chapter 10 strategic management gregory g. dess and g. t. lumpkin 10-1

CHAPTER 10STRATEGIC MANAGEMENT Gregory G. Dess and G. T. Lumpkin

10-1

McGraw-Hill/Irwin Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

Creating Effective Organizational

Designs

Chapter 10

CHAPTER 10STRATEGIC MANAGEMENT Gregory G. Dess and G. T. Lumpkin

10-3 After studying this chapter, you should have a good understanding of:

• The importance of organizational structure and the concept of the boundaryless organization in implementing strategies

• The growth patterns of major corporations and the relationship between a firm’s strategy and its structure

• Each of the traditional types of organizational structure—simple, functional, divisional, and matrix

• The relative advantages and disadvantages of traditional organizational structures

• The implications of a firm’s international operations for organizational structure

• The different types of boundaryless organizations—barrier-free, modular, and virtual—and their advantages and disadvantages

Learning Objectives

CHAPTER 10STRATEGIC MANAGEMENT Gregory G. Dess and G. T. Lumpkin

10-4Exhibit 10.1 Growth Patterns of Large Corporations

Phase 1Strategy: Low revenue base; simple product-market scopeStructure: Simple

Phase 2Strategy: Increase in revenues; engage in vertical integrationStructure: Functional

Phase 3Strategy: Expand into new, related product-markets and/or geographical

areasStructure: Divisional

Phase 4Strategy: Expand into international marketsStructure: International Division, Geographic Area, Worldwide Product

Division, Worldwide Functional, or Worldwide Matrix

Phase 1Strategy: Low revenue base; simple product-market scopeStructure: Simple

Phase 2Strategy: Increase in revenues; engage in vertical integrationStructure: Functional

Phase 3Strategy: Expand into new, related product-markets and/or geographical

areasStructure: Divisional

Phase 4Strategy: Expand into international marketsStructure: International Division, Geographic Area, Worldwide Product

Division, Worldwide Functional, or Worldwide Matrix

CHAPTER 10STRATEGIC MANAGEMENT Gregory G. Dess and G. T. Lumpkin

10-5 Functional Structure

Chief Executive Officer or President

Manager Production

Manager Engineering

Manager Marketing

Manager R&D

Manager Personnel

Manager Accounting

Lower-level managers, specialists, and operating personnel

Exhibit 10.2

CHAPTER 10STRATEGIC MANAGEMENT Gregory G. Dess and G. T. Lumpkin

10-6 Functional Structure

Advantages Disadvantages• Pooling of specialists

enhances coordination and control

• Centralized decision making enhances an organizational perspective across functions

• Efficient use of talent• Career paths and

professional development in specialized areas are facilitated

• Differences in functional orientations impede communication and coordination

• Tendency for specialists to develop a short-term perspective and a narrow functional orientation

• Functional area conflicts may overburden top level decision makers

• Difficult to establish uniform performance standards

CHAPTER 10STRATEGIC MANAGEMENT Gregory G. Dess and G. T. Lumpkin

10-7Divisional Structure

Chief Executive Officer or President

Corporate Staff

Division A

General Manager

Division B

General Manager

Division C

General Manager

Manager Production

Manager Engineering

Manager Marketing

Manager R&D

Manager Personnel

Manager Accounting

Organized similarly to Division 1

Organized similarly to Division 1

Lower-level managers, specialists, and operating personnel

Exhibit 10.3

CHAPTER 10STRATEGIC MANAGEMENT Gregory G. Dess and G. T. Lumpkin

10-8 Divisional Structure Advantages Disadvantages

• Increases strategic and operational control, permits executives to address strategic issues

• Quick response to environmental changes

• Increased focus on products and markets

• Minimizes problems associated with sharing resources across functions

• Facilitates development of general managers

• Increased costs incurred through duplication of personnel, operations, and investment

• Dysfunctional competition among divisions may detract from corporate performance

• Difficulty in maintaining uniform corporate image

• Overemphasis on short-term performance

CHAPTER 10STRATEGIC MANAGEMENT Gregory G. Dess and G. T. Lumpkin

10-9Matrix Structure

Chief Executive Officer or President

Corporate Staff

Manager Administration

and Human Resources

Manager Projects

Manager Manufacturing

Manager Engineering

Manager Marketing

Manager Public Relations

Project A

Project B

Project C

Project D

Exhibit 10.4

CHAPTER 10STRATEGIC MANAGEMENT Gregory G. Dess and G. T. Lumpkin

10-10 Matrix Structure Advantages Disadvantages

• Increases market responsiveness through collaboration and synergies

• Allows more efficient utilization of resources

• Improves flexibility, coordination, and communication

• Increases professional development through broader responsibilities

• Dual reporting relationships can result in uncertainty regarding accountability

• Intense power struggles may lead to increased levels of conflict

• Working relationships may be more complicated and resources duplicated

• Excessive reliance on teamwork may impede timely decision making

CHAPTER 10STRATEGIC MANAGEMENT Gregory G. Dess and G. T. Lumpkin

10-11

A structure based on geographic lines usually implies a multi-domestic international strategy

The Multi-Divisional StructureThe Multi-Divisional Structure

North America

AustraliaEurope AsiaLatin

AmericaAfrica

Product A Product B Product C Product D

Chief Executive OfficerChief Executive OfficerChief Executive OfficerChief Executive Officer

Corporate Office (Staff)Corporate Office (Staff)Corporate Office (Staff)Corporate Office (Staff)

CHAPTER 10STRATEGIC MANAGEMENT Gregory G. Dess and G. T. Lumpkin

10-12

Product A Product B Product C Product D

A structure based on product lines usually implies a global international strategy

The Multi-Divisional StructureThe Multi-Divisional Structure

Chief Executive OfficerChief Executive OfficerChief Executive OfficerChief Executive Officer

Corporate Office (Staff)Corporate Office (Staff)Corporate Office (Staff)Corporate Office (Staff)

CHAPTER 10STRATEGIC MANAGEMENT Gregory G. Dess and G. T. Lumpkin

10-13

A Transnational International Strategyis likely to utilize a structure that results in

emphasis on both geographic and product structures

The Multi-Divisional StructureThe Multi-Divisional Structure

CHAPTER 10STRATEGIC MANAGEMENT Gregory G. Dess and G. T. Lumpkin

10-14 Boundaryless Organizational Designs

Barrier-Free -Under-defined -Fluid -Team-based

Modular -Value-Chain, not Hierarchy

-Specialization and Outsourcing

Virtual -The Organization as a Dynamic Network

-Strategic Alliances

-Networking

CHAPTER 10STRATEGIC MANAGEMENT Gregory G. Dess and G. T. Lumpkin

10-15 Pros and Cons of the Barrier-Free Organization

Pros Cons• Leverages the talents of all

employees• Enhances cooperation,

coordination, and information-sharing with internal and external constituencies

• Enables a quicker response to market changes

• Difficult to overcome political and authority boundaries both inside and outside the organization

• A lack of leadership and vision can lead to coordination problems.

• Time-consuming and difficult-to-manage democratic processes

• A lack of high levels of trust can impede performance

Exhibit 10.6

CHAPTER 10STRATEGIC MANAGEMENT Gregory G. Dess and G. T. Lumpkin

10-16 Pros and Cons Of the Modular Organization

Pros Cons• Directs a firm to its critical

activities• Maintains full strategic control

over most the critical activities—core competencies

• Achieves “best in class” performance throughout the value chain

• Leverages core competencies by outsourcing with smaller capital commitment

• Encourages information sharing and accelerates organizational learning

• Inhibits common vision through reliance on outsiders

• Diminishes future competitive advantages if critical technologies or competences are outsourced

• Increases the difficulty of bringing activities back into the firm

• May lead to an erosion of cross-functional skills

• Decreases operational control and potential loss of control over a supplier

Exhibit 10.7

CHAPTER 10STRATEGIC MANAGEMENT Gregory G. Dess and G. T. Lumpkin

10-17 Pros and Cons of the Virtual Organization

Pros Cons• Enables the sharing of costs,

skills, risks• Enhances access to global

markets• Increases market responsiveness• Creates a “best of everything”

organization since each partner brings their core competencies

• Encourages both individual and organizational knowledge-sharing and accelerates organizational learning

• Harder to determine where one company ends and another begins due to close interdependencies

• 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

Exhibit 10.8