Organization Structure and Control Structure Follows Strategy Changes

Organization Structure and Control

Structure Follows Strategy Changes in corporate strategy lead to changes in organizational structure. l – – – New strategy is created New administrative problems emerge Economic performance declines New appropriate structure is invented Profit returns to its previous levels

Strategy Formulation Determinants The determination of strategy formulation involves answering a set of questions in the relevant areas, such as: l – – what is the target group of customers? What are their needs and preferences? What segment of market do they represent? What is the geographic area of the market to be covered?

Strategy Formulation Determinants – – – What will be market niche? What specific products or services should be produced? Which products should receive the maximum emphasis? What ought to be the Price- Quality relationship of the Product lines? What are the distinctive characteristics of the Product? Can these characteristics be differentiated from those of similar competing products?

Stages of corporate development l l l Simple Structure Functional Structure Divisional Structure

Simple Structure l Stage I: – Entrepreneur l Decision making tightly controlled l Little formal structure l Planning short range/reactive l Flexible and dynamic

Functional Structure l Stage II: – Management team – Functional specialization – Delegation decision making – Concentration/specialization in industry

Functional Structure l. Advantages – – – Task grouping facilitates specialization and productivity. Better monitoring of work processes, reduced costs. Greater control over organizational activities. l. Disadvantages – – Functional orientation creates communication problems. Performance and profitability measurement problems. Location versus function problems (coordination). Strategic problems due to structural (vertical and horizontal) mismatches.

Divisional Structure l Stage III: – Diverse product lines – Decentralized decision making – Almost unlimited resources

Evaluation & Control

Types of Controls l l l Behaviour control – How something is done through policies, procedures, rules, SOP’s. – ISO 9000 Standards Series – ISO 14000 Standards Series Output control – What is to be accomplished; focus on end result through performance targets. Input control – Resources – skills, abilities, values, motives.

Primary Measures of Performance Traditional Financial Measures l – – – Return on investment (ROI) Earnings per share (EPS) Return on equity (ROE) Operating cash flow Free cash flow

Primary Measures of Performance Shareholder l – – – Shareholder value Economic value added (EVA) Market value added (MVA)

Primary Measures of Performance Balanced Scorecard Approach l – – Financial Customer Internal business perspective Innovation and learning

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