Chapter

Ten

Implementing Strategy:
Creating Effective
Organizational Designs
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Learning After studying this chapter, you should have

Objectives a good understanding of:
• The importance of organizational structure and the concept of the
“boundary-less” organization in implementing strategies
• The growth patterns of major corporations and the relationship between
a firm’s strategy and its structure
• Each of the traditional types of organizational structure—simple,
functional, divisional, and matrix
• The relative advantages and disadvantages of traditional organizational
structures
• The implications of a firm’s international operations for organizational
structure
• The different types of boundary-less organizations—barrier-free,
modular, and virtual—and their relative advantages and disadvantages

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 Growth Patterns of Large Corporations
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Exhibit 10.1

Phase
Phase11
Strategy:
Strategy: Low
Lowrevenue
revenuebase;
base;simple
simpleproduct-market
product-marketscope
scope
Structure:
Structure:Simple
Simple

Phase
Phase22
Strategy:
Strategy: Increase
Increaseininrevenues;
revenues;engage
engageininvertical
verticalintegration
integration(backward
(backward
and/or forward)
and/or forward)
Structure:
Structure:Functional
Functional

Phase
Phase33
Strategy:
Strategy: Expand
Expandinto
intonew,
new,related
relatedproduct-markets
product-marketsand/or
and/orgeographical
geographical
areas
areas
Structure:
Structure:Divisional
Divisional

Phase
Phase44
Strategy:
Strategy: Expand
Expandinto
intointernational
internationalmarkets
markets
Structure:
Structure:International
InternationalDivision,
Division,Geographic
GeographicArea,
Area,Worldwide
WorldwideProduct
Product
Division,
Division,Worldwide
STRATEGIC MANAGEMENT Worldwide Functional, or WorldwideGregory
CHAPTER 10Functional, or Worldwide
Matrix
MatrixG. Dess and G. T. Lumpkin
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TRANSPARENCY-86

Exhibit 10.2 Functional Structure: Advantages and

Disadvantages

Chief Executive
Officer or President

Manager Manager Manager Manager Manager Manager

Production Engineering Marketing R&D Personnel Accounting

Lower-level managers, specialists, and operating personnel

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TRANSPARENCY-87

Exhibit 10.3 Divisional Structure: Advantages and

Disadvantages
Chief Executive
Officer or
President

Corporate Staff

Division A Division B Division C

General Manager General Manager General Manager

Manager Manager Manager Manager Manager Manager

Production Engineering Marketing R&D Personnel Accounting

Lower-level managers, specialists, and operating personnel

Organized Organized
similarly to similarly to
Division 1 Division 1

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TRANSPARENCY-88

Exhibit 10.4 Matrix Structures: Advantages and

Disadvantages
Chief Executive
Officer or
President
Corporate
Staff

Manager Manager Manager Manager Manager Manager Public

Administration Projects Manufacturing Engineering Marketing Relations
and Human
Resources
Project A

Project B

Project C

Project D

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TRANSPARENCY-89

Exhibit 10.5 Functional, Divisional, and Matrix

Structures: Advantages and Disadvantages
Functional Structure Advantages
• Pooling of specialists enhances coordination and control
• Centralized decision making enhances an organizational perspective
across functions
• Efficient use of managerial and technical talent
• Career paths and professional development in specialized areas are
facilitated
Divisional Structure
Advantages
• Increases strategic and operational control, permitting corporate-level
executives to address strategic issues
• Quick response to environmental changes
• Increased focus on products and markets
• Minimizes problems associated with sharing resources across
functional areas
• Facilitates development of general managers
Disadvantages
• Differences in functional area orientation impede communication
and coordination
• Tendency for specialists to develop short-term perspective and
overly narrow functional orientation
• Functional area conflicts may overburden top level decision
makers
• Difficult to establish uniform performance standards
Disadvantages
• Increased costs incurred through duplication of personnel,
operations, and investment
• Dysfunctional competition among divisions may detract from
overall corporate performance
• Difficulty in maintaining uniform corporate image
• Overemphasis on short-term performance

Matrix Structure
Advantages Disadvantages
• Increases market responsiveness through collaboration and synergies • Dual reporting relationships can result in uncertainty regarding
among professional colleagues accountability
• Allows more efficient utilization of resources • Intense power struggles may lead to increased levels of conflict
• Improves flexibility, coordination, and communication • Working relationships may be more complicated and human
• Increases professional development through broader range of resources duplicated
responsibility • Excessive reliance on group processes and teamwork may impede
timely decision making
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TRANSPARENCY-90
Exhibit 10.6 Pros and Cons of the Barrier-Free Structures
Pros
• Leverages the talents of all
employees
• Enhances cooperation,
coordination, and information-
sharing among functions,
divisions, SBUs, and external
constituencies
• Enables a quicker response to
market changes through a single-
goal focus
• Can lead to coordinated “win-win”
initiatives with key suppliers,
customers, and alliance partners.
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Cons
• Difficult to overcome political and
authority boundaries both inside and
outside the organization
• Lacks strong leadership and common
vision which can lead to coordination
problems.
• Time-consuming and difficult-to-
manage democratic processes
• Lacks high levels of trust which can
impede performance
Gregory G. Dess and G. T. Lumpkin
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TRANSPARENCY-91
Exhibit 10.7 Pros and Cons Of Modular Structures
Pros
• Directs a firm’s managerial and
technical talent to the most critical
activities
• Maintains full strategic control
over most critical activities—core
competencies
• Achieves “best in class”
performance at each link in the
value chain
• Leverages core competencies by
outsourcing with smaller capital
commitment
• Encourages information sharing
and accelerates organizational
learning
STRATEGIC MANAGEMENT  CHAPTER 10
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Cons
• Inhibits common vision through
reliance on outsiders
• Diminishes future competitive
advantages if critical technologies
or other competences are
outsourced
• Increases the difficulty of bringing
back into the firm activities that
now add value due to market shifts
• May lead to an erosion of cross-
functional skills
• Decreases operational control and
potential loss of control over a
supplier
Gregory G. Dess and G. T. Lumpkin
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TRANSPARENCY-92
Exhibit 10.8 Pros and Cons of Virtual Structure
Pros
• Enables the sharing of costs and
skills
• Enhances access to global
markets
• Increases market responsiveness
• Creates a “best of everything”
organization since each partner
brings core competencies to the
alliance
• Encourages both individual and
organizational knowledge-
sharing and accelerates
organizational learning
STRATEGIC MANAGEMENT  CHAPTER 10
McGraw-Hill/Irwin
Cons
• Harder to determine where one
company ends and another begins
due to close interdependencies
among players
• Leads to potential loss of
operational control among
partners
• Results in loss of strategic control
over emerging technology
• Requires new and difficult-to-
acquire managerial skills
Gregory G. Dess and G. T. Lumpkin
Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.