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– Selecting the structure and control
systems that are most strategically
effective for pursuing sustainable
The role of structure and control
– To coordinate strategy implementation.
– To motivate and provide incentives for superior
The Role of Organizational
Building blocks of organizational structure
– Differentiation in the allocation of people and
resources to create value.
Vertical differentiation in the
distribution of decision-making
Horizontal differentiation in
dividing up people and tasks
into functions and divisions.
The means used in coordinating people and functions
to accomplish organizational tasks.
Bureaucratic costs and strategy implementation:
– Bureaucratic costs increase with
– More differentiation = more managers.
– More integration = more coordination.
– Better strategy implementation = better bottom-line
performance and profitability.
Span of control (division of authority)
– The number of subordinates that a single manager
Organizational hierarchy choices
– Flat structures
Few organizational levels
Wide spans of control
– Tall structures
Many organizational levels
Narrow spans of control
Problems with Tall Structures
Principle of minimum chain of command
– Maintaining a hierarchy with the least number of
levels of authority needed to achieve a strategy.
Sources of bureaucratic costs:
Centralization or Decentralization
Authority patterns in organizations:
Decision making retained in the
hands of upper-level managers.
Decisions delegated to lower
levels in the organization.
Centralization (Structural) Choice?
– Reduced information
overload on upper
– Increased motivation and
– Fewer managers; lower
– Easier coordination of
– Decisions fitted to broad
– Exercise of strong
leadership in crisis.
– Faster decision making and
Focus is on division and grouping of tasks to
meet business objectives.
– Characteristic of small entrepreneurial companies.
– Entrepreneur takes on most managerial roles.
– No formal organization arrangements.
– Horizontal differentiation is low.
Structure Follows Strategy:
– Changes in corporate strategy lead to
changes in organizational structure
Structure Follows Strategy:
• New strategy is created
• New administrative problems emerge
• Economic performance declines
• New appropriate structure is invented
• Profit returns to its previous levels
Stages of corporate development
– Stage I:
– Decision making tightly controlled
– Little formal structure
– Planning short range/reactive
– Flexible and dynamic
– Stage II:
Delegation decision making
Concentration/specialization in industry
– Stage III:
Diverse product lines
Decentralized decision making
Almost unlimited resources
– Task grouping facilitates
– Better monitoring of work
processes, reduced costs.
– Greater control over
– Functional orientation
– Performance and
– Location versus function
– Strategic problems due to
structural (vertical and
– Enhanced corporate
control by division
– Enhanced strategic
control of each SBU in
– Growth is easier. New
units don’t have to be
– Stronger pursuit of
Performance of individual
units is readily
– Establishing the divisional-
– Distortion of information by
– Competition for resources
– Transfer pricing problems
– Short-term research and
– Bureaucratic costs
– Flexibility of the structure and membership
– Minimum of direct hierarchical control
– Maximizes use of employees’ skills
– Motivates employees;
frees up top management
– High bureaucratic costs
– High costs (time and money) for building
– Two-boss employee’s role conflict
Matching Chief Executive “Types” with
Business Strength/Competitive Position
Dynamic Industry Expert
Cautious Profit Planner
Managing corporate culture:
– Corporate culture
Affects firm’s ability to shift its strategic direction
Strong tendency to resist change
Corporate culture should support the strategy
– Consider the following:
Is the planned strategy compatible with the firm’s
Can the culture be easily modified to make it more
compatible with new strategy?
Is management willing to make major
Is management committed to implementing the
Managing corporate culture:
Key to effective management of change
Rationale for strategic change should be
communicated to all
What Is Organizational Culture?
– The collection of values and norms shared by people and
groups in an organization.
– Shared values and a common culture increase integration
and improve coordination.
– Beliefs and ideas about common goals and proper
– Act as guidelines or expectations that prescribe acceptable
behavior by organizational members.
Ways of transmitting organizational culture:
Culture and Strategic Leadership
The influence of the founder
– Initial cultural values and management
style is imprinted on the organization
by its founder.
– Structure follows strategy.
Strategic leadership affects
the cultural norms and values
that develop in the organization.
Strategic Reward Systems
Individual reward systems
– Piecework plans
– Commission systems
– Bonus plans
Group and organizational
– Group-based bonus systems
– Profit sharing systems
– Employee stock option systems
– Organization bonus systems