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Organizational Theory
Organizational strategy is a specific patternof decisions and actions that managerstake to use core competencies to achievea competitive advantage and outperformcompetitors.
Core competencies are skills and abilities invalue creation activities that allow a company to outperform its rivals.
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Organizational TheoryTable 8-1 Low-Cost and Differentiation Advantages Resulting from Functional-Level Strategy
Value-creating Source of low-cost Source of differentiationfunction advantage advantage
Manufacturing • Development of skills in • Increase in product flexible manufacturing technology quality and reliability
Human resource • Reduction of turnover • Hiring of highly skilled management and absenteeism personnel
• Development of innovative training programs
Materials • Use of just-in-time inventory • Use of company reputation management system/ computerized warehousing and long-term relationships
with suppliers and customers • Development of long-term to provide high-quality inputs relationships with suppliers and and efficient distribution and customers disposal of outputs
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Organizational TheoryTable 8-1 Low-Cost and Differentiation Advantages Resulting from Functional-Level Strategy (continued)
Value-creating Source of low-cost Source of differentiationfunction advantage advantage
Sales and marketing • Increased demand and lower • Targeting of customer groups production costs • Tailoring products to
customers• Promoting brand names
Research and • Improved efficiency of • Creation of new products development manufacturing technology • Improvement of existing
products
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FIGURE 8-3 Structural Characteristics Associated with the Development of Core Competencies in Production, Sales, and Research Development
.
Manufacturing Sales R & D
Mechanisticstructure
Organicstructure
Manufacturing Sales R & D
Tallorganization
Flatorganization
Manufacturing Sales R & D
Centralizeddecision making
Decentralizeddecisionmaking
Manufacturing Sales R & D
StandardizationMutualadjustment
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Organizational Theory
Once an organization has chosen its domain, it can use either of the following:
Low-cost business-level strategy—
produces low-priced goods and servicesfor all customer groups.
Differentiation business-level strategy—
produces high-priced, quality productsaimed at particular market segments.
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Organizational Theory
One type of business-level strategy is thefocus strategy.
Focus strategy involves specialization in one segment of the market and focusingall of the organization’s resources onthat segment.
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FIGURE 8-5Characteristics of Organizational Structure Associated with Business-Level Differentiation and Low-Cost Strategies
Matrix
structure
Product team
structure
Product, market,
or geographic
structure
Functional
structure
Differentiation Strategy Low-Cost Strategy
Complex structure Simple structure
Decentralized decision making Centralized decision making
High differentiation Low differentiation
High integration Low integration
Organic structure Mechanistic structure
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FIGURE 8-6Corporate-Level Strategies for Entertaining New Domains
Input
Domains
Related Domains
OutputDomains
Unrelated Domains
Related diversification
Backwardverticalintegration
Unrelated diversification
Forwardverticalintegration
Core Domain
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Organizational Theory
Organizations pursuing a strategy of unrelated diversification are likely to use a conglomerate structure.
Conglomerate structure—a structure in which each business is placed in a self-contained division and there is no contact between divisions.
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FIGURE 8-8
Conglomerate Structure
A
Division
B
Division
C
Division
D
Division
E
Division
F
Division
G
Division
H
Division
I
Division
Corporate
Headquarters
Staff
CEO
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Organizational Theory
Multidomestic Strategy
Pressures for Local Pressures for GlobalResponsiveness Integration
HIGH LOW
• Manufacturing, R&D, marketing abroad• Achieve a differentiation advantage• Bureaucratic costs are lowest
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Organizational Theory
International Strategy
Pressures for Local Pressures for GlobalResponsiveness Integration
LOW LOW
• Manufacturing abroad• R&D and marketing at home• Bureaucratic costs are low
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Organizational Theory
Global Strategy
Pressures for Local Pressures for GlobalResponsiveness Integration
LOW HIGH
• Manufacturing at a few low-cost locations• R&D and marketing at home• Bureaucratic costs are high
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Organizational Theory
Transnational Strategy
Pressures for Local Pressures for GlobalResponsiveness Integration
HIGH HIGH
• Manufacturing, R&D, marketing abroad, BUT• Emphasis on global learning / cost reduction• Bureaucratic costs are highest
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Organizational Theory
Vertical differentiation choicesLevels in the hierarchy
Low Need for Coordination High
Multidomestic International Global TransnationalStrategy Strategy Strategy Strategy
Relatively Relatively Relatively Relativelyflat tall tall flat
Low Bureaucratic Costs High
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Organizational Theory
Vertical differentiation choicesCentralization of authority
Low Need for Coordination High
Multidomestic International Global TransnationalStrategy Strategy Strategy Strategy
Decentralized Centralized / Centralized SimultaneousDecentralized Centralized &
Decentralized
Low Bureaucratic Costs High
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Organization Theory
Horizontal differentiationType of Structure
Low Need for Coordination High
Multidomestic International Global TransnationalStrategy Strategy Strategy Strategy
Global Global Global Global matrixgeographic product group product groupstructure structure structure
Low Bureaucratic Costs High
2020
Organizational Theory
Global geographic structure —
a structure in which foreign divisions arecreated in every country or region in whichan organization operates to replicateall its domestic value creation activities.
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FIGURE 8-9
Global Geographic Structure
Corporate
Headquarters
(located in Sweden)
Functional activities
South
American
Division
Japanese
Division
French
Division
British
Division
United
States
Division
Canadian
Division
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Organizational Theory
Global product group structure —
a structure in which product group headquarters coordinates the activitiesof the domestic and foreign divisions within each product group.
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FIGURE 8-10
Global Product Group Structure
Worldwide Chemicals
Product Group
Headquarters
Worldwide Consumer
Goods Product
Headquarters
Corporate Headquarters
(located in the United States)
Worldwide Automotive
Product Group
Headquarters
Canadian
Division
British
Division
United States
Division
French
Division
Japanese
Division
Product groups
Domestic and foreign divisions
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Organizational Theory
Global matrix structure —
a structure that coordinates organizationalactivities and resources along two dimensions:
• Product groups and
• World areas
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FIGURE 8-11
Global Matrix Structure
CanadianDivision
Individual business division
Automobile product group
Chemicals product group
Consumer goodsproduct group
North American Area
United StatesDivision
Mexican Division
European Area
British Division
French Division
Pacific Area
JapaneseDivision
TaiwanDivision
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““GM Unveils Overhaul of Europe GM Unveils Overhaul of Europe Operations”Operations”
General Motors unveiled much-anticipated General Motors unveiled much-anticipated overhaul of European operations designed to overhaul of European operations designed to streamline Co by bringing units Adam Opel, streamline Co by bringing units Adam Opel, Vauxhall Motors, and Saab under single mngt Vauxhall Motors, and Saab under single mngt structurestructure Intended to speed up decision making and increase Intended to speed up decision making and increase
efficiencyefficiency Centralizing finance, design and engineering, buying, Centralizing finance, design and engineering, buying,
manufacturing, sales and marketingmanufacturing, sales and marketing ““Asking all of our European ees to recalibrate Asking all of our European ees to recalibrate
themselves to a mindset of working for General themselves to a mindset of working for General Motors overall, instead of an individual brand or Motors overall, instead of an individual brand or country operation”country operation”
Source: Source: Wall Street JournalWall Street Journal, 6/18/04, 6/18/04 See also “Reversing 80 Years of History…”See also “Reversing 80 Years of History…”
““International Isn’t Just IBM’s International Isn’t Just IBM’s First Name”First Name”
Lotus Symphony is package of PC software Lotus Symphony is package of PC software applicationsapplications
Work on new version started in July 2007Work on new version started in July 2007 Teams in Beijing (lead); Austin, TX; Raleigh, NC; Teams in Beijing (lead); Austin, TX; Raleigh, NC;
Boeblingen, Germany contributingBoeblingen, Germany contributing One of major challenges is difficulty of communicating One of major challenges is difficulty of communicating
via e-mail or videoconferencing when programmers via e-mail or videoconferencing when programmers have never met one anotherhave never met one another
Trust is big problemTrust is big problem IBM trying to bridge gap w/ software that borrows IBM trying to bridge gap w/ software that borrows
heavily from social networkingheavily from social networking New program called Beehive is essentially corporate New program called Beehive is essentially corporate
version of Facebookversion of Facebook Ees create profiles and post photos, lists of interests, Ees create profiles and post photos, lists of interests,
etc.etc. Source: Source: Business WeekBusiness Week, 1/28/08, 1/28/08
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