Chapter 11 Competitive Rivalry and Competitive Dynamics Hitt

Chapter 11 Competitive Rivalry and Competitive Dynamics Hitt, Ireland, and Hoskisson

Organizational structure and controls n Organizational structure q q The firm’s formal reporting relationships, procedures, controls, authority and decision-making processes. It specifies the work to be done and how to do it, given the firm’s strategy. n Organizational controls q q Guides the use of strategy, indicates how to compare actual and expected results, suggests actions to take to improve performance when it falls below expectations. It influences how managers work and the decisions resulting from that work. A proper match between strategy and structure can lead to a competitive advantage. Copyright © 2008 Cengage

Organizational controls n Organizational controls q q n Strategic controls (largely subjective criteria) financial controls (largely objective criteria) Both controls are critical, although their degree of emphasis varies based on individual matches between strategy and structure. Copyright © 2008 Cengage

Strategy and structure n Strategy and structure - a reciprocal relationship q q q Although strategy has a stronger influence on structure. Firms tend to change structure when declining performance forces them to do so. Effective managers anticipate the need for structural change and quickly modify structure to better accommodate the firm’s strategy when evidence calls for that action. Copyright © 2008 Cengage

Simple structure n Simple structure q n A structure in which the owner-manager makes all major decisions and monitors all activities while the staff serves as an extension of the manager’s supervisory authority. Associated strategy q Focus strategies, often used in small firms, require a simple structure until such time that the firm diversifies in terms of products and/or markets. Copyright © 2008 Cengage

Functional structure n The functional structure q q n Used to implement business-level strategies. Structure includes a chief executive officer and a limited corporate staff, with functional line managers in dominant organizational areas such as production, accounting, marketing, R&D, engineering, and human resources. Associated strategy q q Cost leadership strategy requires a centralized functional structure—one in which manufacturing efficiency and process engineering are emphasized. Differentiation strategy uses a functional structure that decentralizes implementation-related decisions. Copyright © 2008 Cengage

Multidivisional structures n The multidivisional (M-form) structure q Consists of operating divisions, each representing a separate business or profit center in which the top corporate officer delegates responsibilities for day-to-day operations and business-unit strategy to division managers. n n n Cooperative M-form SBU M-form structure Competitive M-form structure Copyright © 2008 Cengage

Characteristics of the Structures Necessary to Implement the Related Constrained, Related Linked, and Unrelated Diversification Strategies Overall Structural Form Cooperative M-Form SBU M-Form Competitive M-Form Structural Characteristics (Related Constrained Strategy)a (Related Linked Strategy)a (Unrelated Diversification Strategy)a Centralization of operations Centralized at corporate office Partially centralized (in SBUs) Decentralized to divisions Use of integration mechanisms Extensive Moderate Nonexistent Divisional performance appraisals Emphasize subjective (strategic) criteria Use a mixture of subjective (strategic) and objective (financial) criteria Emphasize objective (financial) criteria Mixed linkage to corporate, SBU, and divisional performance Linked to divisional performance Divisional incentive Linked to overall compensation corporate performance Copyright © 2008 Cengage

Multi-domestic strategy n The multi-domestic strategy q q q Implemented through the worldwide geographic area structure emphasizes decentralization locates all functional activities in the host country or geographic area. Copyright © 2008 Cengage

Transnational strategy n Transnational strategy q Combines local responsiveness of multi-domestic strategy and global efficiency of global strategy, implemented through the combination structure n Combination structure - difficult to organize and manage because it must be simultaneously centralized and decentralized, integrated and nonintegrated, and formalized and non-formalized Copyright © 2008 Cengage

Implementing transnational strategy n 2 structural designs suggested n q Matrix structure n n n q Both have geographic and product-oriented divisions Unites local market and product expertise into teams Problem: employees may be accountable to multiple managers Reporting relationships may be complex and vague Hybrid structure n Some oriented toward products, others toward market areas Copyright © 2008 Cengage

Cooperative strategies and network structures n Cooperative strategies q q n Are increasingly important to competitive success Are implemented through organizational structures framed around strategic networks. Strategic center firms play a critical role in managing strategic networks. Copyright © 2008 Cengage

Network strategies n Strategic network q n Group of firms formed to create value by participating in multiple cooperative arrangements Strategic center firm q q Foundation for the strategic network’s structure. Strategic center firm has 4 primary tasks n n Strategic outsourcing Competencies Technology Race to learn Copyright © 2008 Cengage