Chapter 11: Organizational Structure and Controls
TABLE 11.1
Characteristics of the Structures Necessary to Implement the Related Constrained,
Related Linked, and Unrelated Diversification Strategies
Table 11.1 provides a handy reference that can be used to compare the structural attributes
of the cooperative, SBU, and competitive M-form structures based on the:
• Degree that operations are centralized or decentralized
STRATEGIC FOCUS
General Electric’s Decline, New Strategy, and Reorganization
General Electric (GE), under the leadership of two former CEOs, Jack Welch and Jeffrey
Immelt, pursued a wide range of acquisitions that diversified the firm to an extreme. Many
Teaching Note
Lead students in a discussion of some of the outcomes Flannery and GE expect to see
from this reorganization. How will competition among the different divisions benefit
the company? Do students see this as a motivational move? Why and how?
11-3f Matches between International Strategies and Worldwide Structure
Forming proper matches between international strategies and organizational structures
intended to support their use facilitates a firm’s efforts to effectively coordinate and
Chapter 11: Organizational Structure and Controls
Using the Worldwide Geographic Area Structure to Implement the Multidomestic Strategy
Although centralization of decision-making authority has been recognized as a means of
achieving coordination (and control) in organizations, some strategies require that local
business units (or divisions) have the flexibility that will enable them to adapt to local
market preferences. This may mean that a decentralized structure is needed to provide this
flexibility.
Figure Note
Characteristics of the worldwide geographic area structure (presented in Figure 11.8)
illustrate the decentralized nature of the structure.
FIGURE 11.8
Worldwide Geographic Area Structure for Implementing a Multidomestic Strategy
The worldwide geographic area structure is characterized by:
• An emphasis on differentiation or adaptation to local market preferences or cultural
requirements
The multidomestic strategy requires a decentralized structure.
• National or country-specific preferences require local adaptation for success.
Chapter 11: Organizational Structure and Controls
Using the Worldwide Product Divisional Structure to Implement the Global Strategy
In contrast with the multidomestic strategy, a global strategy is characterized by:
The appropriate structure for implementation of a global strategy is the worldwide product
divisional structure, characterized by centralized decision-making authority at the
worldwide division headquarters and the establishment of effective coordination and joint
problem solving among disparate divisional subunits.
Figure Note
FIGURE 11.9
Worldwide Product Divisional Structure for Implementing a Global Strategy
The worldwide product divisional structure is characterized by:
• An emphasis on interdivision coordination devices to facilitate global economies of scale
and scope
Chapter 11: Organizational Structure and Controls
Using the Combination Structure to Implement the Transnational Strategy
The last international strategy (the transnational strategy) combines multidomestic and
global strategies by:
The combination structure is an organizational form with characteristics and structural
mechanisms that result in an emphasis on both geographic and product structures.
The transnational strategy is often implemented through two possible combination
FIGURE 11.10
Hybrid Form of the Combination Structure for Implementing a Transnational Strategy
In this design, some divisions are oriented toward products, whereas others are oriented
toward market areas. Thus, in some divisions, where the geographic area is more
important, the division managers are area-oriented. In other divisions, where worldwide
Firms implementing transnational strategies must encourage employees to understand the
effects of cultural diversity on the firm’s operations and adopt a combination structure that
is simultaneously:
Chapter 11: Organizational Structure and Controls
Teaching Note
Many features of the transnational strategy are tricky to sort out. Emphasize that point
here with the chapter’s discussion of the combination structure.
6
Define strategic networks and discuss how strategic center firms implement such
networks at the business, corporate, and international levels.
11-3g Matches between Cooperative Strategies and Network Structures
As discussed in Chapter 9, firms often may develop multiple strategic alliances to
implement cooperative strategies.
FIGURE 11.11
A Strategic Network
The strategic center firm sits in the middle of the strategic network so that it can
coordinate the activities of network members’ firms.
Note: Four critical aspects of functions performed by the strategic center firm—strategic
outsourcing, capability development, technology management, and managing learning
processes—are discussed next.
Chapter 11: Organizational Structure and Controls
3. Technology management
4. Race to learn (or managing learning processes)
Strategic outsourcing is one of the strategic center firm’s key functions. In addition to
outsourcing more than other members of the strategic network, the center firm also
encourages member firms to go beyond contracting to solve problems and to initiate
competitive actions that the network can pursue.
11–4 IMPLEMENTING BUSINESS-LEVEL COOPERATIVE
STRATEGIES
Recall from Chapter 9 that complementary assets at the business level can be vertical or
horizontal. Vertical complementary strategic alliances are more common than horizontal
alliances and generally are focused on buyer-supplier relationships.
With its strategic network of vertical alliances in Japan, Toyota, as the strategic center
firm:
• Encourages subcontractors to modernize their facilities
Chapter 11: Organizational Structure and Controls
STRATEGIC FOCUS
Global Airline Alliances, Airline Joint Ventures, and Network Difficulties
For the past several decades, many of the world’s largest airlines have formed alliances in
the form of networks, which allowed the airlines to expand their offerings without huge
investments in additional equipment, human resources, and maintenance. Star Alliance,
Oneworld, and SkyTeam are the most notable of these networks, but they have all been
Teaching Note
Guide students in a discussion of the specific ways these airline networks have benefited
11–5 IMPLEMENTING CORPORATE-LEVEL COOPERATIVE
STRATEGIES
It is less difficult to select a strategic center firm in corporate-level cooperative strategic
alliances structured as centralized franchise networks than in those that are decentralized
sets of diversified strategic alliances.
Chapter 11: Organizational Structure and Controls
The headquarters office uses strategic controls and financial controls to verify that the
franchisees’ operations create the greatest value for the entire network.
• A strategic control issue is the location of franchisee units—McDonald’s believes that its
11–6 IMPLEMENTING INTERNATIONAL COOPERATIVE
STRATEGIES
Competing across national borders increases the complexity of managing strategic
networks that have been formed through international cooperative strategies and stifles the
selection of a strategic center firm because great differences may exist among the
regulatory environments of partners’ home countries.
Figure Note
Configuration of a distributed strategic network is illustrated in Figure 11.12.
FIGURE 11.12
A Distributed Strategic Network
Although the distributed strategic network has a primary or main strategic center firm, it
also is characterized by multiple strategic center firms that are distributed throughout the
world.
Chapter 11: Organizational Structure and Controls
ANSWERS TO REVIEW QUESTIONS
1. 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?
Organizational structure specifies the firm’s formal reporting relationships, procedures,
Strategic controls are also used to evaluate the degree to which the firm focuses on the
requirements to implement its strategies. For a business-level strategy, for example, the
strategic controls are used to study primary and support activities to verify that those
critical to successful execution of the business-level strategy are being properly
Chapter 11: Organizational Structure and Controls
2. What does it mean to say that strategy and structure have a reciprocal relationship?
Strategic competitiveness can be attained only when the firm’s selected structure is
congruent with its formulated strategy. As such, a strategy’s potential to create value is
reached only when the firm configures itself in ways that allow the strategy to be
Research suggests that most firms experience a certain pattern of relationships between
strategy and structure. Chandler found that firms tended to grow in somewhat predictable
patterns—i.e., in the following order: (1) volume, (2) geography, (3) integration (vertical,
horizontal), and (4) product diversification (see Figure 11.1). Chandler interpreted his
findings to indicate that the firm’s growth patterns determine its structural form.
Chapter 11: Organizational Structure and Controls
3. What are the characteristics of the different functional structures used to implement
the cost leadership, differentiation, integrated cost leadership/differentiation, and
focused business-level strategies?
A functional structure is used to implement the cost leadership, differentiation, and
integrated cost leadership/differentiation strategies. The functional structure consists of a
chief executive officer and limited corporate staff with line managers in dominant
The structural characteristics of specialization, centralization, and formalization play
important roles in the successful implementation of the cost leadership strategy.
Specialization refers to the type and numbers of job specialties that are required to
perform the firm’s work. For the cost leadership strategy, managers divide the firm’s
work into homogeneous subgroups. The bases for these subgroups are usually functional
Continuous product innovation demands that people throughout the firm be able to
interpret and take action based on information that is often ambiguous, incomplete, and
uncertain. With a strong focus on the external environment to identify new opportunities,
employees often gather this information from people outside the firm, such as customers
and suppliers. Commonly, rapid responses to the possibilities indicated by the collected
information are necessary, suggesting the need for decision-making responsibility and
Chapter 11: Organizational Structure and Controls
Firms using the integrated cost leadership/differentiation strategy want to sell products
that create value because of their relatively low cost and reasonable sources of
differentiation. The cost of these products is low “relative” to the cost leader’s prices,
while their differentiation is “reasonable” compared to the clearly unique features of the
differentiator’s products.
The focus strategy is best implemented by means of the simple structure. The simple
structure is most appropriate for firms that follow a single business strategy and offer a
line of products in a single geographic market and for firms implementing focused cost
leadership or focused differentiation strategies. A simple structure is an organizational