Exam 11: Organizational Structure and Controls

Which of the following is TRUE?

Organizational inertia often prompts top management to initiate structural change when organizational performance levels drop.

After years of negotiating short-term contracts with its suppliers, Icon Images has decided to agree to longer-term contracts. In doing this, Icon Images is hoping to

Case Scenario 1: Compliance, Inc. Compliance, Inc., (CI) conducts clinical human and animal trials for the pharmaceutical and biotechnology industries. Revenues are split evenly between early and late drug development services. While the bulk of its business is conducted in Europe and the U.S. (10 and 17 subsidiaries, respectively), CI also has subsidiaries in Africa, Latin America, Asia, and Australia. Historically CI operated under a multidomestic strategy, owing to the fact that the clinical testing industry was geographically fragmented to meet the diverse needs of the many strong local pharmaceutical companies and distinct regulatory environments. CI's organizational structure truly reflected the autonomous character of each country's businesses. Many of the country managers have been with CI for over a decade, and have a great deal of discretion over the activities of their home-market businesses. However, globalization of the regulatory environment (both global and local standards), globalization of the biotechnology firms (increasing the geographic scope of their operations), and tremendous consolidation in the pharmaceutical industry (reducing the number of pharmaceutical industry participants to only a handful of major global companies) caused CI to question its multidomestic strategy. Consequently, the firm has begun its transition to a transnational strategy. -(Refer to Case Scenario 1) What obstacles is CI likely to encounter as it attempts to change its structure to support the transnational strategy?

In the Chapter 10 Opening Case about Borders shows that although strategy has a more important influence on structure, once a particular structure is in place, that structure influences strategy.

The simple structure is used by owner-managed firms which are characterized by informal relationships, few rules, limited task specialization, and unsophisticated information systems.

Typically, an organization using a simple structure would be

The centralized structure used by Borders (Chapter 11 Opening Case) did not provide information from local stores that might have been useful in changing its technology strategy more quickly than it did. This example illustrates the effect of structure on strategy.

Case Scenario 2: Palmetto. Palmetto was an early pioneer of personal data assistants (PDAs) and dominates that market space (in terms of market share) with its core product, the Palmetto Pidgy. Because this product category was entirely new to the market, Palmetto had to internally develop the hardware and software sides of the business, and today is both a manufacturer of PDAs and a programmer and licensor of its PDA operating system software. Recently however, the hand-held device maker's performance has taken a dive as a result of slumping sales and costly inventory problems. Palmetto has also had difficulty coordinating its software and hardware businesses, in part due to the near absence of a coherent structure and the differing economics underlying the two. Specifically, hardware for PDAs is increasingly a cost-based business, while software is a highly differentiated one. While Palmetto is doing pretty well in both businesses, its own resource base does not allow it to compete any differently than that proscribed for other industry participants (i.e., competes on cost with hardware and features with software). In addition to these fundamental differences, new large entrants are entering both the equipment (e.g., Sony) and software (e.g., Microsoft) sides of its business, putting further pressure on margins. Management has decided that it is unable to focus on the complexities of each of these businesses so it is opting to break Palmetto into two separate, independent public companies - Pal, Inc. will be devoted to hardware and Mettolink, Inc. will be devoted to software. -(Refer to Case Scenario 2) How would the implementation of this structure differ for Mettolink?

The three structural characteristics which differ between organizational structures include all of the following EXCEPT

Describe the three major types of organizational structure and their appropriate use.

Discuss the organizational structures used to implement the different business-level strategies.

Case Scenario 2: Palmetto. Palmetto was an early pioneer of personal data assistants (PDAs) and dominates that market space (in terms of market share) with its core product, the Palmetto Pidgy. Because this product category was entirely new to the market, Palmetto had to internally develop the hardware and software sides of the business, and today is both a manufacturer of PDAs and a programmer and licensor of its PDA operating system software. Recently however, the hand-held device maker's performance has taken a dive as a result of slumping sales and costly inventory problems. Palmetto has also had difficulty coordinating its software and hardware businesses, in part due to the near absence of a coherent structure and the differing economics underlying the two. Specifically, hardware for PDAs is increasingly a cost-based business, while software is a highly differentiated one. While Palmetto is doing pretty well in both businesses, its own resource base does not allow it to compete any differently than that proscribed for other industry participants (i.e., competes on cost with hardware and features with software). In addition to these fundamental differences, new large entrants are entering both the equipment (e.g., Sony) and software (e.g., Microsoft) sides of its business, putting further pressure on margins. Management has decided that it is unable to focus on the complexities of each of these businesses so it is opting to break Palmetto into two separate, independent public companies - Pal, Inc. will be devoted to hardware and Mettolink, Inc. will be devoted to software. -(Refer to Case Scenario 2) Which structural form would be best for Pal Inc. given that it competes on the basis of low cost?

Case Scenario 3: Jewell Company. Jewell Company (JC) is a $2 billion diversified manufacturer and marketer of simple household items, cookware, and hardware. While JC's 16 different lines of business may appear quite different, they all share the common characteristics of being staple manufactured items and sold primarily through volume retail channels like Wal-Mart, Target, and Kmart. Because JC operates each line of business autonomously (separate manufacturing, R&D, and selling responsibilities for each line), it is perhaps best described as pursuing a related linked diversification strategy. The common linkages are both internal (accounting systems, product merchandising skills, and acquisition competency are centralized in the corporate office) and external (distribution channel of volume retailers). Despite this partial centralization of the divisions' operations, each business is run entirely separately. To keep the managers focused on their respective businesses, they are paid a base salary but can earn up to three times that salary in bonuses based on meeting divisional performance targets. An additional, but smaller part of their compensation is derived from stock options. -(Refer to Case Scenario 3) What is the corporate structural form used by Jewell?

Functional structures work best for firms for all of the following strategies EXCEPT

The marketing and R&D functions are emphasized in the differentiation strategy's functional structure.

In the Chapter 11 Strategic Focus, Cisco went too far in trying to achieve cooperation among its various units resulting in managers attending several meetings and an overall slowed decision making process.

Airlines have forged a number of complementary strategic alliances, in part because many airlines are not profitable. Some airlines participate in several alliances simultaneously. This tends to

The worldwide geographic area structure differs from the worldwide product divisional structure in the level of centralization of decision-making.

A simple structure is an organizational form in which the owner-manager makes all major decisions directly and monitors all activities, while the staff merely serves as an extension of the manager's supervisory authority.