Strategic Management: Formulation and Implementation

Strategic Business Units

Organizational growth may ultimately require that related product lines be grouped into division and that the division themselves then be grouped into strategic business units (SBU). A strategic business unit is agrouping of business units based on some important strategic elements common to each: a closely related strategic mission, a common need to compete globally, and ability to accomplish integrated strategic planning, common key success factors, and technologically related growth opportunities. Figure 35 illustrates the SBU form of organization, along with its strategyrelated pros and cons.

Matrix Structure

Another way to achieve focus on multiple outcomes is with the matrix structure. The matrix structure creates a dual chain of command; two lines of budget authority, and two sources of performance and reward. The key feature of the matrix is that product (or business) and functional lines of authority are overlaid to form a matrix or grid, between the product manager andfunctional manager.

Davis and Lawrence suggest using the matrix model when three condition are met:

1. The environmental domain of the organization is both complex and uncertain. Frequent external changes and high interdependence between department require a large amount of coordination and information processing in both vertical and horizontal directions.

2. The environments put pressure on the organization form two or more critical outputs, such as technical expertise and quality and product innovation and change. This dual pressure means a balance of power is needed between the functional and product sides of the organization, and a dualauthority structure is needed to maintain that balance.

3. The organization is concerned with the economic utilization of internal resources and stresses achieving economies of scale. The organization is typically medium sized and has a moderate number of product lines. It feels pressure for the shared and flexible use of its human and others resources.

The strength of the matrix is that it enables an organization to meet dual demands from the environment. Resources (people, equipment) can be flexibly allocated across different products, and the organization can adopt to changing external requirements.

Although increased coordination is the desired goal, matrix forms have had their share of coordination problems. Matrices are very expensive and evendys functional in stable organization with few products. Another disadvantage of the matrix is that some employees experience dual authority, which is frustrating and confusing. However, a matrix approach allows each of several strategic consideration to be managed directly and to be formally represented in the organization structure. It helps middle managers make tradeoff decisions from an organization wide perspective.