Organisational Structure and Strategic Relatedness
An organisation must apply such an organisational structure that will allow more efficient realization of benefits of sharing activities and transformation of skills between the SBU involved. The best suited organisational structure in such a case is the Centrally Multidivisional form structure (CM-form). CM-form structure allows a firm’s corporate center to get involved in the operating facilities of the SBUs and become active in exploiting relationships or transferring skills and competences across them. However, it also enables the employees at the SBU to act independently and responsibly in terms of their own tasks at the units.
Industry skill level – in businesses in which skilled staff members are important source of advantage, human capital and systems to generate and manage. Thus a pair of businesses that share the need to develop an effective base of skilled employees with experience working together will have a high strategic relatedness. Firms operating in portfolios of business that shared similar opportunities to exploit brand building and marketing and channel management skills gained significant benefits from related diversification.
Those firms that not only have followed the relatedness strategy but also adopted the CM-form structure performed well when they diversified in high-skill-workforce business. However, the empirical results show
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Nevertheless, I think that the article deserves 6 out of 7, because it is sometimes too complex with all of its empirical research, yet still useful. It shows that for corporation to be successfully diversified does not mean that the company only has to have many different businesses. It means that, diversification has to be only in strategically related businesses. As this way not only a risk of failure decreases but it also creates strategic advantages as it enables the parent and the sister company to share valuable activities and transfer inimitable skills among themselves.
In addition, the firm must have an organisational structure which will enable the sharing and transferring of these strategic assets. At the beginning they mention that CM-form structure is the optimal way of sharing and transferring those assets. However, after their empirical research they conclude that there must be more research made into the role of CM-structure in allowing the firm to accumulate and cross-utilize strategically important assets.