DISCUSSION QUESTION 2-1
MB609 Capstone: Case and Industry Analysis
Lesson 2: Strategy Implementation, Staffing, and Directing
Discussion Question 1 (50 points)
Describe the three basic types of organizational structures and the challenges/crises faced by the organization as it moves through each stage of corporate development. In addition, describe the matrix and network organizational structures. Discuss when their use is appropriate.
Three basic types of organizational structures the first is simple structure this is typified by the entrepreneur or a small team who founds a company to promote an idea a product or a service (Wheelen, Hunger, Hoffman, Bamford, 2016, p.255). The entrepreneur or team tend to make all the important decisions and is involved in every detail and phase of the organization. This stage the company has little formal structure which allows the entrepreneur or team to directly supervise the activities of every employee (Wheelen et al., 2016, p.255). Planning is usually short range or reactive. The typical managerial functions of planning, organizing, directing, staffing, and controlling are usually performed to a very limited degree, if at all. The greatest strengths of this stage are that corporations are its flexibility and dynamism (Wheelen et al., 2016, p.255). The greatest weakness is its extreme reliance on the entrepreneur to decide general strategies as well as detailed procedures. If the entrepreneur falters the company usually flounders. This can also be considered the challenge with this stage (Wheelen et al., 2016, p.255).
Next up is functional structure which is the point when the entrepreneur is replaced by a team of managers who have functional specializations (Wheelen et al., 2016, p.256). The transition to this stage requires a substantial managerial style change for the chief officer of the company, especially if he or she was the Stage I entrepreneur. He or she must learn to delegate; otherwise, having additional staff members yields no benefits to the organization (Wheelen et al., 2016, p.256). The previous example of Ellison’s retreat from top management at Oracle Corporation to new product development manager is one way that technically brilliant founders can get out of the way of the newly empowered functional managers (Wheelen et al., 2016, p.256). In Stage II, the corporate strategy favors protectionism through dominance of the industry, often through vertical and horizontal growth (Wheelen et al., 2016, p.256).
The great strength of a Stage II corporation lies in its concentration and specialization in one industry. Its great weakness is that all its eggs are in one basket (Wheelen et al., 2016, p.256). By concentrating on one industry while that industry remains attractive, a Stage II company, such as Oracle Corporation in computer software, can be very successful (Wheelen et al., 2016, p.256). Once a functionally structured firm diversifies into other products in different industries, however, the advantages of the functional structure break down. A crisis of autonomy can now develop, in which people managing diversified product lines need more decision-making freedom than top management is willing to delegate to them (Wheelen et al., 2016, p.256). The company needs to move to a different structure (Wheelen et al., 2016, p.256).
Lastly is divisional structure it is typified by the corporation’s managing diverse product lines in numerous industries; it decentralizes the decision-making authority (Wheelen et al., 2016, p.257). Stage III organizations grow by diversifying their product lines and expanding to cover wider geographical areas. They move to a divisional structure with a central headquarters and decentralized operating divisions—with each division or business unit a functionally organized Stage II company (Wheelen et al., 2016, p.257). They may also use a conglomerate structure if top management chooses to keep its collection of Stage II subsidiaries operating autonomously (Wheelen et al., 2016, p.257). A crisis of control can now develop, in which the various units act to optimize their own sales and profits without regard to the overall corporation, whose headquarters seems far away and almost irrelevant (Wheelen et al., 2016, p.257).
The matrix structure, in contrast, may be very appropriate when organizations conclude that neither functional nor divisional forms, even when combined with horizontal linking mechanisms such as SBUs, are right for their situations (Wheelen et al., 2016, p.260). In matrix structuresmatrix structures, functional and product forms are combined simultaneously at the same level of the organization (Wheelen et al., 2016, p.260). Employees have two superiors, a product or project manager, and a functional manager. The “home” department—that is, engineering, manufacturing, or sales—is usually functional and is reasonably permanent. People from these functional units are often assigned temporarily to one or more product units or projects (Wheelen et al., 2016, p.260). The product units or projects are usually temporary and act like divisions in that they are differentiated on a product-market basis (Wheelen et al., 2016, p.260).
Pioneered in the aerospace industry, the matrix structure was developed to combine the stability of the functional structure with the flexibility of the product form (Wheelen et al., 2016, p.260). The matrix structure is very useful when the external environment (especially its technological and market aspects) is very complex and changeable (Wheelen et al., 2016, p.260). It does, however, produce conflicts revolving around duties, authority, and resource allocation. To the extent that the goals to be achieved are vague and the technology used is poorly understood, a continuous battle for power between product and functional managers is likely (Wheelen et al., 2016, p.260). The matrix structure is often found in an organization or SBU when the following three conditions exist (Wheelen et al., 2016, p.260):
Temporary cross-functional task forces: These are initially used when a new product line is being introduced. A project manager is in charge as the key horizontal link.
▪ Product/brand management: If the cross-functional task forces become more permanent, the project manager becomes a product or brand manager and a second phase begins.
▪ Mature matrix: The third and final phase of matrix development involves a true dual-authority structure. Both the functional and product structures are permanent (Wheelen et al., 2016, p.260).
A newer and somewhat more radical organizational design, the network structurenetwork structure is an example of what could be termed a “non-structure” because of its virtual elimination of in-house business functions. Many activities are outsourced (Wheelen et al., 2016, p.262). A corporation organized in this manner is often called a virtual organizationvirtual organization because it is composed of a series of project groups or collaborations linked by constantly changing nonhierarchical, cobweb-like electronic networks (Wheelen et al., 2016, p.262). The network structure becomes most useful when the environment of a firm is unstable and is expected to remain so. Under such conditions, there is usually a strong need for innovation and quick response (Wheelen et al., 2016, p.262). Instead of having salaried employees, the company may contract with people for a specific project or length of time. Long-term contracts with suppliers and distributors replace services that the company could provide for itself through vertical integration (Wheelen et al., 2016, p.262).
Electronic markets and sophisticated information systems reduce the transaction costs of the marketplace, thus justifying a “buy” over a “make” decision. Rather than being in a single building or area, the organization’s business functions are scattered worldwide (Wheelen et al., 2016, p.262). The organization is, in effect, only a shell, with a small headquarters acting as a “broker,” electronically connected to some completely owned divisions, partially owned subsidiaries, and other independent companies (Wheelen et al., 2016, p.262). In its ultimate form, a network organization is a series of independent firms or business units linked together by computers in an information system that designs, produces, and markets a product or service (Wheelen et al., 2016, p.262). The network organizational structure provides an organization with increased flexibility and adaptability to cope with rapid technological change and shifting patterns of international trade and competition (Wheelen et al., 2016, p.262).
It allows a company to concentrate on its distinctive competencies, while gathering efficiencies from other firms that are concentrating their efforts in their areas of expertise (Wheelen et al., 2016, p.262). The network does, however, have disadvantages (Wheelen et al., 2016, p.262). Some believe that the network is only a transitional structure because it is inherently unstable and subject to tensions. The availability of numerous potential partners can be a source of trouble (Wheelen et al., 2016, p.262). Contracting out individual activities to separate suppliers/distributors may keep the firm from discovering any internal synergies by combining these activities (Wheelen et al., 2016, p.262). If a firm overspecializes on only a few functions, it runs the risk of choosing the wrong functions and thus becoming noncompetitive (Wheelen et al., 2016, p.262).
Wheelen, T. L., Hunger, J. D., Hoffman, A. N. And Bamford, C. E. (2016). Strategic management and business policy (14th ed.). NJ: Prentice Hall.