Structure Should Follow Strategy

1
Structure Should Follow Strategy

• Organizational Design

2
Organizational Structure

• Firms formal reporting relationships,
  procedures, controls, and authority and
  decision-making processes

3
Controls

• Organizational Controls
• Guide the use of strategy
• Compare actual and expected results
• Suggest corrective actions if unacceptable
• Strategic controls
• Criteria used to verify correct strategy fit with
  external and internal factors
• Financial Controls
• Criteria to measure performance against
  established quantitative standards

4
Wiring Diagrams

• What are they?
• Why use wiring diagrams?
• Important to the company.
• Important to the manager

13-3
5
Shell Organizational Structure
13-2
6
Vertical Differentiation

• Concerned with where decisions are made.
• Where is decision making power concentrated?
• Two Approaches
• Centralization
• Decentralization

13-4
7
Centralization

• Advantages
• Facilitate coordination.
• Consistency of decisions.
• Easier to make changes.
• Avoids duplication.

13-5
8
Centralization

• Disadvantages
• Overburdened top management.
• Motivational research favors decentralization.
  Increased motivation at lower levels
• Decentralization permits flexibility.
• Decentralization lets decisions be made closer to
  the information source. On-the-spot decisions
• Decentralization can increase control and
  accountability

13-6
9
Horizontal Differentiation

• How a firm divides itself into sub-units - value
  creation activities
• Demands too great for one individual
• Firm diversifies its product offerings
• Typically function, business area (product) or
  geography

10
Development
11
A Typical Functional Structure
Top Management
Purchasing
Manufacturing
Marketing
Finance
Buying units
Plants
Branch sales units
Accounting units
13-10
12
Functional Structure

• Advantages
• CEO in touch with all operations
• Reduces/simplifies control mechanisms
• Clear definition of responsibilities
• Specialists at senior and middle management
  levels
• Disadvantages
• Overburdened senior managers
• Senior managers neglect strategic issues
• Difficult to handle diversity
• Coordination between functions difficult
• Failure to adapt

13
Typical Product Division Structure
Headquarters
Division product line A
Division product line B
Division product line C
Department Purchasing
Department manufacturing
Department marketing
Department finance
Buying units
Plants
Branch sales units
Accounting units
13-12
14
Multidivisional Structure

• Advantages
• Flexible
• Control by performance
• Ownership of strategy
• Specialization of competences
• Disadvantages
• Additional costs of the center
• Duplication at divisional levels
• Fragmentation and non-cooperation

What would a geographical multidivisional
structure look like?
15
Horizontal DifferentiationGoing Abroad

• Usually firms start with an international
  division.
• Leads to coordination problems, and
• Conflict between domestic and foreign operations.

13-11
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International Division Structure
Headquarters
Domestic division General manager Product line A
Domestic division General manager Product line B
Domestic division General manager Product line C
International division General manager area line
Country 1 General manager (product A, B, and /
or C)
Country 2 General manager (product A, B, and /
or C)
Functional units
Functional units
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Electrolux Home Products EuropeDue February
11No late papers accepted

• In January 2001, Electrolux Home
  Products Europe completely realigned its
  structure as part of its competitive strategy in
  Europe. The Swedish multinational company
  manufactured a range of consumer durables such
  as cookers and fridges and had grown through
  several decades of acquisitions to become a
  dominant player in Europe. But the market in
  Europe was fiercely competitive and the company
  needed to find a way to capitalize on its size
  both to reduce costs and also to improve product
  and service standards. Its solution was to
  introduce a Europe-wide functional structure to
  replace the geographical structure (resulting
  from its acquisitions). The new structure is
  shown here.
• The management explained the rationale for the
  restructuring the realignment of EHP Europe is
  a part of a program to ensure profitable growth
  as the organization drives more simplicity into
  its business, while reducing the number of
  organizational levels, and creating more focus on
  area where increased effort is required to meet
  the tougher challenges of the marketplace.
• The functional departments would operate as
  follows
• Purchasing, Production, and Product Development
  was the manufacturing arm of the business. It
  also included product development and purchasing
  to provide a seamless flow from supplied to
  finished products. This was thought to be
  essential to maintaining a stream of innovative
  and cost effective products.
• Supply Chain Management and Logistics was
  responsible for getting products to the customer
  and was the link between sales forecasts and
  factory production.