Advantages and disadvantages of multidivisional structure

Corporate Strategy.

Organizational structures and organizational culture.

Links between Structure & Strategy:

- appreciate how they are connected.

Types of Structure:

- review the most common traditional structures and new flat structures.

Configuration & Structural Dilemmas:

- understand the wider perspectives and the role of culture.

Learning Outcomes.

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The objective of organisational design and structure (OD&S) is to provide, maintain, and develop organisational structures that work toward the achievement of corporate goals.

OD&S helps create a workable structure of tasks and positions that create the physical organization and jobs.

“Configuration” probably most useful idea. Adds processes, control systems etc to basic structure.

Organisational design and structure.

Configuration - specific organisational design elements linking together to support strategy.

Chandler 1962 famously said: “structure follows strategy”.

So: structure follows strategy OR strategy follows structure?

Organisational structure is ultimately driven by strategy; in the near term however, strategy is shaped by organisational structure, because structure provides a constraint to action.

Structure is relatively immobile in the short run; in the longer term, it can (and does) change.

Structure or strategy?

Example: Ryanair (our seminar in week 8)

Since its foundation in 1985, Ryanair, has followed a very successful cost leadership strategy, for example:

it focused on secondary airports with lower charges;

it used third parties to reduce handling costs;

it eliminated free services to passengers (e.g. food);

it relied on one type of aircraft (B-737).

it sold only directly through a website;

it paid lower salaries to its staff.

But the firm’s organizational structure constrains strategy (e.g. on long-haul flights and premium services).

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Classic Structural Types.

Functional

Multidivisional

Matrix

Multinational/

Transnational

Project-based

Three “classic” types exist – but lots of hybrids too:-

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The Functional Structure.

This divides responsibilities according to the organisation’s primary specialist roles.

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The Functional Structure.

Advantages

Chief executive in touch with all operations.

Reduces/simplifies control mechanisms.

Clear definition of responsibilities.

Specialists at senior and middle management levels.

Disadvantages

Senior managers overburdened with routine matters.

Senior managers neglect strategic issues.

Difficult to cope with diversity.

Coordination between functions is difficult.

Failure to adapt.

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The Multidivisional Structure.

This is built of separate divisions on the basis of products, services or geographical areas.

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The Multidivisional Structure.

Advantages

Flexible (add or divest divisions).

Control by performance.

Ownership of strategy.

Specialisation of competences.

Training in strategic view.

Disadvantages

Duplication of central and divisional functions.

Fragmentation and non-cooperation.

Danger of loss of central control.

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The Matrix Structure (1)

This combines different dimensions simultaneously, e.g. product divisions & countries or products & functional specialisms.

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The Matrix Structure.

Advantages

Integrated knowledge.

Flexible.

Allows for dual dimensions.

Disadvantages

Length of time to take decisions.

Unclear job and task responsibilities.

Unclear cost and profit responsibilities.

High degrees of conflict.

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Other Structures - Multinational

Source: Reprinted by permission of Harvard Business School Press. From Managing Across Borders: The Transnational Corporation, 2nd edition by C.A. Bartlett and S. Ghoshal, Boston, MA, 1998. Copyright © 1998 by the Harvard Business School Publishing Corporation. All rights reserved

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Comparing Structures.

Other Structures – Projects.

This is where teams are created, undertake the work (e.g. internal or external contracts) and then dissolve. Some examples include construction projects or movies.

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Strategic Apex

Middle Line

Operating Core

Technostructure

Support Staff

Ideology

Mintzberg’s Configuration Framework.

…but do we always need such hierarchical structures?

On the one hand, many rare and valuable resources are increasingly available outside the company, and companies increasingly draw competitive advantages from working in networks.

On the other hand, advances in technology – such as 3D printers, robots, automated production lines – can allow much greater product customization, and shift the focus from manufacturing capacity towards creativity and customer responsiveness.

Therefore, companies experiment with new management practices and structures to break up hierarchies and draw benefits from wider networks (e.g. cutting-edge companies in Silicon Valley).

Example: Oticon

Oticon is a Danish company and it is one of the world's largest manufacturers of hearing aids.

Under CEO Kolind (1988-1998), it invented a management practice or corporate structure known as “Spaghetti Organization”.

Oticon headquarters, Copenhagen, Denmark and former CEO Lars Kolind

Example: Spaghetti organization

There are no departments or fixed job positions.

Any individual who comes up with a good idea is free to assemble a team and act as project leader.

Each project then has to compete with all the other projects trying to get off the ground at any time.

An employee must attract sufficient resources and support for his or her project or it will perish.

Individuals contribute to more than one project at a time.

At times, there are up to 100 projects on the go, forming and disbanding as tasks are started or completed.

A different version of a flat structure: Holacracy

Please watch this video on Holocracy: https://www.youtube.com/watch?v=szgfR9Nxlw0

Example: The Haier Group

Haier Group headquarters, Qingdao, China and CEO Zhang Ruimin

The Haier Group is the world’s largest white goods company, with ca. 60,000 staff in over 100 countries.

From 2005 onwards, the Haier Group developed the Rendanheyi management practice to break up the organizational hierarchy.

Rendanheyi (人单合一) (or: integration of people and goals)

Transformed Haier Group from a conventional hierarchical manufacturing firm to a network of independent micro-enterprises.

Owner-CEO of xiaowei (micro-enterprise with 6-8 staff) have an ownership stake and operate as entrepreneurs with autonomous decision-making ( all contracting, budgeting, recruitment). Remuneration depends totally on xiaowei performance.

Outside venture capital invested in xiaowei, outsiders even competitors involved on online platforms.

Haier HQ

Xiaowei

Xiaowei

Xiaowei

Xiaowei

Xiaowei

Xiaowei

Xiaowei

Xiaowei

Xiaowei

Xiaowei

Xiaowei

McKinsey 7-S Framework.

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Superordinate Goals: Overarching goals or purposes.

Structure: Basic organisational design.

Systems: How the organisation is controlled.

Style: Leadership style or culture.

Staff: People hired & their development.

Skills: Capabilities of the organisation.

Strategy: Long term approach to advantage.

The McKinsey 7-S Framework.

The 7 elements in the framework are as follows:-

Types of Control Systems.

Corporate governance – structures and systems to hold managers accountable to legitimate stakeholders.

Direct supervision - direct control of decisions by one/few individuals, focused on employee effort.

Performance targets - focus on organisation outputs e.g. product quality, revenues or profits.

Internal market systems – system of ‘contracting’ for resources or inputs/outputs to parts of an organisation.

Cultural systems - standardise norms of behaviour within an organisation in line with particular objectives.

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What is Organisational Culture?

Culture is the organisation’s “personality” - described by Deal & Kennedy (1982) as “The way we do things round here”.

A detailed definition by McLean & Marshall (1993):

“… the collection of traditions, values, policies, beliefs and attitudes that constitute the pervasive context for everything we do and think in an organisation.”

Culture is Strategic.

Culture is Strategic: it is long term, central to the organisation and linked to advantage.

Consider Ryanair culture versus Zappos culture: https :// www.youtube.com/watch?v=axlWBn7YQA4

Culture is Valuable: enables things to happen which can result in higher productivity, lower costs or high margins.

Culture is Rare: it is unique in its development and it is often hard to change.

Culture is Hard to Imitate: it cannot be copied easily so can underpin competitive advantage.

How does Culture link to Strategy?

The pervasive & fundamental nature of culture impacts strategy considerably.

Strategy in an “entrepreneural culture” may be very different to an “institutionalised” one.

So culture can be a facilitator/enabler of Strategy. Even a component of Strategy.

BUT: it can also be an Enemy of Strategy!