Chapter 11

Chapter 11 - Chapter 11 Organizational Structure and...

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Unformatted text preview: Chapter 11 Organizational Structure and Controls ORGANIZATIONAL STRUCTURE AND CONTROLS Organizational Structure Organizational structure specifies the firm’s formal reporting relationships, procedures, controls, and authority and decision-making processes. Developing an organizational structure that effectively supports the firm’s strategy is difficult, especially because of the uncertainty (or unpredictable variation) in cause-effect relationships in the global economy’s rapidly changing, dynamic competitive environments. Structure facilitates effective implementation of a firm’s strategies when elements of that structure (e.g., reporting relationships, procedures, and so forth) are properly aligned with one another. Thus, organizational structure is a critical component of effective strategy implementation processes. Structure specifies the work to be done and how to do it (given the firm’s strategy or strategies) by specifying the processes that are to be used to complete organizational tasks. Effective structures provide the stability the firm needs to rely on its current competitive advantages to successfully implement today’s strategies while providing the flexibility required to develop competitive advantages that will be needed to use future strategies; thus, an effective organizational structure allows the firm to exploit current competitive advantages while developing new ones. Modifications to the firm’s current strategy or selection of a new strategy call for changes to organizational structure. This is not uncommon since organizational inertia often inhibits structural changes, even if performance declines. Because of inertial tendencies, structural change is often induced by the actions of stakeholders who are no longer willing to tolerate the firm’s inadequate performance. Organizational Controls Organizational controls guide the use of strategy, indicate how to compare actual results with expected results, and suggest corrective actions to take when the difference between actual and expected results is unacceptable. Properly designed organizational controls—strategic and financial—provide insights into behaviors that enhance firm performance. Strategic controls are largely subjective criteria intended to verify that the firm is using strategies that are appropriate given the conditions in the external environment and the company’s competitive advantages. Thus, strategic controls are concerned with examining the fit between what the firm might do (external environment) and what it can do (its competitive advantages). Effective strategic controls help the firm understand what it takes to be successful. Strategic controls demand rich communication between managers using them and those implementing the firm’s strategy. These frequent exchanges are both formal and informal in nature....
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Chapter 11 - Chapter 11 Organizational Structure and...

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