A scale and scope of operations have increased to such an extent to necessitate task specialization and some degree of decentralization of decision making. In practice, there is wide variation. Some Stage II organizations prefer to divide strategic responsibilities along classic functional lines marketing, production finance, personnel, control, engineering, public relations, procurement, planning and so on. In vertical integrated Stage II firms, the main organization units are sequenced according to the flow from one vertical stage to another.
For example, the organizational building blocks of a large oil company usually consist of exploration, drilling, pipelines, refining, wholesale distribution, and retail sales. However, there is point beyond which Stage II structure simply does not the flexibility to handle the very complex business situation. Thus, organization should consider a Stage III Structure.
Stage III consists of organizations whose operations area large enough and scattered over a wide geographic are to justify having geographically decentralized operating units. These semiautonomous units may still be structured along functional lines.
The key difference between Stage II and Stage III, however, is that while the functional units of a II Stage organization stand or fall together (in that they are built around one business and one end market), the operating units of a Stage III firm can stand alone (or nearly so) in the sense that the operations in each geographic unit are not rigidly tied to or dependent on those in other areas.
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