A divisional structure tends to be adopted by firms that are diversified by products or markets.

organizational architecture

Totality of a firm's organization

-Includes formal organizational structure, control systems & incentives, processes, organizational culture, & people

Superior enterprise profitability requires three conditions to be fulfilled:

1. different elements of a firm's organizational architecture internally consistent
2. The organizational arch. must match or fit the strategy of the firm
3. strategy & architecture must be consistent with competitive conditions in the firm's markets.

determined by the formal division into subunits, the location of decision making (centralized, decentralized), & the coordination of activities of subunits (cross functional teams &/or pan regional committees.)

are the metrics used to measure the performance of subunits & make judgments about how well managers are running those subunits

the devices used to reward appropriate managerial behavior.

closely tied to performance metrics

are the manner in which decisions are made & work is performed within the organization

-distinct from the location of decision making in firms

ex) processes for formulating strategy, for deciding how to allocate resources, or evaluating manager's performance.

the norms and value systems that are shared among the employees of an organization

not only employees of the firm but also the strategy used to recruit, compensate, and retain those individuals & the type of people that they are in terms of skills, values, and orientation

Organizational structure can be thought of three dimensions:

1. vertical differentiation
2. horizontal differentiation
3. integrating mechanisms

the centralization & decentralization of decision making responsibilities

arguments for centralization (vertical differentiation)

1. facilitates coordination
2. ensures decisions are consistent with objectives
3. gives top-level managers the means to bring major changes in the organization
4. avoids duplication of activities

arguments for decentralization (vertical differentiation)

1. top management can become overburdened (when centralized)
2. motivational research supports decentralization
3. greater flexibility, more rapid response to environmental changes
4. can result in better decisions
5. can increase control

horizontal differentiation

The division of the firm into subunits

-decision making tends to be centralized

mechanisms for achieving coordination between subunits within an organizations

division responsible for a firm's international activities

favored by firms with low degree of diversification and a domestic structure based on functions

-world is divided into geographic areas

worldwide product division structure

firms that are reasonably diversified and originally had domestic structures based on product divisions tend to adopt this. Each division is a self contained, largely autonomous entity with a full responsibility for its own value creation activities

horizontal differentiation proceeds along two dimensions: product divisions and areas

-firms attempt to cope with the conflicting demands of a transnational strategy by adopting GMS.

-dual hierarchy (divisional & area)

formal integrating mechanisms

• Direct contact- is the simplest
• Liaison roles- bit more complex
• Teams- when the need for coordination is greater
• matrix structure- when the need for integrations is really high

network for transmitting information within an organization that is based on informal contacts between managers within an enterprise & on distributed information systems

-(informal integrating mechanism)

control by personal contact with subordinates

-used widely in small firms

The four main types of control systems used in multinational firms?

1. personal controls
2. bureaucratic controls
3. output controls
4. cultural controls

control through a system of rules and procedures that directs the actions of subunits

• most important bureaucratic controls in subunits within multinational firms are budgets & capital spending rules

involve setting goals for subunits to achieve & expressing those goals in terms of relatively objective performance metrics such as profitability, productivity, growth, market share, & quality

exist when employees "buy into" the norms & value systems of the firm.

• when this occurs employees tend to control their own behavior, thus reducing the need for direct supervision

exists when the causes of a subunit's poor performance are not clear.

• raises the cost of control

the amount of time top mgmt. must devote to monitoring and evaluating subunits' performance

• this is greater when performance ambiguity is also greater

Interdependence between strategies

Strategy, structure, & control systems table

basic principles for successful organizational change

• unfreeze the organization through shock therapy (closure of plants deemed uneconomical)
• move the organization to a new state through proactive changes in architecture (reorganizing the structure, reassigning responsibilities)
• refreeze the organization in its new state

Which of the following statement is true about a product divisional structure?

What type of organization is well suited for a divisional organizational structure?

What is considered the main problem with the worldwide product divisional structure?

Which structure control is most appropriate for a firm pursuing a localization strategy?