Organizational Structure

Question 1

What is organizational structure?

Answer 1

1) The firm’s formal reporting relationships, procedures, controls, and authority and decision-making processes.
2) 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!

Question 2

What are the patterns of organizational structure?

Answer 2

1) First by volume
Then by geography
Then integration (vertical, horizontal)
And finally through product/business diversification
2) A firm’s growth patterns determine its structural form.

Question 3

What is the structure growth pattern?

Answer 3

Simple structure (Efficient implementation of formulated strategy)
|
V
Sales Growth
\
V
Functional structure (efficient implementation of formulated strategy)
|
V
Sales Growth
|
V
Multidivisional Structure

Question 4

What is simple structure?

Answer 4

1) Owner-manager
Makes all major decisions directly.
Monitors all activities.
2) Staff
Serves as an extension of the manager’s supervisor authority.
3) Matched with focus strategies and business-level strategies
Commonly compete by offering a single product line in a single geographic market.
4) Growth creates:
Complexity
Managerial and structural challenges
5) Owner-managers
Commonly lack organizational skills and experience.
Become ineffective in managing the specialized and complex tasks involved with multiple organizational functions.

Question 5

What is functional structure for cost leadership strategy?

Answer 5

(Uses centralization)
* 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

Question 6

What is functional strategy for differentiation strategy?

Answer 6

(Most functions are decentralized)
* Marketing is the main function: 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: new product ideas can emerge easily, change is easier
* Overall structure is organic; job roles are less structured

Question 7

What are the pros & cons of Divisional strategy?

Answer 7

Pros
1) Effectiveness – decision makers closer to problems
2) Clear P&L responsibility / accountability
3) Top-management can focus on broader strategy and capital allocation issues

Cons
1) Duplication of functions (sacrifices econ of scale) hard to coordinate functions across divisions
2) Difficult to achieve synergies
3) Reporting and controlling more complex

Question 8

What are the pros & cons of functional strategy?

Answer 8

Pros
1)Efficiency – captures economies of scale
2) Synergies-friendly – consistent objectives maintained across products

Cons
1) Overall P&L responsibility only at top level
2) Operational focus required from Senior mgmt