What Is the Link Between Strategy and Architecture

Synthesis: What is the link between Strategy and Architecture (pg 439-443, pg 458-460)

Strategy

Structure and Controls Localisation International Global Standardisation Transnational

Vertical Differentiation Decentralised Core Competency, more centralised; rest decentralised Some centralisation Mixed Centralisation and decentralisation

Horizontal Differentiation Worldwide Area Structure Worldwide product divisions Worldwide product divisions Informal matrix

Need for coordination Low Moderate High Very High

Integrating mechanisms None Few Many Very many

Performance ambiguity Low Moderate High Very High

Need for cultural controls Low Moderate High Very High

1 Worldwide Area Structure (use with localisation strategy)

1.10 Localisation strategy

Firms pursuing a localisation strategy focus on local responsiveness.

1.11 Need for Coordination

The need for coordination between subunits (areas and country subsidiaries) is low.

1.12 Integrating Mechanisms

This suggest that firms pursuing a localization strategy do not have a need for integrating mechanisms, either formal or informal, to knit together different national operations.

1.13 Performance Ambiguity

The lack of interdependence implies that the level of performance ambiguity in such enterprise is low, as (by extension) are the costs of controls. Thus, headquarters can manage foreign operations by relying primarily on output and bureaucratic controls and a policy of management by exception. Incentives can be linked to performance metrics at the level of country subsidiaries.

1.14 Organisation Culture

Since the need for integration and coordination is low, the need for common processes and organisation culture is also low. If the fact that the firms are unable to profit from the realisation of location and experienced curve economies, or from the transfer of core competencies, the organisational simplicity's would make this an attractive strategy.

1.2 Worldwide Area Structure

Firms with low degree of diversification and domestic structure based on functions tend to use worldwide area structure. Under this structure, the world is divided into geographic areas.

1.21 Advantage of Worldwide Area Structure

Each geographical area tends to have an own set of value creation activities such as marketing division, R&D division, production. Operations authority and strategic decisions relating to each of these business functions are decentralised to each area, achieving and facilitate local responsiveness, with headquarters retaining authority for the overall strategic direction and financial control of the firm.

1.22 Disadvantage of Worldwide Area Structure

However, this encourages fragmentation of the organisation into highly autonomous entities. This makes it difficult to transfer core competencies and skills between areas and to realise location and experience curve economies. The structure is consistent with localization strategy, but may make it difficult to realise gains associated with global standardisation. This structure is more appropriate if the firm is pursuing a localisation strategy.

2 Worldwide Product Divisional Structure (use with international or global standardisation strategy)

2.10 International strategy

Firms pursuing an international strategy attempt to create value by transferring core competencies from home to foreign subsidiaries. These firms operate with a worldwide product division structure. Headquarters typically maintains centralised control over the source of the firm's core competency, which are most typically found in R&D and/or marketing functions of the firm. All other operating decisions are decentralised within the firm to subsidiary operations in each country.

2.11 Need for Coordination

The need for coordination is moderate in such firms, reflecting the need to transfer core competencies.

2.12 Integrating Mechanisms

These firms operate with few integrating mechanisms, but not that extensive.

2.13 Performance Ambiguity

The relatively low level of interdependence that results translates into a relatively low level of performance ambiguity. These firms can generally get by with output, bureaucratic controls and with incentives that

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