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 relatedlinked 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 Characteristics Type of Strategy Degree of Centralization Use of Integrating Mechanisms Divisional Performance Appraisal Divisional Incentive Compensation Cooperative Relatedconstrained Centralized at the Corporate Office Extensive Synergies Subjective / Strategic Criteria Corporate Performance SBU Mixed related or unrelated Centralized in SBUs Moderate Synergies Strategic and Financial Criteria Corporation, Division & SBU Competitive Unrelated Decentralized to Division Nonexistent Synergies Financial Criteria Divisional Performance

Table 1: Copyright © Furrer (2004).

Division of Labor Coordination Decision rights Importance of Informal Structure Politics Basis of Authority

Organizational Structure Comparison Functional Divisional Matrix Inputs & Inputs Outputs outputs Hierarchical General supervision, Dual reporting Manager & plans / relationships Corporate staff procedures Separation of Highly strategy & Shared centralized execution Low Interfunctional Positional & functional expertise Moderate CorporateDivision & Inter-divisional General management responsibility & resources Considerable Along matrix & resources Negotiating & resources

Network Knowledge Crossfunctional teams Highly decentralized High Shifting coalitions

Table 2: Copyright © Furrer (2004).

Structural Differences: Advantages / Disadvantages
Functional Resource Efficiency Time Efficiency Responsiveness Adaptability Accountability Environment Best Suited Strategy Best Suited Excellent Poor Poor Poor Good Stable Focus / low cost Divisional Poor Good Moderate Good Excellent Heterogeneous Diversified Matrix Moderate Moderate Good Moderate Poor Complex and multiple demand Responsivenes s Network Good Excellent Excellent Excellent Moderate Volatile Innovation

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. 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 R&D

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.