Chapter 11: Organizational Structure and Controls 347
use to implement separate business-level, corporate-level, international, and cooperative
strategies. We present a series of figures to highlight the different structures firms match
with different strategies. Across time and based on their experiences, organizations, espe-
cially large and complex ones, customize these general structures to meet their unique
needs.^6 Typically, firms try to form a structure that is complex enough to facilitate use of
their strategies but simple enough for all parties to understand and use.^7
11-1 Organizational Structure and Controls
Research shows that organizational structure and the controls that are a part of the struc-
ture affect firm performance.^8 In particular, evidence suggests that performance declines
when the firm’s strategy is not matched with the most appropriate structure and controls.^9
Even though mismatches between strategy and structure do occur, research indicates that
managers try to act rationally when forming or changing their firm’s structure.^10
In Chapter 2’s Opening Case, we talked about problems McDonald’s is encounter-
ing when trying to cope effectively with changes that are taking place in the external
environment. As we noted then, the firm is changing its menu to better accommodate
some consumers’ preferences for healthier food. Additionally though and more broadly,
changes are being made to McDonald’s organizational structure with the expectation
that doing so will lead to enhanced firm performance. Defined comprehensively below,
organizational structure essentially specifies the work that must be completed so the firm
can implement its strategy.
McDonald’s leaders, including new CEO Steve Easterbrook, believe that changes being
made to the firm’s structure will increase its efficiency (that is, its daily operations will
improve) and its effectiveness (that is, it will better serve customers’ needs). We discuss
changes that have been made to McDonald’s organizational structure in the Strategic Focus.
11-1a Organizational Structure
Organizational structure specifies the firm’s formal reporting relationships, procedures,
controls, and authority and decision-making processes.^11 A firm’s structure determines
and specifies the decisions that are to be made and the work that is to be completed by
everyone within an organization as a result of those decisions.^12 Organizational routines
serve as processes that are used to complete the work required by individual strategies.^13
Developing an organizational structure that effectively supports the firm’s strategy is
difficult, especially because of the uncertainty (or unpredictable variation) about cause-
effect relationships in the global economy’s rapidly changing competitive environments.^14
When a structure’s elements (e.g., reporting relationships, procedures, etc.) are properly
aligned with one another, the structure increases the likelihood that the firm will operate
in ways that allow it to better understand the challenging cause/effect relationships it
encounters when competing against its rivals. Thus, helping the firm effectively cope with
environmental uncertainty is an important contribution organizational structure makes
to a firm as it seeks to successfully implement its strategy or strategies as a means of
outperforming competitors.^15
Appropriately designed organizational structures provide the stability a firm needs
to successfully implement its strategies and maintain its current competitive advantages
while simultaneously providing the flexibility to develop advantages it will need in the
future.^16 More specifically, structural stability provides the capacity the firm requires to
consistently and predictably manage its daily work routines,^17 while structural flexibility
makes it possible for the firm to identify opportunities and then allocate resources to
pursue them as a way of being prepared to succeed in the future.^18 Thus, an effectively
Organizational structure
specifies the firm’s formal
reporting relationships,
procedures, controls, and
authority and decision-
making processes.
