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Strategy and Structure

This document discusses different types of organizational structures that firms can adopt, including hierarchies, functional structures, multidivisional structures, matrix structures, and network structures. It explains that organizational structure must fit with organizational strategy. Complex organizational forms like matrix and multidivisional structures allow firms to address departmentalization and coordination needs when tasks are interdependent. The optimal structure depends on factors like an organization's goals, tasks, information requirements, and environmental contingencies.

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Lisa
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582 views

Strategy and Structure

This document discusses different types of organizational structures that firms can adopt, including hierarchies, functional structures, multidivisional structures, matrix structures, and network structures. It explains that organizational structure must fit with organizational strategy. Complex organizational forms like matrix and multidivisional structures allow firms to address departmentalization and coordination needs when tasks are interdependent. The optimal structure depends on factors like an organization's goals, tasks, information requirements, and environmental contingencies.

Uploaded by

Lisa
Copyright
© © All Rights Reserved
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Strategy and Structure

Major kinds of organizational form


Simple tasks performed by a small group of
people can be structured in several ways:
Individually
Self-managed team
Hierarchy of authority

Complex Hierarchies
involve organizing large numbers of groups

within extensive and potentially overlapping


schemes
arises from the need not just to organize
individuals into groups, but to organize groups
into larger groups
Complex hierarchies are designed to address
the following two issues :
- Departmentalization
- Coordination of activities
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Departmentalization
Formal groupings in large organizations can

be based on functional areas, geography,


products, types of customers and so on
A firm should decide on the organizing

dimensions based on
o economies of scale and scope
o transactions costs
o agency costs
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Coordination and Control


Coordination involves

the flow of information to facilitate decisions that


further the organizations objectives and
the distribution of decision making rights and rule
making authority within the organization.
Coordination and control choices will affect both

technical efficiency and agency efficiency.

Organizational Structure & Controls


Some structural characteristics defined
Specialization
Centralization
Formalization
Other structural characteristics

Authority, Responsibility, Degree of Integration, how


Coordination is achieved, Reporting relationships,
Standardization

The Relationship Between Strategy and


Structure
Modifying current strategy or selecting a new one calls for

changes to organizational structure


Reciprocal relationship - change to one causes change in
the other
No one structure is superior to the others

No best or optimal structure for all firms

Strategy-structure fit can lead to a competitive advantage

and above average returns


Structure must match strategy
Structural choice should be based on control, coordination,
and motivation issues
Several structure forms can be used to implement
strategies
7

Organizational Structure
Types of organizational structures

Unitary Functional Structure (U-form)

Multidivisional (M-form)

Matrix Structure

Network Structure

U-form
Each department in the firm is responsible for a

particular functional area such as finance or


marketing.
U-form promotes performance within the department

but makes coordination across departments difficult.


The unitary functional structure is suitable for stable

conditions when operating efficiency is the prime


consideration.
9

The Functional (U-form) Structure

10

M-form
The multidivisional firm is organized along

such dimensions as
- product line
- geography or
- type of customers
Divisional managers will be responsible for
operating decisions and the top management
will handle strategic decisions.
11

The Multidivisional (M-form)


Structure

12

Advantages of the M-form


Measuring divisional performance is easier

under M-form.
Pay for performance schemes are easier to
implement in managerial compensation.
Divisional managers compete for funds in the
internal capital markets based on their
operating performance in the past.

13

Matrix Structure
A firm that uses a matrix structure is

organized along two (or more) dimensions for example, product line and geography.
In a two-dimensional matrix, an employee
belongs to two hierarchies and has two
bosses.
The demands of competing dimensions
should be roughly equal.

14

Matrix Structure

15

Advantages of Matrix Structure


Matrix structure can help exploit economies of scale and

scope.
A firm may need national coordination to achieve
economies of scale for manufacturing a particular
product and regional coordination to negotiate with large
buyers for different products.
Matrix structure allows a firm to economize on scarce
human resources
Having a firm wide engineering department (or
marketing department) will be more efficient than
maintaining a separate engineering group for each
product.
16

Network Structure
Designed around the worker rather than the

task.
Workers or worker groups contribute to
multiple organizational tasks.
Work groups are reconfigured when the tasks
change.
Network of autonomous firms can function as
a virtual firm.

17

Network Structure

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Network Structure
Preferred when coordination costs do not outweigh

the gains in technical efficiency.


Facilitates the flow of diverse information, leading to
high level of new product development in high
technology companies
Becoming more popular as the cost of organizing has
fallen.
Internet provides a less expensive infrastructure for
network organizations than traditional means of data
exchange.
19

Organizational Structure & Controls


Organizational Controls

Guide the use of strategy, indicate how to compare actual


results with expected results, and suggest corrective actions
to take when the difference is unacceptable
Are an important aspect of structure
Help managers recognize when it is time to adjust structure
Firms use strategic, financial, and behavioral controls to
support their strategies

20

Contingency theory
Three factors that affect the relative efficiency

of different structures
Technology and task interdependence
Information flow
The tension between integration and
differentiation
Contingency factors are not sufficient for
understanding a firm structure.
21

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