a higher level of diversification, which often stems from further growth. -irms find it effective to evolve and adopt a multidivisional or matrix structure,

ambidexterity

-A firm's ability to address trade-offs not only at one point but also over time. It encourages managers to balance exploitation with exploration. -It encourages managers to balance exploitation—applying current knowledge to enhance firm performance in the short term—with exploration—searching for new knowledge that may enhance a firm's future performance -. In an ambidextrous organization, a top-level manager such as the CEO must take on the necessary coordination and integration work. -Ex. while Intel focuses on maximizing sales from its current cutting-edge microprocessors, it also has several different teams with different time horizons working on future generations of microprocessors.2

ambidextrous organization

-An organization able to balance and harness different activities in trade-off situations. -goal for managers who want to pursue a blue ocean strategy -Notable management practices that companies use to resolve this trade-off include flexible and lean manufacturing systems, total quality management, just-in-time inventory management, -Other management techniques that allow firms to reconcile cost and value pressures are the use of teams in the production process, as well as decentralized decision making at the level of the individual customer.

>FORMALIZATION

-An organizational element that captures the extent to which employee behavior is steered by explicit and codified rules and procedures. -detailed written rules and policies of what to do in specific situations. -a high degree of formalization can slow decision making, reduce creativity and innovation, and hinder customer service. -achieve consistent and predictable results -Ex. McDonald's, for example, uses detailed standard operating procedures throughout the world to ensure consistent quality and service. -Ex. Airlines, for instance, must rely on a high degree Page 385of formalization to instruct pilots on how to fly their airplanes to ensure safety and reliability

organic organization

-Characterized by a low degree of specialization and formalization, a flat organizational structure, and decentralized decision making. -Organic structures tend to be correlated with the following: a fluid and flexible information flow among employees in both horizontal and vertical directions; faster decision making; and higher employee motivation, retention, satisfaction, and creativity. -Firms that pursue a differentiation strategy at the business level frequently have an organic structure.

>DISADVANTAGES OF M-FORM

-Moving from the functional structure to the M-form results in adding another layer of corporate hierarchy (corporate headquarters). -slows decision making because in many instances a CEO of an SBU must get approval from corporate headquarters when making major decisions that might affect a second SBU or the corporation -SBUs compete with one another for resources such as capital and managerial talent, but they also need to cooperate to share competencies. -corporate process such as resource allocation or transfer pricing between SBUs becomes riddled with corporate politics and turf wars.

A. simple structure

-Organizational structure in which the founders tend to make all the important strategic decisions as well as run the day-to-day operations. -Simple structures are flat hierarchies operated in a decentralized fashion. They exhibit a low degree of formalization and specialization. (gonazalo)

C. MULTIDIVISIONAL STRUCTURE

-Organizational structure that consists of several distinct strategic business units (SBUs), each with its own profit-and-loss (P&L) responsibility. -each SBU is operated more or less independently from one another, and each is led by a CEO -most large firms are diversified to some extent across different product lines and geographies, the M-form is a widely adopted organizational structure.

B. functional structure

-Organizational structure that groups employees into distinct functional areas based on domain expertise. -often correspond to distinct stages in the value chain such as R&D, engineering and manufacturing, and marketing and sales, as well as supporting areas such as human resources, finance, and accounting (smartb) -A functional structure allows for an efficient top-down and bottom-up communication chain between the CEO and the functional departments, and thus re -Using a functional structure allows the cost leader to nurture and constantly upgrade necessary core competencies in manufacturing and logistics. - differentiation strategy, managers rely on a functional structure that resembles an organic organization. -Using a functional structure with an organic organization allows the differentiator to nurture and constantly upgrade necessary core competencies in R&D, innovation, and marketing - A blue ocean strategy requires trade-offs between differentiation and low costIt must balance centralization to control costs with decentralization to foster creativity and innovation. -It must further pursue both product and process innovations in an attempt to reap economies of scale and scope. All of these challenges make it clear that although a blue ocean strategy is attractive at first glance, it is quite difficult to implement given the range of important trade-offs that must be addressed.

>Specialization

-describes the degree to which a task is divided into separate jobs—that is, the division of labor -Larger firms, such as Fortune 100 companies, tend to have a high degree of specialization; smaller entrepreneurial ventures tend to have a low degree of specialization. -ex. Accountant for a large firm may specialize in only one area (e.g., internal audit), whereas an accountant in a small firm needs to be more of a generalist and take on many different things -While a high degree of the division of labor increases productivity, it can also have unintended side-effects such as reduced employee job satisfaction due to repetition of tasks.

organizational inertia - successful firms often follows a particular path

1. Mastery of, and fit with, the current environment. 2. Success, usually measured by financial measurements. Focus on short term performance 3. Structures, measures, and systems to accommodate and manage size. 4. A resulting organizational inertia that tends to minimize opportunities and challenges created by shifts in the internal and external environment. -missing, of course, is the conscious strategic decision to change the firm's internal environment to fit with the new external environment,

-show the firm's tightly coupled organizational design over time. -The shorter internal arrows indicate pressures radiating from internal shifts such as accelerated growth, a change in the business model, entry into new markets, a change in the top management team (TMT), or mergers and acquisitions. -rrows pointing into and piercing the boundary of the firm indicate external pressures, which can stem from any of the PESTEL forces

Strong external or internal pressure can break apart the current system, which may lead to firm failure. -To avoid inertia and possible organizational failure, the firm needs a flexible and adaptive structure to effectively translate the formulated strategy into action.

>CENTRALIZATION

an organizational element that refers to the degree to which decision making is concentrated at the top of the organization. -Centralized decision making often correlates with slow response time and reduced customer satisfaction. -decentralized organizations such as Zappos, decisions are made and problems solved by empowered lower-level employees who are closer to the source of issues. - Top-down strategic planning takes place in highly centralized organizations. - Planned emergence is found in more decentralized organizations. -ex.Gulf of Mexico oil spill in 2010, BP's response was slow and cumbersome because key decisions were initially made in its UK headquarters and not onsite.