Mastering Strategic
Management
Chapter 9
Executing Strategy Through
Organizational Design
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Learning Objectives
• Understand what division of labor is and why it is
beneficial
• Distinguish between vertical & horizontal linkages,
know what functions each fulfills in an org. structure
• Differentiate among the 4 types of org. structure
• Role of Control Systems, & 3 types of control systems
• Know the strengths & weaknesses of common
management fads
• Know the various basic legal forms of business
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Jim Patterson Group Inc
• Jim Pattison Group’s now has annual sales of $8.1
billion, more than 31,000 employees, & investments in
Canada, USA, Mexico, Europe, Asia and Australia
• The organizational structure consists of 9 divisions: (1)
Food and beverage, (2) Media, (3) Entertainment, (4)
Automotive and Agriculture, (5) Periodical Distribution
and Marketing, (6) Signs, (7) Packaging, (8) Forest
Products and Port Services, and (9) Investments and
Partnerships
• The Group has been recognized over the years for its
efforts to bring positive environmental change
• INSERT PHOTO
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Horizontal & Vertical Linkages
- GE
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Executing Strategy
In the context of business, execution refers to how well a
firm such as GE implements the chosen strategies
Involves creation & operation of both appropriate org.
structure & appropriate organizational control processes.
Executives who skillfully orchestrate structure & control
are likely to lead their firms to greater levels of success.
In contrast, those executives who fail to do so are likely
to be viewed by stakeholders such as employees and
owners in much the same way Coach McKay viewed his
offense: if favor of it
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Building Blocks of Org.
Structure
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Adam Smith & Pin (Nail)
Factory
An individuals could make perhaps 20
Groups of 10 specializing could make > 48,000
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Division of Labour
• The process of splitting up a task into a series of
smaller tasks, each of which is performed by a
specialist.
• While division of labor fuels efficiency, it also creates a
challenge – figuring out how to coordinate different
tasks and the people who perform them.
• The solution is organizational structure, which is
defined as how tasks are assigned and grouped
together with formal reporting relationships.
• Creating a structure that effectively coordinates a firm’s
activities increases the firm’s likelihood of being
successful.
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Ford’s assembly line
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Challenges of Division of
Labour
• While division of labor fuels efficiency, it also creates a
challenge—figuring out how to coordinate different
tasks and the people who perform them.
• Firms must select an overall organizational structure, &
processes to coordinate how tasks are assigned
• formal reporting relationships
• Monitoring & control
• Right structure increases firm’s likelihood of success.
• and vice versa…
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Organization Chart
• Depicts org. structure, including vertical & horizontal
linkages
• Vertical linkages tie supervisors and subordinates
together and show the lines of responsibility, authority
over subordinates, oversees their activities, evaluates
their performance, and guides them toward
improvement when necessary.
• Most executives rely on the unity of command
principle when mapping out vertical linkages
• This principle states that each person should only
report directly to one supervisor. This helps to avoid
confusion.
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Horizontal Linkages
• Relationships between equals in an organization.
• Operationally, called committees, task forces, or teams!
• Horizontal linkages are of great importance when close
coordination is needed across different segments of
org.
• Informal linkages refer to unofficial relationships such
as personal friendships, rivalries, and politics.
• Understanding vertical, horizontal, and informal
linkages helps managers to better organize the
different individuals and job functions within a firm.
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Informal Linkages
Unofficial relationships
such as personal
friendships, rivalries,
and politics
Homer gains power
& influence which
far exceeds Homer’s
meager position when
Montgomery Burns,
plant owner befriends
Homer to join Homer’s bowling team
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Key Takeaways
• Division of labour (dividing organizational activities into
smaller tasks) lies at the heart of the study of
organizational structure
• Understanding vertical, horizontal, and informal
linkages helps managers to align employees and job
functions within a firm
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
9.2 Common Org. Structures
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Chapter 9: Executing Strategy Through Organizational Design
Why use a Simple
Structure?…
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
9.2 Simple Structures
Sole proprietorship, small
firms;
1 or few people do all
tasks!
Don’t rely on formal
systems for division of
labor; org. charts are not
usually needed…
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Advantages & Disadvantages
of Simple Structure
• Most companies started here…
• Suits many professionals (doctor, lawyer, etc)
• Advantages:
•
•
•
•
Flexibility, informal
Quick and nimble
encourages employees’ creativity & individualism
Easy communication
• Disadvantages
• Limited capacity
• Slip through the cracks – important tasks may be ignored
• Communications strategy and culture important
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Evolution & Growth –
Functional Structure
• Organizations become more complex as they grow,
requiring more formal division of labour and stronger
emphasis on hierarchy and vertical linkages
• In many cases, firms evolve from using a simple
structure to relying on a more formal functional
structure
• Employees divided into departments that each handle
activities related to one area of business
• such as marketing, production, human resources, information
technology, and customer service
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Functional Structure –
A Natural Progression
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Chapter 9: Executing Strategy Through Organizational Design
Functional Structure A Natural Progression
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Dis/Advantages of Functional
Structure
• Advantages of functional structure:
• Each person tends to learn a great deal about their particular
function & dept, including specialists
• Synergy of all similar employees into one department tends to
keep costs low and create efficiency
• Conflicts are rare
• Disadvantages of functional structure:
• Executing strategic changes can be very slow
• Inter-departmental communications (silos)
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Multi-Divisional Structure
In multidivisional structures, employees are divided into divisions
based on product areas &/or geographic regions
Advantages – faster reaction to local conditions
Disadvantages – actions may fail to fully reflect corporate
goals/strategies, higher costs, consistency across divisions
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
GE Multidivisional Structure
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Chapter 9: Executing Strategy Through Organizational Design
Coordination/Communications
Problems can be created when delegating too much
authority to local divisions
McDonald’s top executives were surprised when an ad
by their French division suggested that children should
only eat at McDonalds once a week!
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Dis/Advantages of
Multidivisional Structure
• Advantages:
• Greater awareness of local conditions
• Speed of execution
• Division focused on limited product/service(s) or geographic
region
• Disadvantages:
• Headquarters / region communications gaps
• Regional actions / activities not aligned with Corporate
strategy
• Higher costs (duplication of corporate services)
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Matrix Structure
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Advantages and Disadvantages
of Matrix Structure
• Advantages:
•
•
•
•
Maximizing the organization’s flexibility
Enhancing communication across functional lines
Creating a spirit of teamwork & collaboration
Developing new managers
• Disadvantages:
• Violates the unity of command principle because each
employee is assigned multiple bosses
• Potential for priority conflicts between bosses
• Potential for employee shirking (claim to be working for ‘other’
boss), and ‘free-riding’ on teams
• conflicts between project managers for resources
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Committee Meetings
• Yes, sometimes a little boring…
• But key in sharing org. information, goals, and working
(effectively) together…
• As org complexity grows, internal communications
must also improve
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Chapter 9: Executing Strategy Through Organizational Design
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Making Boundary-less Org
Work!
Factors facilitating effective coordination & integration of
key activities
• Common culture & shared values
• Horizontal organization structures
• Horizontal systems & processes
• Communications & information technologies
• Human resource practices
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Gore (Gortex) & Boundaryless
Mgmt
New Orleans
Can easily go wrong too
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Reasons for Changing an
Organization’s Structure
• Creating the right org structure is not a 1-time activity
• Executives must occasionally revisit firm’s organization to
ensure optimum structure in place
• Structure might need to be adjusted if decisions are
being made too slowly or if the organization is
performing poorly
• Growth may dictate moving to semi or completely
autonomous sub-firms
• Alternatively, sometimes structures become too
complex and need to be simplified
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Key Takeaways
• Division of labour, how best to divide org. activities into
smaller tasks, lies at the heart of org structure
• None (0, 1 or handful of employees), Functional, MultiDivisional and Matrix are common choices
• Each structure has unique advantages, and the
selection of structures involves a series of trade-offs.
• Understanding vertical, horizontal, and informal
linkages is also critical in coordinating individuals & job
functions across the firm
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
For teaching in two 90minute classes/wk,
possible break point
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Control Systems 101
External control systems
• Law & Govt Regulations
• HR, finance, information, environment,
transportation, safety…
• Company policies & rules
• Standardized processes & procedures
• Quality Assurance
• Culture & discipline
• Market feedback (warrantee claims, complaints)
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Creating Org. Control Systems
Organizational control systems: Allow executives to
track how well org is performing, identify areas of
concern, & take action to address the concerns
• 3 basic types of control systems are:
• Output
• Behavioral
• Clan
• Different organizations emphasize different types of
control, but most organizations use a mix of all 3 types
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Creating Organizational
Control Systems
• Output control: Control that focuses on the desired
RESULTS… Must be measurable, SMART helps!
• Behavioral control: Control that focuses on controlling
the actions that ultimately lead to results
• Clan control: Informal type of control that relies on
shared traditions, expectations, values, & norms to
lead people to work toward the goals of their
organization
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Chapter 9: Executing Strategy Through Organizational Design
Output Control
Focuses on measurable results
• executives must decide what level of performance is acceptable,
communicate to employees, track whether performance meets
expectations, and adjust if required
Hey, where’s my
paycheck?
[Lost in the mail!]
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Output Example - Delta
• Only 77.4% of Delta’s
• arrived on time (2010)
• Rank dead last among the major US
airlines and fifteenth out of eighteen
total carriers.[12]
• In response, Delta
• Increased ability to service airplanes
• provided employees more customer
service training
• 24/7 Twitter account - Delta Assist - help
passengers whose flights are delayed
• PS, What message did Staff receive?
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Chapter 9: Executing Strategy Through Organizational Design
Behavior Control Systems
Behavioral control focus on controlling behavior / actions
that ultimately lead to results
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Chapter 9: Executing Strategy Through Organizational Design
Clan Control
Clan control informal type of control, which focuses on
controlling actions that ultimately lead to results
• Specifically, clan control relies on shared traditions,
expectations, values, & norms
• Often used in settings where creativity is vital, such as
many high-tech firms, where output is harder to
monitor, & extensive rules are counter-productive
• The creativity of a research scientist would be likely to
be stifled, for example, if she were given a quota of
patents that she must meet each year (output control)
or if a strict dress code were enforced (behavioral
control)
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Clan Control
• Clan control relies on
shared traditions,
expectations, values, &
norms
• (Not bureaucratic control)
• Higher degree of
operational latitude,
relying on commonly held
goals and behavioral
expectation to product
desired strategic
outcomes
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Org Culture – Every Org has
one
Examples include dress styles, work hours, pride in
work, social events, celebrations, valued skills & abilities,
etc.
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Management Fads –
Management by Objectives
Management by Objectives (Drucker
1954)
• Manager & employee identify
key goals, structure &
motivation tools
• Studies show challenging but
attainable goals increase
performance
• Simply setting goals often leads
to focus, & achieving them too!
• But not everything can by
captured by a goal…
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Chapter 9: Executing Strategy Through Organizational Design
Other Management Fads…
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Key Books
(1982)
• A bias for action
• Close to the customer
• Autonomy and entrepreneurship
• Productivity through people
• Hands-on, value driven
• Stick to the knitting
• Simple Form, lean staff
• Simultaneous loose – tight properties
But turns out yesterday’s success not a
great predictor of tomorrow’s success…
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Control vs Motivation
While text warns us that while spirited games of kickball
can help build an organization’s culture, such events
should not substitute for holding employees accountable
for delivering results
But, don’t overlook motivational effects on employees!
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Key Takeaways
• Org control systems are a vital aspect of executing
strategy because they track performance & identify
adjustments that need to be made
• Output controls involve identifying measurable results
• Behavioral controls focus on improving activities rather
than outcomes
• Clan control relies on a common set of shared values,
expectations, traditions, & norms
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Legal Forms of Business
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
Legal Forms of Business
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design
In Conclusion
This chapter explained elements of organizational design
that are vital for executing strategy including:
• How to best divide labour, vertical & horizontal linkages
• The optimum organization structure: functional,
multidivisional or matrix
• Right combination of control systems: output,
behavioral, & clan controls
• Management Fads and Legal business forms
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Mastering Strategic Management
Chapter 9: Executing Strategy Through Organizational Design