Michael_A._Hitt,_R._Duane_Ireland,_Robert_E._Hosk

Chapter 11: Organizational Structure and Controls 355

Jobs are highly specialized in the cost leadership functional structure; work is divided

into homogeneous subgroups. Organizational functions are the most common subgroup,

although work is sometimes batched on the basis of products produced or clients served.

Specializing in their work allows employees to increase their efficiency, resulting in

reduced costs. Guiding individuals’ work in this structure are highly formalized rules

and procedures, which often emanate from the centralized staff.

Walmart Stores, Inc. uses the functional structure to implement cost leadership strat-

egies in each of its three operating segments (Walmart U.S., Sam’s Clubs, and Walmart

International). In the Walmart U.S. segment (which generates the largest share of the

firm’s total sales), the cost leadership strategy is used in the firm’s Supercenter, Discount,

Neighborhood Market, and digital retail formats.^64 For the entire corporation, the firm

says that it is committed to “saving people money so they can live better.”^65 Over the years,

competitors’ efforts to duplicate the success Walmart has achieved by implementing its

cost leadership strategies have generally failed, partly because of the effective strategy/

structure matches the firm has formed between the cost leadership strategy and the func-

tional structure that is specific to the mandates of that strategy.

Using the Functional Structure to Implement the

Differentiation Strategy

Firms using the differentiation strategy seek to produce products that customers perceive

as being different in ways that create value for them. With this strategy, the firm sells non-

standardized products to customers with unique needs. Relatively complex and flexible

reporting relationships, frequent use of cross-functional product development teams, and

Figure 11.2 Functional Structure for Implementing a Cost Leadership Strategy

Office of the President

Engineering Marketing Operations Personnel Accounting

Centralized Staff

May be a r

elatively flat or tall structur

e

Notes:

• Operations is the main function.


• Process engineering is emphasized rather than new product R&D.


• Relatively large centralized staff coordinates functions.


• Formalized procedures allow for emergence of a low-cost culture.


• Overall structure is mechanistic; job roles are highly structured.