Michael_A._Hitt,_R._Duane_Ireland,_Robert_E._Hosk

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Chapter 11: Organizational Structure and Controls 361


The divisions within each SBU are related in terms of shared products or markets or
both, but the divisions of one SBU have little in common with the divisions of the other
SBUs. Divisions within each SBU share product or market competencies to develop econ-
omies of scope and possibly economies of scale. The integrating mechanisms used by the
divisions in this structure can be equally well used by the divisions within the individual
strategic business units that are part of the SBU form of the multidivisional structure. In
this structure, each SBU is a profit center that is controlled and evaluated by the headquar-
ters office. Although both financial and strategic controls are important, on a relative basis,
financial controls are vital to headquarters’ evaluation of each SBU; strategic controls are
critical when the heads of SBUs evaluate their divisions’ performances. Strategic controls
are also critical to the headquarters’ efforts to evaluate the quality of the portfolio of busi-
nesses that has been formed and to determine if those businesses are being successfully
managed. Sharing competencies among units within individual SBUs is an important char-
acteristic of the SBU form of the multidivisional structure (see the notes to Figure 11.6).
A disadvantage associated with the related linked diversification strategy is that, even
when efforts to implement it are being properly supported by use of the SBU form of
the multidivisional structure, firms using this strategy and structure combination find
it challenging to effectively communicate the value of their operations to shareholders
and to other investors.^77 Furthermore, if coordination between SBUs is required, prob-
lems can surface because the SBU structure, similar to the competitive form discussed
next, does not readily foster cooperation across SBUs. Accordingly, those responsible for
implementing the related linked strategy must focus on successfully creating and using
the types of integrating mechanisms we discussed earlier.
For many years, Sony Corporation used the related constrained strategy and the
cooperative form of the multidivisional structure to implement it. Today though, and
in response to declining firm performance, Sony appears to be using the related linked
strategy and the SBU form of the multidivisional structure to implement what is a new
strategy for the firm. As we discuss in the Strategic Focus, changes to the firm’s strategy
and organizational structure have occurred recently in order to increase Sony’s efficiency
(essentially, doing things right) and effectiveness (essentially, doing the right things).


Using the Competitive Form of the Multidivisional Structure to
Implement the Unrelated Diversification Strategy
Firms using the unrelated diversification strategy want to create value through efficient
internal capital allocations or by restructuring, buying, and selling businesses.^78 The com-
petitive form of the multidivisional structure supports implementation of this strategy.
The competitive form is an M-form structure characterized by complete indepen-
dence among the firm’s divisions that compete for corporate resources (see Figure 11.7).
Unlike the divisions included in the cooperative structure, divisions that are part of the
competitive structure do not share common corporate strengths. Accordingly, integrating
mechanisms are not part of the competitive form of the multidivisional structure.
The efficient internal capital market that is the foundation for using the unrelated
diversification strategy requires organizational arrangements emphasizing divisional com-
petition rather than cooperation.^79 Three benefits are expected from the internal com-
petition. First, internal competition creates flexibility (e.g., corporate headquar ters can
have divisions working on different technologies and projects to identify those with the
greatest potential). Resources can then be allocated to the division appearing to have the
most potential to drive the entire firm’s success. Second, internal competition challenges
the status quo and inertia because division heads know that future resource allocations
are a product of excellent current performance as well as superior positioning in terms of
future performance. Third, internal competition motivates effort in that the challenge of


The competitive form
is an M-form structure
characterized by complete
independence among the
firm’s divisions that compete
for corporate resources.
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