Structure and Strategy

Chenista Rae Straubel

BUS 4013: Prof Gregory Gotches

April 14, 2005

Abstract

Organizational evolutionary paths from strategy to structure and back to

strategy unfold as organizations mature and change allowing them to compete in

new or global markets. Organizational structure helps business implement

strategy by identifying and defining:

1. Divisions of labor

2. Coordination mechanisms

3. Decision rights distribution

4. Organizational boundaries

5. Information organization

6. Political alignments

7. Legitimate basis for authority

This paper reviews basic structure and its relationship to strategy within

organizations. Three tables summarize the information presented to the reader.

The document then focuses on how the information presented relates to the

research and development growth industry and presents ideas for structure and

strategy alignment. The paper concludes with an application of structure and

strategy as it applies to research and development (R&D) companies or

divisions.

Structure and Strategy

Three basic structures: simple, functional, and multi-divisional (M-form)

are modified to accommodate changes within the internal and external

environments that affect business. The need for greater coordination of products

and services fuel problem identification and resolution (control) issues indicating

the need for organizations to review their current strategy and structure.

Changes in the overall economy or market can be indicators of the need for

strategy and structural changes such as a change in industry type: growth,

mature, or declining.

Simple structures are cost effective for business start-ups or in declining

industries. Simple structures can be used to manage efficiently when the

business has few products or services and focuses primarily on a specialized

market segment or small and local markets. These structures feature a

centralized point of power and authority.

Functional structures are the first stage beyond simple structures.

Functional structures can include businesses in mature and declining industries.

These organizations may employ low cost strategies that foster a centralized

structure emphasizing process and operations. Global businesses and growth

industries may follow a differentiation strategy with a decentralized structure

focusing on product lines and sales and marketing. Functional structure

accommodates the specialization of tasks and a greater coordination of

communication and information processing. Department heads generally report

to CEOs. Functional structures can be short-sighted and therefore decisions and

problem identification and resolution may cause conflict with long-range

perspectives in thinking or planning.

Multi-divisional structures may feature a horizontal hierarchy and are

appropriate for related-diversified businesses. Multi-divisional structures have

three variations: 1) cooperative forms, 2) strategic business units (SBU), and 3)

competitive. This structure may feature a horizontal hierarchy. Cooperative

forms employ a related-constrained strategy while SBU’s may follow a related-

linked strategy and competitive forms use an unrelated or holding company

strategy. In this structure, divisions operate as a separate business. The key

task of management is to identify and to exploit synergies among the divisions by

combining strategic and financial controls. Divisions often compete for capital

resources that motivate managers to foster communication and cooperation

across divisional lines and to focus on the single organizational goal of

maximizing overall performance. Decision-making may be centralized or

decentralized, bureaucratic or non-bureaucratic with the balance changing over

time as the structure evolves based upon strategic changes, the degree of

diversification, landscape or geographic scope (multi-domestic or global), and

economic considerations or the nature of the competition. Increased product

lines, expansion of services, and globalization are examples of diversification that

broaden the customer base and affect the evolution of this structure as well.

Examples of the use of multi-divisional structures include:

 1. Transnational International Strategy with focus on both geographic

and product structures;

2. SBU’s organized in related business groups for strategy

development; and

3. Strategic alliances, acquisitions, and mergers.

Multi-divisional structures use combinations of strategic and financial

controls and may simultaneously centralize or decentralize based upon business

level strategies employed at division levels or at SBU’s. Differentiation strategy

is usually decentralized and cost leadership is generally centralized.

Global Matrix Structures (holding companies, acquisitions, divestitures)

accommodate the diversification of unrelated business activities with each

business treated as a profit or investment center that jointly compete for

corporate resources. Corporate offices act as the central capital market

evaluating financial performance of business activities. This structure holds no

real financial benefit to shareholders and corporate staff lacks a deep

understanding of the issues present within the unrelated businesses.

Attributes of Multi-divisional Structures

Structural
Cooperative SBU Competitive
Characteristics
Related- Mixed related or
Type of Strategy Unrelated
constrained unrelated
Degree of Centralized at the Centralized in Decentralized to
Centralization Corporate Office SBUs Division
Use of Integrating Extensive Moderate Nonexistent
Mechanisms Synergies Synergies Synergies
Divisional
Subjective / Strategic and
Performance Financial Criteria
Strategic Criteria Financial Criteria
Appraisal
Divisional Incentive Corporate Corporation, Divisional
Compensation Performance Division & SBU Performance
 Table 1: Copyright  Furrer (2004).

Organizational Structure Comparison

Functional Divisional Matrix Network
Division of Inputs &
Inputs Outputs Knowledge
Labor outputs
Hierarchical
General Cross-
supervision, Dual reporting
Coordination Manager & functional
plans / relationships
Corporate staff teams
procedures
Separation of
Decision Highly Highly
strategy & Shared
rights centralized decentralized
execution
Importance of
Informal Low Moderate Considerable High
Structure
Corporate-
Inter- Along matrix Shifting
Politics Division &
functional & resources coalitions
Inter-divisional
General
Positional &
Basis of management Negotiating &
functional
Authority responsibility & resources
expertise
resources
Table 2: Copyright  Furrer (2004).

Structural Differences: Advantages / Disadvantages

Functional Divisional Matrix Network
Resource
Excellent Poor Moderate Good
Efficiency
Time Efficiency Poor Good Moderate Excellent
Responsiveness Poor Moderate Good Excellent
Adaptability Poor Good Moderate Excellent
Accountability Good Excellent Poor Moderate
Complex and
Environment
Stable Heterogeneous multiple Volatile
Best Suited
demand
Strategy Best Focus / low Responsivenes
Diversified Innovation
Suited cost s
Table 3: Copyright  Furrer (2004).

Conclusion
 Research & Development (R&D) is a fast-paced and globally competitive

growth industry. Featuring decreased bureaucracies by employing horizontal

hierarchies, increased communications, and an empowered team-based

environment, these companies (or departments) have the ability to create value

for themselves as well as their partners (alliances) by developing collaborative

agendas and core competencies that complement innovation and change. R&D

structures are generally designed around “activity hubs” that can be project,

research, or learning based. The hubs are created as quickly as they are

dissolved, based upon internal or external conditions and environments. Even in

their smallest business forms, R&D companies usually employ matrix or network

structures due to the team-based, cross-boundary, specializations, and diverse

expertise required to move projects or ideas forward.

R&D has the potential to demonstrate the most beneficial attributes of the

Star Model. Everything in R&D is driven by strategy and objectives and all

strategies require interdependence. Lack in any one area affects other areas of

R&D as well as the success of the project and the organization. Often funded by

venture capitalist or grant monies, the strategy must focus on and propel

collective synergies forward with a rapid pace featuring the ability to change to be

successful.

If you view R&D as a potential profit center and measure results by profit

margins, R&D departments or companies will often fall short of the baseline

benchmarks. R&D success must be measured by innovation, ideas, knowledge,

and creativity and it must be well funded. The downfall for many R&D divisions
and companies comes when they are managed traditionally by employing

functional structures and control-based management techniques that lack the

ability to identify and to seek long-term gains. This can happen when R&D is so

dependent upon grants and investors who require an immediate return on their

investments (less than 5 years). R&D companies and departments are resource

intense.

The business strategy must focus on how to move and disseminate

information and it must not only accommodate communications, it must create

the environment that fosters shared ideas, brainstorming sessions, and

documentation distribution. There is less call for “management” in R&D and a

greater need for true leadership that identifies individual talent and facilitates

learning and growth. The company grows as quickly as talent and learning and

individuals must be “free” to expand and to create – without fear of budget

restraints, but with respect to project deadlines and also to resources. In such,

each individual in an R&D company and division is a stakeholder, a manager,

and a leader and must be ready to, at any given moment, make decisions and to

collaborate collectively.

It is necessary for R&D to develop and focus on core competencies and to

work with cross-company alliances. This can help the department or company

remain competitive as they can utilize the talent of individuals based upon

projects and they can “lease” their own talent to other companies who are

developing core competencies in complementary areas. R&D companies need

to develop a global and collective perspective by redefining competition. The

company must view competition as an opportunity to create a collective or

strategic alliance by combining and utilizing shared core competencies. With this

in mind, R&D need not explore or to implement strategies to “overtake”

competition, to create a competitive advantage, or to win market shares. Rather,

it is better to work with competition and to create complementary core

competencies and share resources and talent without respect to company

boundaries. This creates a win-win solution not only for R&D but also for

consumers as well.

References

Furrer Ph.d., O. (2004). Session 09: Organizational structure and control.

Retrieved Apr. 14, 2005, from Katholieke University Nijmegen,

http://oase.uci.kun.nl/~furrer /SM04/SM04Session09.ppt .

SeeChange Consulting, Inc., (2004). Star model collaboration tool. Retrieved

Apr. 14, 2005, from http://www.webcouncil.com/starmodel/index.php3?

object_id=GME_Home&t=1113497741.

Tactical Strategy Group, Inc., (2004). Information architecture transformation.

Retrieved Apr. 14, 2005, from System Transformation Web site:

http://www.systemtransformation.com/ITOT/itot_perform_req.htm.