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Chapter 11
Organizational Structure
and Controls

PART 3 Strategic Actions: Strategy Implementation

© 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as Presentation design
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. by Charlie Cook

Learning Objectives
Studying this chapter should provide you with
the strategic management knowledge needed to:

1. Define organizational structure and controls and discuss

the difference between strategic and financial controls.
2. Describe the relationship between strategy and
structure.
3. Discuss the functional structures used to implement
business-level strategies.
4. Explain the use of three versions of the multidivisional
structure to implement different diversification strategies.
5. Define strategic networks and discuss how strategic
center firms implement such networks at the business,
corporate, and international levels.
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Organizational Structure and Controls

• Organizational structure specifies:

– The firm’s formal reporting relationships,
procedures, controls, and authority and
decision-making processes
– The work to be done and how to do it,
given the firm’s strategy or strategies

• It is critical to match organizational structure

to the firm’s strategy.

11–3

Organizational Structure

• Effective structures provide:

– Stability
– Flexibility
• Structural stability provides:
– The capacity required to consistently and predictably
manage daily work routines
• Structural flexibility provides for:
– The opportunity to explore competitive possibilities
– The allocation of resources to activities that shape
needed competitive advantages
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Organizational Controls

• Purposes of organizational controls:

– Guide the use of strategy.
– Indicate how to compare actual results with
expected results.
– Suggest corrective actions to take when the
difference between actual and expected results
is unacceptable.
• Two types of organizational controls:
– Strategic controls
– Financial controls

11–5

Relationships between Strategy

and Structure

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Strategy and Structure Growth Pattern

Simple Structure
Efficient implementation
of formulated strategy

Sales Growth
Coordination and Control Problems

Functional Structure
Efficient implementation
of formulated strategy

Sales Growth
Coordination and Control Problems

Multidivisional Structure
11–7

Strategy and Structure:

Simple Structure
• Owner-manager
– Makes all major decisions directly.
– Monitors all activities.
• Staff
– Serves as an extension of the manager’s
supervisor authority.
• Matched with focus strategies and business-
level strategies
– Commonly complete by offering a single product
line in a single geographic market. 11–8

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Simple Structure (cont’d)

• Growth creates:
– Complexity
– Managerial and structural challenges
• Owner-managers
– Commonly lack organizational skills and
experience.
– Become ineffective in managing the specialized
and complex tasks involved with multiple
organizational functions.
11–9

Strategy and Structure:

Functional Structure
• Chief Executive Officer (CEO)
– Limited corporate staff
• Functional line managers in dominant
organizational areas of:
Production Marketing Engineering
Accounting R&D Human resources
• Supports use of business-level strategies and
some corporate-level strategies
– Single or dominant business with low levels of
diversification 11–10

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Figure 11.2 Functional Structure for Implementing a Cost Leadership Strategy

Notes:
• Operations is the main function
• Process engineering is emphasized
rather than new product R&D
• Relatively large centralized staff
coordinates functions
• Formalized procedures allow for
emergence of a low-cost culture
• Overall structure is mechanical; job
roles are highly structured

© 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 11–11

Figure 11.3 Functional Structure for Implementing a Differentiation Strategy

Notes:• Marketing is the main function for keeping track of new product ideas
• New product R&D is emphasized
• Most functions are decentralized, but R&D and marketing may have centralized staffs that work closely with each other
• Formalization is limited so that new product ideas can emerge easily and change is more readily accomplished
• Overall structure is organic; job roles are less structured

© 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 11–12

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Functional Structure (cont’d)

• Differences in orientation among

organizational functions can:
– Impede communication and coordination.
– Increase the need for CEO to integrate decisions
and actions of business functions.
– Facilitate career paths and professional
development in specialized functional areas.
– Cause functional-area managers to focus on
local versus overall company strategic issues.
11–13

Strategy and Structure:

Multidivisional Structure

• Strategic Control
– Operating divisions function as separate
businesses or profit centers
• Top corporate officer delegates
responsibilities to division managers
– For day-to-day operations
– For business-unit strategy
• Appropriate as firm grows through
diversification
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Multidivisional Structure (cont’d)

• Three Major Benefits

1. Corporate officers are able to more accurately
monitor the performance of each business, which
simplifies the problem of control.
2. Facilitates comparisons between divisions, which
improves the resource allocation process.
3. Stimulates managers of poorly performing
divisions to look for ways of improving
performance.

11–15

Matches between Corporate-Level Strategies

and the Multidivisional Structure (cont’d)

• Diversification strategy requires firm to

change from functional structure to a
multidivisional structure.
• Different levels of diversification create the
need for implementation of a unique form of
the multidivisional structure.

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Figure 11.5 Cooperative Form of the Multidivisional Structure

for Implementing a Related Constrained Strategy

11–17

Figure 11.6 SBU Form of the Multidivisional Structure for

Implementing a Related Linked Strategy

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Figure 11.7 Competitive Form of the Multidivisional Structure

for Implementing an Unrelated Strategy

11–19

Organizational Structure and Controls

Question ?

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