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Week 11 – Organizational Structure and Control – Chapter eleven ?

The purpose of this chapter is to present and discuss how organizational structures are used to implement business-level and international level strategies. Discuss the various strategies your company uses.

1.      Identify your company.

2.      Describe your company’s organizational network, structure, and controls.

3.      Explain how their structure impacts their strategy.

4.      Recount how they came to be what they are today and why.

5.      Evaluate the effectiveness of their configuration. What did they do well, what could they have done differently?

Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
CHAPTER
11
Organizational Structure and Controls
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
LEARNING OBJECTIVES
Studying this chapter should provide you with the strategic management
knowledge needed to:
11-1
Define organizational structure and controls and discuss the difference
between strategic and financial controls.
11-2
Describe the relationship between strategy and structure.
11-3
Discuss the different functional structures used to implement businesslevel strategies.
11-4
Explain the use of three versions of the multidivisional (M-form) structure
to implement different diversification strategies.
11-5
Discuss the organizational structures used to implement three
international strategies.
11-6
Define strategic networks and discuss how strategic center firms
implement such networks at the business, corporate, and international
levels.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-1 Organizational Structure
and Controls
• Research evidence suggests that performance
declines when the firm’s strategy is not matched
with the most appropriate structure and controls.
• Organizational structure essentially specifies the
functions that must be completed so the firm can
implement its strategy.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-1a Organizational Structure
(slide 1 of 3)
• Organizational structure specifies the firm’s formal
reporting relationships, procedures, controls, and
authority and decision-making processes.
• A firm’s structure determines and specifies:
• The decisions that are to be made
• The work that is to be completed by everyone within an
organization as a result of those decisions
• Helping the firm effectively cope with environmental
uncertainty is an important contribution organizational
structure makes to a firm as it seeks to successfully
implement its strategy or strategies as a means of
outperforming competitors.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-1a Organizational Structure
(slide 2 of 3)
• Appropriately designed organizational structures provide
the stability a firm needs to successfully implement its
strategies and maintain its current competitive
advantages while simultaneously providing the flexibility
to develop advantages it will need in the future.
• Structural stability provides the capacity the firm requires to
consistently and predictably manage its daily routines.
• Structural flexibility makes it possible for the firm to identify
opportunities and then allocate resources to pursue them as a
way of being prepared to succeed in the future.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-1a Organizational Structure
(slide 3 of 3)
• Modifications to the firm’s current strategy or
selection of a new strategy call for changes to its
organizational structure.
• However, research shows that once in place,
organizational inertia often inhibits efforts to change
structure, even when the firm’s performance suggests
that it is time to do so.
• Because of organizational inertia, structural change is often
induced by actions from stakeholders who are no longer
willing to tolerate the firm’s performance.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-1b Organizational Controls
(slide 1 of 4)
• 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.
• It is difficult for a firm to successfully exploit its
competitive advantages without effective organizational
controls.
• The two types of organizational controls used to support
the implementation of a strategy are:
1. Strategic controls
2. Financial controls
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-1b Organizational Controls
(slide 2 of 4)
• Strategic controls are largely subjective criteria
intended to verify that the firm is using appropriate
strategies for the conditions in the external environment
and the company’s competitive advantages.
• Strategic controls:
• Are concerned with examining the fit between what the firm might
do (as suggested by opportunities in its external environment) with
what it can do (as indicated by its internal organization in the form of
its resources, capabilities, and core competencies)
• Demand rich communications between managers responsible for
using them to judge the firm’s performance and those with primary
responsibility for implementing the firm’s strategies
• Are used to evaluate the degree to which the firm focuses on the
requirements to implement its strategies
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-1b Organizational Controls
(slide 3 of 4)
• Financial controls are largely objective criteria used to
measure the firm’s performance against previously
established quantitative standards.
• When using financial controls, firms evaluate their current
performance against:
• Previous outcomes
• Competitors’ performance
• Industry averages
• Examples of financial controls include:
• Return on investment (ROI)
• Return on assets (ROA)
• Economic value added
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-1b Organizational Controls
(slide 4 of 4)
• The relative use of controls varies by type of strategy.
• Financial controls are emphasized by companies using:
• The cost leadership strategy
• An unrelated diversification strategy (where activities or capabilities
are not shared)
• Strategic controls are emphasized by companies using:
• The differentiation strategy
• A related diversification strategy
• Any structure’s effectiveness is determined using a
“balanced” combination of strategic and financial controls.
• Those determining how strategies are to be implemented must
keep the relative degrees of balance between controls by type of
strategy in mind when making implementation-related decisions.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-2 Relationships between
Strategy and Structure (slide 1 of 2)
• Strategy and structure have a reciprocal
relationship.
• In general, structure flows from or follows selection of
the firm’s strategy.
• Once in place though, structure can influence current
strategic actions as well as choices about future strategies.
• Overall, the effect of strategy on structure is stronger than is the
effect of structure on strategy.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-2 Relationships between
Strategy and Structure (slide 2 of 2)
• Regardless of the strength of the reciprocal
relationships between strategy and structure,
those choosing the firm’s strategy and structure
should be committed to matching each strategy
with a structure that provides:
• The stability needed to use current competitive
advantages
• The flexibility required to develop future advantages
• Properly matching strategy and structure can
create a competitive advantage.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-3 Evolutionary Patterns of Strategy
and Organizational Structure (slide 1 of 2)
• Sales growth creates coordination and control
problems the existing organizational structure
cannot efficiently handle.
• Organizational growth creates the opportunity
for the firm to change its strategy to become
even more successful.
• However, the existing structure’s formal reporting
relationships, procedures, controls, and authority and
decision-making processes lack the sophistication
required to support using the new strategy, meaning
that a new organizational structure is needed.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-3 Evolutionary Patterns of Strategy
and Organizational Structure (slide 2 of 2)
• Firms choose from among three major types of
organizational structures to implement strategies:
1. Simple
2. Functional
3. Multidivisional
• Across time, successful firms move from the simple, to
the functional, to the multidivisional structure to support
changes in their growth strategies.
• No single organizational structure is inherently superior
to the other.
• The firm must select a structure that is a proper match for its
chosen strategy.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Figure 11.1
Strategy and Structure Growth Pattern
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-3a Simple Structure
• The simple structure is a structure in which the owner-manager
makes all major decisions and monitors all activities, while the staff
serves as an extension of the manager’s supervisory authority.
• Characteristics of the simple structure include the following:
•
•
•
•
Informal relationships
Few rules
Limited task specialization
Unsophisticated information systems
• Focus strategies, often used in small firms, require a simple
structure until such time that the firm diversifies in terms of products
and/or markets.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-3b Functional Structure
• The functional structure consists of a chief executive
officer and a limited corporate staff, with functional line
managers in dominant organizational areas such as
production, accounting, marketing, R&D, engineering,
and human resources.
• The functional structure:
• Allows for functional specialization, thereby facilitating active
sharing of knowledge within each functional area
• Can negatively affect communication and coordination among
those representing different organizational functions
• Supports implementing business-level strategies and some
corporate-level strategies (e.g., single or dominant business)
with low levels of diversification
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-3c Multidivisional Structure
(slide 1 of 2)
• The multidivisional (M-form) structure consists of a corporate
office and operating divisions, each operating division representing
a separate business or profit center in which the top corporate
officer delegates responsibilities for day-to-day operations and
business-unit strategy to division managers.
• Each division represents a distinct, self-contained business with its own
functional hierarchy.
• As initially designed, the M-form was thought to have three major
benefits:
1. It enabled corporate officers to more accurately monitor the
performance of each business, which simplified the problem of control.
2. It facilitated comparisons between divisions, which improved the
resource allocation process.
3. It stimulated managers of poorly performing divisions to look for ways of
improving performance.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-3c Multidivisional Structure
(slide 2 of 2)
• Active monitoring of performance through the
M-form increases the likelihood that decisions
made by managers heading individual units will
be in stakeholders’ best interests.
• The M-form:
• Is a widely adopted organizational structure due to
the fact that diversification is a dominant corporatelevel strategy used in the global economy
• Is used to support implementation of related and
unrelated diversification strategies
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-3d Matches between Business-Level Strategies
and the Functional Structure (slide 1 of 5)
• Firms use different forms of the functional organizational
structure to support implementing the cost leadership,
differentiation, and integrated cost leadership/
differentiation strategies.
• The differences in these forms are accounted for primarily by
different uses of three important structural characteristics:
1. Specialization (concerned with the type and number of jobs
required to complete work)
2. Centralization (the degree to which decision-making authority is
retained at higher managerial levels)
3. Formalization (the degree to which formal rules and procedures
govern work)
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-3d Matches between Business-Level Strategies
and the Functional Structure (slide 2 of 5)
Using the Functional Structure to Implement the Cost Leadership
Strategy
• The cost leadership form of the functional structure is characterized by:
•
•
•
•
•
•
•
•
•
Simple reporting relationships
A few layers in the decision-making and authority structure
A centralized corporate staff
A strong focus on process improvements through manufacturing rather
than the development of new products by emphasizing product R&D
A low-cost culture in which employees constantly try to find ways to
reduce the costs incurred to complete their work
Centralized decision making
Highly specialized jobs
The division of work into homogeneous subgroups
Highly formalized rules and procedures
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Figure 11.2
Functional Structure for Implementing a Cost Leadership Strategy
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-3d Matches between Business-Level Strategies
and the Functional Structure (slide 3 of 5)
Using the Functional Structure to Implement the Differentiation
Strategy
• The differentiation form of the functional structure is characterized by:
• Relatively complex and flexible reporting relationships
• Frequent use of cross-functional product development teams
• A strong focus on marketing and product R&D rather than
manufacturing and process R&D
• A development-oriented culture and flatter structure in which employees
try to find ways and frequently exchange ideas about how to further
differentiate current products and develop new, highly differentiated
products
• Decentralized decision-making responsibility and authority
• Low specialization of jobs
• Few formal rules and procedures
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Figure 11.3
Functional Structure for Implementing a Differentiation Strategy
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-3d Matches between Business-Level Strategies
and the Functional Structure (slide 4 of 5)
Using the Functional Structure to Implement the
Integrated Cost Leadership/Differentiation Strategy
• The integrated cost leadership/differentiation strategy:
• Is used by firms to sell products that create value because of
their relatively low cost and reasonable sources of differentiation
• Is used frequently in the global economy
• Is challenging to implement due largely to the fact that different
value chain and support activities are emphasized
• To achieve the cost leadership position, production and process
engineering need to be emphasized, with infrequent product
changes.
• To achieve a differentiated position, marketing and new product
R&D need to be emphasized while production and process
engineering are not.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-3d Matches between Business-Level Strategies
and the Functional Structure (slide 5 of 5)
• The cost leadership/differentiation form of the functional
structure is characterized by:
• Decision-making patterns that are partially centralized and
partially decentralized
• Semispecialized jobs
• Rules and procedures that call for some formal and some
informal job behavior
• A measure of flexibility to emphasize one or the other set of
functions at any given time
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-3e Matches between Corporate-Level Strategies
and the Multidivisional Structure (slide 1 of 8)
• A firm’s continuing success leads to product or market
diversification or both.
• Increasing diversification eventually creates information
processing, coordination, and control problems that the
functional structure cannot handle.
• Thus, using a diversification strategy requires the firm to change
from the functional structure to the multidivisional structure to form
an appropriate strategy/structure match.
• Corporate-level strategies have different degrees of
product and market diversification.
• The demands created by different levels of diversification
highlight the need for a unique organizational structure to
effectively implement each strategy.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Figure 11.4
Three Variations of the Multidivisional Structure
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-3e Matches between Corporate-Level Strategies
and the Multidivisional Structure (slide 2 of 8)
Using the Cooperative Form of the Multidivisional Structure to
Implement the Related Constrained Strategy
• The cooperative form is an M-form structure in which horizontal
integration is used to bring about interdivisional cooperation.
• Divisions in a firm using the related constrained diversification
strategy are formed around products, markets, or both.
• The related constrained strategy finds a firm sharing resources and
activities across its businesses in order to develop economies of
scope.
• The cooperative structure uses different characteristics of structure
(centralization, standardization, and formalization) as integrating
mechanisms to facilitate interdivisional cooperation.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-3e Matches between Corporate-Level Strategies
and the Multidivisional Structure (slide 3 of 8)
• Ultimately, a matrix organization may evolve in firms implementing
the related constrained strategy.
• A matrix organization is an organizational structure in which there is a
dual structure combining both functional specialization and business
product or project specialization.
• The success of the cooperative multidivisional structure is
significantly affected by how well divisions process information.
• To foster cooperation among divisions, divisional incentives should
be linked to overall corporate performance.
•
When managerial rewards are based at least in part on the performance
of individual divisions, the manager that is able to benefit the most from
the sharing of corporate competencies might be viewed as receiving
relative gains at others’ expense.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Figure 11.5
Cooperative Form of the Multidivisional Structure
for Implementing a Related Constrained Strategy
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-3e Matches between Corporate-Level Strategies
and the Multidivisional Structure (slide 4 of 8)
Using the Strategic Business Unit Form of the Multidivisional
Structure to Implement the Related Linked Strategy
• The strategic business unit (SBU) form is an M-form consisting of
three levels:
1. Corporate headquarters
2. Strategic business units (SBUs)
3. SBU divisions
• The SBU structure is used by large firms and can be complex, given
associated organization size and product and market diversity.
• The divisions within each SBU:
• Are related in terms of shared products or markets or both, but have
little else in common
• Share product or market competencies to develop economies of scope
and possibly economies of scale
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-3e Matches between Corporate-Level Strategies
and the Multidivisional Structure (slide 5 of 8)
• In this structure, each SBU is a profit center that is controlled and
evaluated by the headquarters office.
• Financial controls are vital to headquarters’ evaluation of each SBU.
• Strategic controls are critical to headquarters’ efforts to:
•
•
•
Evaluate divisions’ performances
Evaluate the quality of the portfolio of businesses that have been
formed
Determine if those businesses are being successfully managed
• There are disadvantages associated with the SBU form of the
multidivisional structure.
• Firms using the related linked diversification strategy and SBU structure
combination find it difficult to effectively communicate the value of their
operations to shareholders and other investors due to its complexity.
• The SBU structure does not foster cooperation across SBUs.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Figure 11.6
SBU Form of the Multidivisional Structure
for Implementing a Related Linked Strategy
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-3e Matches between Corporate-Level Strategies
and the Multidivisional Structure (slide 6 of 8)
Using the Competitive Form of the Multidivisional Structure to
Implement the Unrelated Diversification Strategy
• The competitive form is an M-form characterized by complete
independence among the firm’s divisions that compete for corporate
resources.
• The competitive structure is characterized by a lack of:
• Sharing common corporate strengths between divisions
• Integrating mechanisms
• The efficient internal capital market that is the foundation for using
the unrelated diversification strategy requires organizational
arrangements emphasizing divisional competition rather than
cooperation.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-3e Matches between Corporate-Level Strategies
and the Multidivisional Structure (slide 7 of 8)
• Three benefits are expected from the internal competition.
1. Internal competition creates flexibility (e.g., corporate headquarters can
have divisions working on different technologies and projects to identify,
and then allocate resources to, those with the greatest potential).
2. Internal competition challenges the status quo and inertia because
division heads know that future resource allocations are a product of
excellent current performance as well as superior positioning in terms of
future performance.
3. Internal competition motivates effort in that the challenge of competing
against internal peers can be as great as the challenge of competing
against external rivals.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-3e Matches between Corporate-Level Strategies
and the Multidivisional Structure (slide 8 of 8)
• To emphasize competitiveness among divisions, the headquarters
office:
• Maintains an arm’s-length relationship with divisions
• Intervenes in divisional affairs only to audit operations and discipline
managers whose divisions perform poorly
• Relies on strategic controls to set rate-of-return targets and financial
controls to monitor divisional performance relative to those targets
• Allocates cash flow on a competitive basis, rather than automatically
returning cash to the division that produced it
• Financial controls are primarily used to emphasize and support
internal competition among separate divisions and as the basis for
allocating corporate capital based on divisions’ performances.
•
As a result, this structure can be limited by too much emphasis on
divisional rewards and can create disharmony due to social
comparisons about rewards based on personal effort.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Figure 11.7
Competitive Form of the Multidivisional Structure
for Implementing an Unrelated Strategy
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Table 11.1
Characteristics of the Structures Necessary to Implement the Related
Constrained, Related Linked, and Unrelated Diversification Strategies
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-3f Matches between International Strategies
and Worldwide Structure (slide 1 of 8)
• International strategies are increasingly important for companies’
long-term competitive success in what is today virtually a borderless
global economy.
• Among other benefits, firms are able to search for new markets and
then form the competencies necessary to serve them when
implementing an international strategy.
• Unique organizational structures are necessary to successfully
implement individual international strategies, given the different
cultural, institutional, and legal environments around the world.
• Forming proper matches between international strategies and
organizational structures facilitates the firm’s efforts to effectively
coordinate and control its global operations.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-3f Matches between International Strategies
and Worldwide Structure (slide 2 of 8)
Using the Worldwide Geographic Area Structure to Implement the
Multidomestic Strategy
• The multidomestic strategy decentralizes the firm’s strategic and
operating decisions to business units in each country so that product
characteristics can be tailored to local preferences.
• Firms using the multidomestic strategy try to isolate themselves from
global competitive forces by:
• Establishing protected market positions
• Competing in industry segments that are most affected by differences
among local countries
• The worldwide geographic area structure is used to implement this
strategy.
• The worldwide geographic area structure emphasizes national
interests and facilitates the firm’s efforts to satisfy local differences.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-3f Matches between International Strategies
and Worldwide Structure (slide 3 of 8)
• Using the multidomestic strategy requires little coordination between
different country markets, meaning that formal integrating
mechanisms among divisions around the world are not needed.
• Thus, the coordination among units in a firm’s worldwide geographic
area structure that does take place is informal in nature.
• The key challenge associated with effectively using the
multidomestic strategy/worldwide geographic area structure is the
inability to create global efficiencies.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Figure 11.8
Worldwide Geographic Area Structure
for Implementing a Multidomestic Strategy
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-3f Matches between International Strategies
and Worldwide Structure (slide 4 of 8)
Using the Worldwide Product Divisional Structure to Implement
the Global Strategy
• The global strategy is one through which the firm offers standardized
products across country markets.
• The firm’s success depends principally on its ability to develop
economies of scale while:
• Competing on a global basis
• Serving customers without specific and unique needs relative to the
firm’s standardized product
• The worldwide product divisional structure supports use of the
global strategy.
• In the worldwide product divisional structure, decision-making
authority is centralized in the worldwide division headquarters to
coordinate and integrate decisions and actions among divisional
business units.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-3f Matches between International Strategies
and Worldwide Structure (slide 5 of 8)
• Integrating mechanisms are important to the effective use of the
worldwide product divisional structure, such as:
•
•
•
•
Direct contact between managers
Liaison roles between departments
Temporary task forces
Permanent teams
• The disadvantages of the global strategy/worldwide structure
combination are:
• The difficulties involved with coordinating decisions and actions across
country borders
• The inability to quickly respond to local needs and preferences
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Figure 11.9
Worldwide Product Divisional Structure
for Implementing a Global Strategy
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-3f Matches between International Strategies
and Worldwide Structure (slide 6 of 8)
Using the Combination Structure to Implement the Transnational
Strategy
• The transnational strategy calls for the firm to combine the
multidomestic strategy’s local responsiveness with the global
strategy’s efficiency.
• The combination structure is used to implement the transnational
strategy.
• The combination structure is a structure drawing characteristics and
mechanisms from both the worldwide geographic area structure and the
worldwide product divisional structure.
• The transnational strategy is often implemented through two
possible combination structures:
1. A global matrix structure
2. A hybrid global design
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-3f Matches between International Strategies
and Worldwide Structure (slide 7 of 8)
• The global matrix design:
• Brings together both local market and product expertise into teams that
develop and respond to the global marketplace
• Promotes flexibility in designing products in response to customer
needs
• Places authority in the hands of managers who are most able to use it
• The global matrix design has limitations.
• It places employees in a position of being accountable to more than one
manager, thus creating loyalty issues.
• It creates complex and vague corporate reporting relationships that
make it difficult and time-consuming to receive approval for major
decisions.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-3f Matches between International Strategies
and Worldwide Structure (slide 8 of 8)
• In the hybrid global design, some divisions are oriented toward
products, while others are oriented toward areas.
•
•
In cases when the geographic area is important, division managers are
area-oriented.
In divisions where worldwide product coordination and efficiencies are
more important, division managers are more product-oriented.
• The appropriate integrating mechanisms are less obvious for the
combination structure.
• The combination structure is difficult to organize and successfully
manage because it must be simultaneously:
•
•
•
Centralized and decentralized
Integrated and nonintegrated
Formalized and nonformalized
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Figure 11.10
Hybrid Form of the Combination Structure
for Implementing a Transnational Strategy
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-3g Matches between Cooperative
Strategies and Network Structures (slide 1 of 3)
• A network strategy exists when partners form strategic
alliances in order to improve the performance of the
alliance network itself through cooperative endeavors.
• A strategic network is a group of firms that has been
formed to create value by participating in multiple
cooperative arrangements.
• A strategic network can be a source of competitive advantage for
its members when its operations create value that is difficult for
competitors to duplicate and that network members can’t create
by themselves.
• Strategic networks are used to implement business-level,
corporate-level, and international cooperative strategies.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-3g Matches between Cooperative
Strategies and Network Structures (slide 2 of 3)
• At the core or center of the strategic network, the
strategic center firm is the one around which the
network’s cooperative relationships revolve.
• The strategic center firm:
•
•
•
•
Is the foundation for the strategic network’s structure due to its
central position
Is concerned with various aspects of organizational structure, such
as formally reporting relationships and procedures
Manages what are often complex, cooperative interactions among
network partners
Must make sure that incentives for participating in the network are
aligned so that network firms continue to have a reason to remain
connected
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Figure 11.11
A Strategic Network
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-3g Matches between Cooperative
Strategies and Network Structures (slide 3 of 3)
• The strategic center firm engages in four primary tasks:
1. Strategic outsourcing
•
The strategic center firm outsources and partners with more firms
than other network members.
2. Competencies
•
The strategic center firm supports each member’s efforts to develop
core competencies with the potential of benefiting the network.
3. Technology
•
The strategic center firm is responsible for managing the development
and sharing of technology-based ideas among network members.
4. Race to learn
•
The strategic center firm guides members in efforts to form
network-specific competitive advantages which, in turn, encourages
friendly rivalry among members to develop the skills needed to
quickly form new capabilities that create value for the network.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-4 Implementing Business-Level
Cooperative Strategies (slide 1 of 2)
• There are two types of business-level
complementary alliances:
1. Vertical
• Firms with competencies in different stages of the value
chain form vertical alliances to cooperatively integrate their
different, but complementary, skills.
2. Horizontal
• Horizontal alliances are formed by firms that combine their
competencies to create value in the same stage of the
value chain.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-4 Implementing Business-Level
Cooperative Strategies (slide 2 of 2)
• The strategic center firm is obvious in vertical
complementary strategic alliances, but is not
always obvious in horizontal complementary
alliances.
• Horizontal complementary alliances are used
less often and less successfully than vertical
complementary alliances.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-5 Implementing Corporate-Level
Cooperative Strategies
• Corporate-level strategies are used to:
• Reduce costs
• Facilitate product and market diversification
• Franchising is often used as a way to extend a firm’s product
and market reach without completing a merger or acquisition.
• The potential to create synergy is a key reason
corporate-level cooperative strategies are
formed.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
11-6 Implementing International
Cooperative Strategies
• Strategic networks formed to implement international
cooperative strategies result in firms competing in
several countries.
• Differences among countries’ regulatory environments increase
the challenge of:
• Managing international networks
• Verifying that, at a minimum, a network’s operations comply with all
legal requirements
• Distributed strategic networks are the organizational structure
used to manage international cooperative strategies.
• Several regional strategic center firms are included in the distributed
network to manage partner firms’ multiple cooperative arrangements.
• Distributed strategic networks are complex and demand careful
attention to be used successfully.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Figure 11.12
A Distributed Strategic Network
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
APPENDIX
NOTE TO INSTRUCTOR: Choose from the following questions (also found in the text at the end of the chapter)
to conduct in-class discussions around key chapter concepts.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Discussion:
• What is organizational structure and what are
organizational controls? What are the
differences between strategic controls and
financial controls? What is the importance of
these differences?
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Discussion:
• What does it mean to say that strategy and
structure have a reciprocal relationship?
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Discussion:
• What are the characteristics of the different
functional structures used to implement the cost
leadership, differentiation, integrated cost
leadership/differentiation, and focused businesslevel strategies?
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Discussion:
• What are the differences among the three
versions of the multidivisional (M-form)
organizational structures that are used to
implement the related constrained, the related
linked, and the unrelated corporate-level
diversification strategies?
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Discussion:
• What organizational structures are used to
implement the multidomestic, global, and
transnational international strategies?
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Discussion:
• What is a strategic network? What is a strategic
center firm? How is a strategic center firm used
in business-level, corporate-level, and
international cooperative strategies?
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.

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