Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
1. Challenges and Risks
Despite their many advantages, alliances often fail to meet expectations. One reason is
that unique managerial skills are required—managers who can find good partners, build win-win
The virtual organization is the culmination of joint venture strategies of the past. To form
effective virtual organizations, strategic planning is needed to determine what synergies exist and
Discussion Question 33: What types of contingencies are likely to influence whether a
virtual organizational type will be a successful form for pursuing a venture or strategic
goal?
EXHIBIT 10.8 summarizes the pros and cons of the virtual form of organizational
structure.
D. Boundaryless Organizations: Making Them Work
Many times, the most effective way to design an organization is by using a combination
of organizational types.
Often, when firms face external pressures, resource scarcity, and declining performance,
they tend to become more internally focused. Point out that this may actually be the best time to
In making the transition to more democratic, participative styles of management and
greater reliance on teamwork, managers must select a balance of tools and techniques to
1. Common Culture and Shared Values
2. Horizontal Organization Structures
3. Horizontal Systems and Processes
4. Communications and Information Technologies
5. Human Resources Practices
The SUPPLEMENT below discusses how Novartis has created horizontal organizational
structures to break down silos that inhibited learning across organizational units and with outside
groups.
Extra Example: Breaking Down Silos at Novartis
Novartis, the Swiss pharmaceutical giant, sees the need to be more effective at developing new drugs. Joerg
Reinhardt, the firm’s CEO, has committed to invest more in R&D, but he is also making changes in the
organization’s structure to enhance its effectiveness in drug development.
Novartis is consolidating its R&D staff and housing them in four geographic locations: Shanghai, Basel
(Switzerland), Boston, and San Diego. In combining researchers from different scientific disciplines and product
areas in these locations, the firm is trying to create an environment where researchers can bounce questions and
ideas off of each other. They have also based these operations in cities with major research universities so the firm
can better tap the knowledge emerging from academic communities in each of these cities. In the words of Mr.
Reinhardt, “A larger group of people benefiting from the infrastructure that been created at a research place is a
better approach than having small groups with limited infrastructure spread around the world.”
Source: Falconi, M. 2014. Novartis Chairman Stresses Need for R&D Investment. wsj.com. March 22: np.
Managers need to also be aware of the benefits and costs of developing strong and long-
Reduced agency costs within the firm
Greater commitment to shared goals and finding win-win solutions
We also identify three potential costs of relying on long-term relationships.
Firms get locked-in with employees, suppliers, and customers
The social capital of individuals and firms drives their opportunities rather than
III. Creating Ambidextrous Organizational Designs
In this section we address the challenge that organizations face in rapidly changing and
complex competitive environments: exploring for new opportunities (adaptability) and
effectively exploiting the value of their existing assets and competencies (alignment). Firms that
achieve both adaptability and alignment are considered ambidextrous organizations—aligned and
efficient in how they manage today’s business but flexible enough to changes in the environment
so that they will prosper tomorrow.
A. Ambidextrous Organizations: Key Design Attributes
Here, we focus on a study by O’Reilly and Tushman that investigated 35 efforts to launch
breakthrough innovations undertaken by 15 business units in nine different industries. They
The firms organized their breakthrough projects into one of four primary ways:
functional organizational structures
cross-functional teams
ambidextrous organizations (structurally independent units integrated into the
B. Why Was the Ambidextrous Organization the Most Effective Structure?
The ambidextrous organizational form was most effective on both dimensions: success in
creating desired innovations and the performance of the existing business. The study found that
there were many factors that explained the superior performance. Among these were
a clear and compelling vision
tight coordination and integration at the managerial levels
established units were shielded from the distractions of launching new
Discussion Question 34: Do organizations that you are familiar with share the structural
attributes of ambidextrous organizations? Why? Why not?
The SUPPLEMENT below provides some of the attributes of ambidextrous behaviors of
individuals. It was based on research that involved interviews with a wide variety of people from
front-line workers to senior executives.
Extra Example: The Behaviors of “Ambidextrous Individuals”
Based on a study by Julian Birkinshaw and Cristina Gibson (that was published in the Summer 2004 issue of the
MIT Sloan Management Review), ambidextrous individuals:
take the initiative and are alert to opportunities beyond the confines of their own jobs
are cooperative and seek out opportunities to combine their efforts with others
are brokers, always looking to build internal linkages
are multitaskers who are comfortable wearing more than one hat
Source: Birkinshaw, J. & Gibson, C. 2004. Building ambidexterity into an organization. MIT Sloan Management
Review, 45 (4): 47–55.
Discussion Question 35: Think about times in your own life when you were expected to
both cooperate and take initiative. How easy or difficult is it to be an ambidextrous
individual?
Teaching Tip: The above behaviors would appear to have important career implications.
You might consider asking students questions such as the following: First of all, you
might ask them what type of behaviors would be conducive to ambidexterity—prior to
IIV. Issue for Debate
McDonald’s is a firm that has experienced a nearly continuous run of success with its
founding in 1955. But recently, the firm has struggled to meet the evolving tastes of its
Discussion Question 36: Is this structural change likely to be beneficial to McDonald’s
as it aims to stop sliding sales?
Students may argue that McDonald’s is simply out of step with customer tastes and
preferences in a large sense. While other firms, such as Panera and Chipotle, emphasize fresh
However, other students may argue that it could have some benefits. First, customer
tastes do vary by region. If the new structure offers the ability to tailor menus, that could be
beneficial to the firm. Additionally, as they flatten the firm’s structure, they may be able to
Discussion Question 37: What are the potential costs and benefits of increasing regional
autonomy?
The potential benefits include faster response to market changes, greater responsiveness
to regional taste differences, and enhanced ability to develop innovative new products. The
potential costs include increased costs if the supplies used across the firm become fragmented,
Discussion Question 38: New initiatives or menu changes may be valuable in another
region. What actions can McDonald’s take to break through regional boundaries to
facilitate learning?
The point here is for students to see and discuss both formal and informal ways
McDonald’s could facilitate cross-regional learning. Formally, McDonald’s could build formal
information systems that would measure and report sales figures associated with new menu items
and distribute this information to restaurants in other regions. Additionally, McDonald’s could set
Discussion Question 39: What other actions does McDonald’s need to take to turn
around its sales?
One approach to this question is to let the students throw out ideas here at first. This will
typically lead to a range of options, some rather simplistic and broad, such as make the food taste
1. Unless there is a shared understanding of the root causes of McDonald’s problems, it is
hard to get a shared view on the best solutions. If this is the case, the instructor should
2. Identifying the problem is typically much easier than identifying clear, actionable
3. Once a firm has a fully established market position and reputation, it is challenging to
undertake significant change. As part of this, the instructor can query students about their
V. Reflecting on Career Implications
Below, we provide some suggestions on how you can lead the discussion on the career
implications for the material in Chapter 10.
Boundaryless Organizational Designs: Does your firm have structural mechanisms
(e.g., culture, human resources practices) that facilitate sharing information across
boundaries? Regardless of the level of boundarylessness of your organization, a key issue
for your career is the extent to which you are able to cut across boundaries within your
organization. Such boundaryless behavior on your part will enable you to enhance and
leverage your human capital. Evaluate how boundaryless you are within your
organizational context. What actions can you take to become even more boundaryless?
Students may benefit from their abilities to interact with others in their local business
environment, be they others in different divisions of the organization, different geographic
regions, different companies, or different levels of the hierarchy. It’s most effective to work with
students who are able to interact with those outside their office, and most probably can. Even in
the smallest organizations, student employees will probably be able to interact with suppliers and
Horizontal Systems and Processes: One of the approaches suggested in the chapter to
improve boundarylessness within organizations is reengineering. Analyze the work you
are currently doing and think of ways in which it can be reengineered to improve quality,
accelerate response time, and lower cost. Consider presenting the results of your analysis
to your immediate superiors. Do you think they will be receptive to your suggestions?
This discussion is to apply the concept of reengineering to students’ careers. As students work in
their organizations, it is usually a good idea to consider how the work can be improved. Ask
students how their organizational processes can be reengineered in a way that reduces
boundaries. Perhaps a customer-centric team could be created that would deal with all issues
To present their thinking to immediate superiors, there is no correct method because it all
depends on factors such as students’ position, experience, relationships with superiors, and
organizational culture. However, students could discuss the prospect of approaching their
Ambidextrous Organizations: Firms that achieve adaptability and alignment are
considered ambidextrous. As an individual, you can also strive to be ambidextrous.
Evaluate your own ambidexterity by assessing your adaptability (your ability to change in
response to changes around you) and alignment (how good you are at exploiting your
existing competencies). What steps can you take to improve your ambidexterity?
There are three steps to this discussion. First, ask students to assess their adaptability. Students
who rate themselves high on this characteristic may have the potential to be entrepreneurs.
Second, ask students to assess their alignment. Alignment is very important, as it should be
maximized if the organization were to get the most value out of the students, and students were
to maximize their potential. The problem with achieving ambidexterity is that responding to
VI. Summary
Successful organizations must ensure that they have the proper type of organizational
structure. Furthermore, they must ensure that their firms incorporate the necessary integrating
In the first section of the chapter, we discussed the growth patterns of large corporations.
Although most organizations remain small or die, some firms continue to grow in terms of
After a firm expands into related products and services its structure changes from a functional to
We also addressed the different types of organization structure—simple, functional,
divisional (including two variations: strategic business unit and holding company), and matrix as
well as their relative advantages and disadvantages. We closed the section with a discussion of
The second section of the chapter introduced the concept of the boundaryless
organization. We did not suggest that the concept of the boundaryless organization replace the
traditional forms of organization structure. Rather, it should complement them. This is necessary
to cope with the increasing complexity and change in the competitive environment. We
The final section addresses the need for managers to recognize two opposing challenges.
These include (1) being proactive in taking advantage of new opportunities, and (2) ensuring the
effective coordination and integration of existing operations. Such challenges suggest the need
Chapter 10: Creating Effective Organizational Designs
Select an organization with which you are familiar—preferably one that you have
worked in. To what extent is this organization “boundaryless,” that is, are the boundaries
across departments and hierarchical levels rather permeable or are they fixed and rigid? How
is this aspect of organizational design affecting its performance? How could it be improved?
Teaching suggestions:
*When and under what kind of industry environments is boundarylessness more
important, and when would it not work?
Clearly, organizations operating in dynamic environments would need greater
permeability across boundaries than those that operate in stable and predictable
Also, the strategy a firm pursues will have a determining impact on its structure. A tight
cost control strategy would require a rigid organization structure with strict controls than
You can then raise discussion on the various forms of boundarylessness.
Barrier-free type involves making both internal and external organizational boundaries
(with outside organizations such as supplier organizations, buyer organizations etc.,)
permeable.
Modular organizations and virtual types of organizations focus on the need to create
seamless relationships with external organizations. Outsourcing non-core activities is at
the core of a modular organization. Forging alliances among independent entities to
exploit specific market opportunities is the essence of a virtual organization. (Strategy
Spotlight 10.6 provides the example of collaborative relationships among firms from
different industries.)
Organizations such as Dell can be used as examples of organizations that balance between the
need for tight control and creating boundarylessness. Dell has extremely tight controls on its
You can draw attention to the kind of culture, communication, investment in information
End of Chapter Teaching Notes
Chapter 10: Creating Effective Organizational Designs
Summary Review Questions
1. Why is it important for managers to carefully consider the type of organizational
structure that they use to implement their strategies?
Response:
Organizational structure is the formalized patterns of interactions that link a firm’s tasks,
technologies, and people. Structures ensure that firms use resources effectively to accomplish the
2. Briefly trace the dominant growth pattern of major corporations from simple structure
to functional structure to divisional structure. Discuss the relationship between a firm’s
strategy and its structure.
Response:
A simple structure is an organizational form in which the owner-manager makes most of the
decisions and controls activities, and the staff serves as an extension of the top executive. The
entire management is one team. As the corporation becomes more complex, simple structures
As corporations become more complex, they add on multiple related divisions, each with a
functional structure, also called a divisional structure. So the firm could have functional structure
Firms follow a growth strategy as they evolve from a simple structure to a functional structure.
From functional structures they can follow a related diversification strategy to evolve into a
And corporations with functional structures that follow unrelated diversification strategies tend
to develop holding company structures, which have business units that do not follow related
