- •BUSINESSES IN THE BOOK
- •Preface
- •Brief Contents
- •CONTENTS
- •Why Study Strategy?
- •Why Economics?
- •The Need for Principles
- •So What’s the Problem?
- •Firms or Markets?
- •A Framework for Strategy
- •Boundaries of the Firm
- •Market and Competitive Analysis
- •Positioning and Dynamics
- •Internal Organization
- •The Book
- •Endnotes
- •Costs
- •Cost Functions
- •Total Cost Functions
- •Fixed and Variable Costs
- •Average and Marginal Cost Functions
- •The Importance of the Time Period: Long-Run versus Short-Run Cost Functions
- •Sunk versus Avoidable Costs
- •Economic Costs and Profitability
- •Economic versus Accounting Costs
- •Economic Profit versus Accounting Profit
- •Demand and Revenues
- •Demand Curve
- •The Price Elasticity of Demand
- •Brand-Level versus Industry-Level Elasticities
- •Total Revenue and Marginal Revenue Functions
- •Theory of the Firm: Pricing and Output Decisions
- •Perfect Competition
- •Game Theory
- •Games in Matrix Form and the Concept of Nash Equilibrium
- •Game Trees and Subgame Perfection
- •Chapter Summary
- •Questions
- •Endnotes
- •Doing Business in 1840
- •Transportation
- •Communications
- •Finance
- •Production Technology
- •Government
- •Doing Business in 1910
- •Business Conditions in 1910: A “Modern” Infrastructure
- •Production Technology
- •Transportation
- •Communications
- •Finance
- •Government
- •Doing Business Today
- •Modern Infrastructure
- •Transportation
- •Communications
- •Finance
- •Production Technology
- •Government
- •Infrastructure in Emerging Markets
- •Three Different Worlds: Consistent Principles, Changing Conditions, and Adaptive Strategies
- •Chapter Summary
- •Questions
- •Endnotes
- •Definitions
- •Definition of Economies of Scale
- •Definition of Economies of Scope
- •Economies of Scale Due to Spreading of Product-Specific Fixed Costs
- •Economies of Scale Due to Trade-offs among Alternative Technologies
- •“The Division of Labor Is Limited by the Extent of the Market”
- •Special Sources of Economies of Scale and Scope
- •Density
- •Purchasing
- •Advertising
- •Costs of Sending Messages per Potential Consumer
- •Advertising Reach and Umbrella Branding
- •Research and Development
- •Physical Properties of Production
- •Inventories
- •Complementarities and Strategic Fit
- •Sources of Diseconomies of Scale
- •Labor Costs and Firm Size
- •Spreading Specialized Resources Too Thin
- •Bureaucracy
- •Economies of Scale: A Summary
- •The Learning Curve
- •The Concept of the Learning Curve
- •Expanding Output to Obtain a Cost Advantage
- •Learning and Organization
- •The Learning Curve versus Economies of Scale
- •Diversification
- •Why Do Firms Diversify?
- •Efficiency-Based Reasons for Diversification
- •Scope Economies
- •Internal Capital Markets
- •Problematic Justifications for Diversification
- •Diversifying Shareholders’ Portfolios
- •Identifying Undervalued Firms
- •Reasons Not to Diversify
- •Managerial Reasons for Diversification
- •Benefits to Managers from Acquisitions
- •Problems of Corporate Governance
- •The Market for Corporate Control and Recent Changes in Corporate Governance
- •Performance of Diversified Firms
- •Chapter Summary
- •Questions
- •Endnotes
- •Make versus Buy
- •Upstream, Downstream
- •Defining Boundaries
- •Some Make-or-Buy Fallacies
- •Avoiding Peak Prices
- •Tying Up Channels: Vertical Foreclosure
- •Reasons to “Buy”
- •Exploiting Scale and Learning Economies
- •Bureaucracy Effects: Avoiding Agency and Influence Costs
- •Agency Costs
- •Influence Costs
- •Organizational Design
- •Reasons to “Make”
- •The Economic Foundations of Contracts
- •Complete versus Incomplete Contracting
- •Bounded Rationality
- •Difficulties Specifying or Measuring Performance
- •Asymmetric Information
- •The Role of Contract Law
- •Coordination of Production Flows through the Vertical Chain
- •Leakage of Private Information
- •Transactions Costs
- •Relationship-Specific Assets
- •Forms of Asset Specificity
- •The Fundamental Transformation
- •Rents and Quasi-Rents
- •The Holdup Problem
- •Holdup and Ex Post Cooperation
- •The Holdup Problem and Transactions Costs
- •Contract Negotiation and Renegotiation
- •Investments to Improve Ex Post Bargaining Positions
- •Distrust
- •Reduced Investment
- •Recap: From Relationship-Specific Assets to Transactions Costs
- •Chapter Summary
- •Questions
- •Endnotes
- •What Does It Mean to Be “Integrated?”
- •The Property Rights Theory of the Firm
- •Alternative Forms of Organizing Transactions
- •Governance
- •Delegation
- •Recapping PRT
- •Path Dependence
- •Making the Integration Decision
- •Technical Efficiency versus Agency Efficiency
- •The Technical Efficiency/Agency Efficiency Trade-off
- •Real-World Evidence
- •Double Marginalization: A Final Integration Consideration
- •Alternatives to Vertical Integration
- •Tapered Integration: Make and Buy
- •Franchising
- •Strategic Alliances and Joint Ventures
- •Implicit Contracts and Long-Term Relationships
- •Business Groups
- •Keiretsu
- •Chaebol
- •Business Groups in Emerging Markets
- •Chapter Summary
- •Questions
- •Endnotes
- •Competitor Identification and Market Definition
- •The Basics of Competitor Identification
- •Example 5.1 The SSNIP in Action: Defining Hospital Markets
- •Putting Competitor Identification into Practice
- •Empirical Approaches to Competitor Identification
- •Geographic Competitor Identification
- •Measuring Market Structure
- •Market Structure and Competition
- •Perfect Competition
- •Many Sellers
- •Homogeneous Products
- •Excess Capacity
- •Monopoly
- •Monopolistic Competition
- •Demand for Differentiated Goods
- •Entry into Monopolistically Competitive Markets
- •Oligopoly
- •Cournot Quantity Competition
- •The Revenue Destruction Effect
- •Cournot’s Model in Practice
- •Bertrand Price Competition
- •Why Are Cournot and Bertrand Different?
- •Evidence on Market Structure and Performance
- •Price and Concentration
- •Chapter Summary
- •Questions
- •Endnotes
- •6: Entry and Exit
- •Some Facts about Entry and Exit
- •Entry and Exit Decisions: Basic Concepts
- •Barriers to Entry
- •Bain’s Typology of Entry Conditions
- •Analyzing Entry Conditions: The Asymmetry Requirement
- •Structural Entry Barriers
- •Control of Essential Resources
- •Economies of Scale and Scope
- •Marketing Advantages of Incumbency
- •Barriers to Exit
- •Entry-Deterring Strategies
- •Limit Pricing
- •Is Strategic Limit Pricing Rational?
- •Predatory Pricing
- •The Chain-Store Paradox
- •Rescuing Limit Pricing and Predation: The Importance of Uncertainty and Reputation
- •Wars of Attrition
- •Predation and Capacity Expansion
- •Strategic Bundling
- •“Judo Economics”
- •Evidence on Entry-Deterring Behavior
- •Contestable Markets
- •An Entry Deterrence Checklist
- •Entering a New Market
- •Preemptive Entry and Rent Seeking Behavior
- •Chapter Summary
- •Questions
- •Endnotes
- •Microdynamics
- •Strategic Commitment
- •Strategic Substitutes and Strategic Complements
- •The Strategic Effect of Commitments
- •Tough and Soft Commitments
- •A Taxonomy of Commitment Strategies
- •The Informational Benefits of Flexibility
- •Real Options
- •Competitive Discipline
- •Dynamic Pricing Rivalry and Tit-for-Tat Pricing
- •Why Is Tit-for-Tat So Compelling?
- •Coordinating on the Right Price
- •Impediments to Coordination
- •The Misread Problem
- •Lumpiness of Orders
- •Information about the Sales Transaction
- •Volatility of Demand Conditions
- •Facilitating Practices
- •Price Leadership
- •Advance Announcement of Price Changes
- •Most Favored Customer Clauses
- •Uniform Delivered Prices
- •Where Does Market Structure Come From?
- •Sutton’s Endogenous Sunk Costs
- •Innovation and Market Evolution
- •Learning and Industry Dynamics
- •Chapter Summary
- •Questions
- •Endnotes
- •8: Industry Analysis
- •Performing a Five-Forces Analysis
- •Internal Rivalry
- •Entry
- •Substitutes and Complements
- •Supplier Power and Buyer Power
- •Strategies for Coping with the Five Forces
- •Coopetition and the Value Net
- •Applying the Five Forces: Some Industry Analyses
- •Chicago Hospital Markets Then and Now
- •Market Definition
- •Internal Rivalry
- •Entry
- •Substitutes and Complements
- •Supplier Power
- •Buyer Power
- •Commercial Airframe Manufacturing
- •Market Definition
- •Internal Rivalry
- •Barriers to Entry
- •Substitutes and Complements
- •Supplier Power
- •Buyer Power
- •Professional Sports
- •Market Definition
- •Internal Rivalry
- •Entry
- •Substitutes and Complements
- •Supplier Power
- •Buyer Power
- •Conclusion
- •Professional Search Firms
- •Market Definition
- •Internal Rivalry
- •Entry
- •Substitutes and Complements
- •Supplier Power
- •Buyer Power
- •Conclusion
- •Chapter Summary
- •Questions
- •Endnotes
- •Competitive Advantage Defined
- •Maximum Willingness-to-Pay and Consumer Surplus
- •From Maximum Willingness-to-Pay to Consumer Surplus
- •Value-Created
- •Value Creation and “Win–Win” Business Opportunities
- •Value Creation and Competitive Advantage
- •Analyzing Value Creation
- •Value Creation and the Value Chain
- •Value Creation, Resources, and Capabilities
- •Generic Strategies
- •The Strategic Logic of Cost Leadership
- •The Strategic Logic of Benefit Leadership
- •Extracting Profits from Cost and Benefit Advantage
- •Comparing Cost and Benefit Advantages
- •“Stuck in the Middle”
- •Diagnosing Cost and Benefit Drivers
- •Cost Drivers
- •Cost Drivers Related to Firm Size, Scope, and Cumulative Experience
- •Cost Drivers Independent of Firm Size, Scope, or Cumulative Experience
- •Cost Drivers Related to Organization of the Transactions
- •Benefit Drivers
- •Methods for Estimating and Characterizing Costs and Perceived Benefits
- •Estimating Costs
- •Estimating Benefits
- •Strategic Positioning: Broad Coverage versus Focus Strategies
- •Segmenting an Industry
- •Broad Coverage Strategies
- •Focus Strategies
- •Chapter Summary
- •Questions
- •Endnotes
- •The “Shopping Problem”
- •Unraveling
- •Alternatives to Disclosure
- •Nonprofit Firms
- •Report Cards
- •Multitasking: Teaching to the Test
- •What to Measure
- •Risk Adjustment
- •Presenting Report Card Results
- •Gaming Report Cards
- •The Certifier Market
- •Certification Bias
- •Matchmaking
- •When Sellers Search for Buyers
- •Chapter Summary
- •Questions
- •Endnotes
- •Market Structure and Threats to Sustainability
- •Threats to Sustainability in Competitive and Monopolistically Competitive Markets
- •Threats to Sustainability under All Market Structures
- •Evidence: The Persistence of Profitability
- •The Resource-Based Theory of the Firm
- •Imperfect Mobility and Cospecialization
- •Isolating Mechanisms
- •Impediments to Imitation
- •Legal Restrictions
- •Superior Access to Inputs or Customers
- •The Winner’s Curse
- •Market Size and Scale Economies
- •Intangible Barriers to Imitation
- •Causal Ambiguity
- •Dependence on Historical Circumstances
- •Social Complexity
- •Early-Mover Advantages
- •Learning Curve
- •Reputation and Buyer Uncertainty
- •Buyer Switching Costs
- •Network Effects
- •Networks and Standards
- •Competing “For the Market” versus “In the Market”
- •Knocking off a Dominant Standard
- •Early-Mover Disadvantages
- •Imperfect Imitability and Industry Equilibrium
- •Creating Advantage and Creative Destruction
- •Disruptive Technologies
- •The Productivity Effect
- •The Sunk Cost Effect
- •The Replacement Effect
- •The Efficiency Effect
- •Disruption versus the Resource-Based Theory of the Firm
- •Innovation and the Market for Ideas
- •The Environment
- •Factor Conditions
- •Demand Conditions
- •Related Supplier or Support Industries
- •Strategy, Structure, and Rivalry
- •Chapter Summary
- •Questions
- •Endnotes
- •The Principal–Agent Relationship
- •Combating Agency Problems
- •Performance-Based Incentives
- •Problems with Performance-Based Incentives
- •Preferences over Risky Outcomes
- •Risk Sharing
- •Risk and Incentives
- •Selecting Performance Measures: Managing Trade-offs between Costs
- •Do Pay-for-Performance Incentives Work?
- •Implicit Incentive Contracts
- •Subjective Performance Evaluation
- •Promotion Tournaments
- •Efficiency Wages and the Threat of Termination
- •Incentives in Teams
- •Chapter Summary
- •Questions
- •Endnotes
- •13: Strategy and Structure
- •An Introduction to Structure
- •Individuals, Teams, and Hierarchies
- •Complex Hierarchy
- •Departmentalization
- •Coordination and Control
- •Approaches to Coordination
- •Types of Organizational Structures
- •Functional Structure (U-form)
- •Multidivisional Structure (M-form)
- •Matrix Structure
- •Matrix or Division? A Model of Optimal Structure
- •Network Structure
- •Why Are There So Few Structural Types?
- •Structure—Environment Coherence
- •Technology and Task Interdependence
- •Efficient Information Processing
- •Structure Follows Strategy
- •Strategy, Structure, and the Multinational Firm
- •Chapter Summary
- •Questions
- •Endnotes
- •The Social Context of Firm Behavior
- •Internal Context
- •Power
- •The Sources of Power
- •Structural Views of Power
- •Do Successful Organizations Need Powerful Managers?
- •The Decision to Allocate Formal Power to Individuals
- •Culture
- •Culture Complements Formal Controls
- •Culture Facilitates Cooperation and Reduces Bargaining Costs
- •Culture, Inertia, and Performance
- •A Word of Caution about Culture
- •External Context, Institutions, and Strategies
- •Institutions and Regulation
- •Interfirm Resource Dependence Relationships
- •Industry Logics: Beliefs, Values, and Behavioral Norms
- •Chapter Summary
- •Questions
- •Endnotes
- •Glossary
- •Name Index
- •Subject Index
Structure—Environment Coherence • 455
is to increase the possibilities for cooperative action in networks by reducing search, monitoring, and control costs without significantly increasing the transactions costs of interactions.
Why Are There So Few Structural Types?
The preceding discussion suggests a relatively small number of structural types from which a would-be organization designer might choose. At first glance, this might seem strange. Given the size and complexity of large firms, one might suspect that there could be a large number of design variables and many ways to organize. Yet this does not seem to happen. While there are a huge variety of firms and numerous organizing criteria, it also seems that, once industry particularities are taken into account, the range of organizational types employed in real firms is fairly constrained. One reason for the limited range of types might be imitation. As large, successful, and visible firms reach solutions regarding how they should organize, other firms may see what they do and what results they achieve and then imitate them. Indeed, as we have already mentioned, it was not uncommon after World War II to hear about the “General Motors” model of multidivisional organization as a norm to which other firms aspired. This explanation may have some value, but it is still hard to see how a small number of firms are so widely imitated across industries as to justify a small set of general types. Nor is it clear how pathbreaking firms identify these types in the first place.
John Roberts suggests that the reasons for the limited range of structural types may be more fundamental.23 Although a large number of design variables are available, choices from among these variables are not independent. Structural variables and related change activities are interdependent and thus may share complementarities, such that choosing more of one design variable increases the returns to choosing others. For example, organizing to pursue a product differentiation strategy based on product quality will be associated with lower volume performance, specialized staffing, frequent product redesign, and higher prices. Design variables may also be interdependent as substitutes, such that doing more of some activities reduces the value from doing more of others.
The ways in which design variables are interdependent determines the structural types that emerge. Complementarities among choice variables will result in a set of variables having a greater overall value for a firm than could be obtained from changing particular variables in isolation. It could even mean that changes in any one design variable might fail to contribute to firm performance and could even detract from it. This suggests that organization design choices will tend to cluster together and that a “mix and match” approach will prove infeasible. If this is so, it suggests that intermediate positions between structural types will not promote effectiveness and may actually reduce it, relative to a choice of one clear type or another.
STRUCTURE—ENVIRONMENT COHERENCE
Discussing organizational structure in the context of a firm’s strategy implies that some sort of optimal structure is identifiable and appropriate for the firm. That is indeed a presumption of much of what consultants and academics have contributed to this topic. But what does it mean for a structure to be optimal for a firm? Is it that an optimal structure will help a firm to make good decisions and to make them efficiently, with the least amount of time and effort relative to the quality of the decisions?
456 • Chapter 13 • Strategy and Structure
Making quality decisions efficiently does seem like a good idea. But what is a “quality” decision when discussing firms and their strategies? In this context, “quality” involves the requirement that decisions be effective in terms of the business and market conditions that the firm is facing. It would be hard to call a structure optimal if it led the firm to efficiently make decisions that did not fit well with the demands of competitors, consumers, or regulators.
Knowing that a structure is coherent is a first step toward solving the organizational design problem. It is also necessary for managers to determine whether a given structure is appropriate for them. A coherent structure will destroy rather than create value if it fails to enable the firm to apply its resources and capabilities to opportunities within its business environment. Thus, the optimal organizational structure for a firm depends on the environmental circumstances it faces.
A functional structure may work well for a manufacturer of supercomputers, such as Cray, but would probably work poorly for a large bank, such as JP Morgan Chase or Citigroup. This is because the banks face a much more complex business environment than Cray. Cray’s customers include large technology firms, businesses in sectors requiring extensive use of data, government agencies, and research universities. Cray and its customers know each other, and while the business environment has its own threats and opportunities, these are likely to be fairly predictable and understandable to all the participants in the industry. These are conditions in which a functional structure can work well.
The environment faced by large banks, on the contrary, is much more complex in terms of products, customers, and regulatory burdens than that faced by Cray. They operate on a global scale in multiple national markets. Even the technological needs of Chase or Citi are significant, as both have spent heavily in building their infrastructures. In addition, the volatility of their businesses is often high and, as the 2008 financial crisis demonstrated, also unpredictable. These are conditions in which large banks will face competing and often conflicting demands for organizing that cannot be easily handled within a traditional hierarchy. This is why these firms have frequently employed more complex organization structures, such as a matrix.
Contingency-based research examines how environmental characteristics may be associated with structural characteristics of firms without considering the product market choices that a firm might make. The idea is that any firm working in such an environment must adapt its structure to address environmental demands. This work has focused on two sets of environmental factors that may influence the relative efficiency of different structures: (1) technology and task interdependence and
(2) information processing.
Technology and Task Interdependence
Technology generally refers to the base of scientific knowledge underlying what a firm does, as well as the general state of know-how behind the application of scientific knowledge to specific products and services. While many firms invest in their own R&D to enhance their competitive positioning, most must take their technology as exogenous, at least in the short term. The characteristics of a firm’s knowledge base will influence the structural type that it adopts. A firm employing a well-known and mature technology will organize differently from a firm working with a rapidly evolving and less well-known technology. The former is better off adopting a hierarchical structure conducive to more stable, standardized, and higher volume production. The latter may prefer a decentralized structure that offers flexibility and responsiveness to change.
Structure—Environment Coherence • 457
As the firm’s technology changes, its structure will also need to change to accommodate new coordination needs. For example, suppose that a firm’s technology changes to permit increased production volume and more routine handling of raw materials. This firm might need to create a new division with purchasing responsibilities in order to accommodate the increased volume of activities. This idea is not confined to technology-driven changes in strategy. To take another example, a firm that expands internationally may need to set up a government affairs department that coordinates all regulatory related activities. As an example, Giulio Bottazzi and his colleagues document the interaction of these technological and regulatory factors and their implications for firms in their study of the evolution of the global pharmaceutical industry.24
James Thompson argues that technology determines the degree of task interdependence— the extent to which two or more positions depend on each other to do their own work.25 Thompson defines three modes of task interdependence: reciprocal, sequential, and pooled. Reciprocal interdependence exists when two or more workers or work groups depend on each other to do their work. Apple’s hardware and software development teams display reciprocal interdependence. Sequential interdependence exists between two or more workers, positions, or groups when one depends on the outcomes of the others, but not vice versa. The regulatory affairs and sales divisions of a pharmaceutical company display sequential interdependence. Messaging by sales depends on regulatory oversight on product labeling. Finally, pooled interdependence exists when two or more positions are not directly dependent on each other but are associated through their independent contributions to the success of the firm. For example, the success of Disney’s Pixar animated motion picture division is largely independent of the success of Disney’s ESPN sports network. This distinction suggests that organization design processes successively group individuals to coordinate their activities and utilize their shared resources. Positions and tasks that are reciprocally interdependent should be grouped together first, since they are the most costly to coordinate. Less costly to coordinate are positions that are sequentially dependent, such as positions at different points of the value chain. Finally, positions that lack a direct interdependence and are related solely in terms of a common affiliation with a firm are the least costly to coordinate.
As technology changes, so may the basis for competition in an industry by changing the industry’s core assets.26 This in turn will alter task interdependence within firms and thus suggest possible changes in what an appropriate structure is for affected firms. Advances in computers and telecommunications weaken reciprocal and sequential interdependence among many positions and reduce the costs of coordinating activities among individuals and groups within the firm or with partners in other firms. Sharing data in the Internet “cloud,” engineers and product specialists located on different continents can coordinate the design of a new product even while few managers of such a team ever meet face to face. With such technology, a small investment research firm based in Zurich can provide analysis to subscribers in Tokyo, while the firm’s marketing agent resides in London and its publicist in New York. Neither of these arrangements would have been possible 20 years ago. This reduction in coordination costs reduces the need for team members to be in the same part of the firm’s formal organization or even to be part of the same firm. (We also note that virtual firms appear to suffer from diseconomies of scale if they attempt to grow too large, since relationships among members become complex and costly to coordinate above a small number of individuals.)
458 • Chapter 13 • Strategy and Structure
EXAMPLE 13.3 STEVE JOBS AND STRUCTURE AT APPLE27
A persistent issue regarding organization structure is the relationship between structure and the dominant charismatic leaders that often seem to dominate larger firms. Structures are frequently treated as substitutes for dominant leaders, with the idea that the success of the firm should not be dependent on any single person, who could leave to go elsewhere, become ill, run afoul of some accident, or behave irresponsibly.
A famous example of this tension between structure and corporate leadership concerned Alfred Sloan, the leader behind the growth of General Motors as a force in the world economy. Sloan’s volume of memoirs, My Years at General Motors, is arguably the most influential business book of the twentieth century. In it, Sloan outlines the structures and systems that he pioneered at GM, including the multidivisional form, which has served as a model for all large U.S. manufacturing firms. What is relevant to our discussion here is that Sloan wrote his classic in response to a book about GM by Peter Drucker (The Concept of the Corporation), which Sloan regarded as too focused on matters of individual personalities and styles—even though Sloan himself was, by all accounts, a dominant and highly influential leader.
With this in mind, consider Steve Jobs, the brilliant, charismatic, and reclusive leader at Apple at its inception and since soon after his return to the firm in 1997. Jobs was the acknowledged force behind the rebirth of Apple and its turnaround from near failure to perhaps the most successful technology company in the world, with over $65 billion in revenues and over $14 billion of profits. Apple employs over 60,000 people worldwide, and some claim it has more cash than the U.S. government. Jobs was the force behind the introduction of the iPod, the iPhone, and the iPad, which together are critical components of his “Digital Hub” concept that transformed a variety of industries and society more broadly.
What organization structure did Steve Jobs use in running Apple? This is a reasonable question to ask, since the firm is very large, so it is unlikely that it could be run informally without a structure. However, Steve Jobs and his firm have also been notoriously secretive and release little information about corporate structure—or much else internal. In his biography of Jobs, Walter Isaacson recounts that Jobs initially was pushed out of his position at Apple during a divisional reorganization by John Sculley after losing a leadership battle. This suggests that Jobs would not have favored a divisional structure. But which structure would he have favored?
In May 2011, Adam Lashinsky published a story in Fortune detailing how things worked “Inside Apple.” In the story, he presented a circular organization chart, with Jobs at the center. In an inner ring, there were 15 direct reports in total—9 members of an executive team and an additional 6 vice presidents who reported directly to Jobs. An additional ring of 31 vice presidents reported to the inner ring but not to Jobs directly. Lashinsky calls this “an unconventional org chart for an unconventional organization.”
Assuming that Lashinsky is correct about this structure, what is one to make of it? Is Apple centralized or decentralized? Are there too many direct reports? Did Jobs have problems delegating? At one level, the structure does seem to support the dominance of Steve Jobs in the Apple organization, which is not surprising. It is clear that his personality set the tone for the culture of the firm, that his drive influenced everyone around him to high levels of achievement, and that his authority within Apple was unquestioned. So at the level of product development and strategic direction, Apple is clearly centralized.
But consider the large number of direct reports to Jobs. Each of these represents numerous major projects and commitments by Apple, all of which involve the efforts of multiple project teams worldwide. After Jobs’s