10-1
STRATEGIC MANAGEMENT 
CHAPTER 10
Gregory G. Dess and G. T. Lumpkin
Chapter 10
Creating Effective
Organizational
Designs
McGraw-Hill/Irwin
Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
10-3
Learning
Objectives
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
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Gregory G. Dess and G. T. Lumpkin
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Exhibit 10.1
Growth Patterns of Large Corporations
Phase 1
Strategy: Low revenue base; simple product-market scope
Structure: Simple
Phase 2
Strategy: Increase in revenues; engage in vertical integration
Structure: Functional
Phase 3
Strategy: Expand into new, related product-markets and/or geographical areas
Structure: Divisional
Phase 4
Strategy: Expand into international markets
Structure: International Division, Geographic Area, Worldwide Product
Division, Worldwide Functional, or Worldwide Matrix
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Gregory G. Dess and G. T. Lumpkin
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Exhibit 10.2
Functional Structure
Chief Executive
Officer or President
Manager
Manager
Manager
Production Engineering Marketing
Manager
R&D
Manager
Manager
Personnel Accounting
Lower-level managers, specialists, and operating personnel
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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
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• 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
Gregory G. Dess and G. T. Lumpkin
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Exhibit 10.3
Divisional Structure
Chief Executive
Officer or
President
Corporate Staff
Manager
Production
Manager
Engineering
Division A
Division B
Division C
General Manager
General Manager
General Manager
Manager
Marketing
Manager
R&D
Manager
Personnel
Manager
Accounting
Lower-level managers, specialists, and operating personnel
Organized
similarly to
Division 1
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Organized
similarly to
Division 1
Gregory G. Dess and G. T. Lumpkin
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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
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• 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 shortterm performance
Gregory G. Dess and G. T. Lumpkin
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Exhibit 10.4
Matrix Structure
Chief Executive
Officer or
President
Manager
Administration
and Human
Resources
Manager
Projects
Manager
Manufacturing
Manager
Engineering
Corporate
Staff
Manager
Marketing
Manager Public
Relations
Project A
Project B
Project C
Project D
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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
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• 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
Gregory G. Dess and G. T. Lumpkin
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The Multi-Divisional Structure
Chief Executive Officer
Corporate Office (Staff)
North
America
Europe
Asia
Latin
America
Product A
Product B
Product C
Product D
Africa
Australia
A structure based on geographic lines usually
implies a multi-domestic international strategy
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The Multi-Divisional Structure
Chief Executive Officer
Corporate Office (Staff)
Product A
Product B
Product C
Product D
A structure based on product lines usually
implies a global international strategy
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The Multi-Divisional Structure
A Transnational International Strategy
is likely to utilize a structure that results in
emphasis on
both geographic and product structures
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Boundaryless Organizational Designs
Barrier-Free -Under-defined
-Fluid
-Team-based
Modular
-Value-Chain, not Hierarchy
-Specialization and Outsourcing
Virtual
STRATEGIC MANAGEMENT 
-The Organization as a Dynamic
Network
-Strategic Alliances
-Networking
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Exhibit 10.6
Pros and Cons of the Barrier-Free
Organization
Pros
Cons
• Leverages the talents of all
employees
• Enhances cooperation,
coordination, and informationsharing 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-tomanage democratic processes
• A lack of high levels of trust can
impede performance
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Exhibit 10.7
Pros and Cons Of the Modular
Organization
Pros
• 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
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Cons
• 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 crossfunctional skills
• Decreases operational control and
potential loss of control over a
supplier
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Exhibit 10.8
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 knowledgesharing 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-toacquire managerial skills
STRATEGIC MANAGEMENT 
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Gregory G. Dess and G. T. Lumpkin