12 Implementing Strategy in Companies That Compete in a Single Industry

12

Implementing Strategy in

Companies That Compete in a

Single Industry

Copyright © Houghton Mifflin Company. All rights reserved. 12 - 2

Overview

• Strategy implementation– How a company should create, use, and combine

organizational structure, control systems, and culture to pursue strategies that lead to a competitive advantage and superior performance


Implementing Strategy Through Organizational Structure, Control, and Culture

• Organizational structure– Assigns employees to specific value creation tasks

and roles and specifies how those are linked to increase efficiency, quality, innovation, and responsiveness to customers

– To coordinate and integrate the efforts of all employees


Implementing Strategy Through Organizational Structure, Control, and Culture (cont’d)

• Control system– A set of incentives to motivate employees to increase

efficiency, quality, innovation, and responsiveness to customers

– Provides feedback on performance so corrective action can be taken

• Organizational culture– The collection of values, norms, beliefs, and attitudes

shared within an organizations and that control interactions within and outside the organization


Implementing Strategy


Building Blocks of Organizational Structure

• Grouping tasks, functions, and divisions– Organizational structure follows the range and

variety of tasks that an organization pursues– Companies group people and tasks into functions

and then functions into divisions– Bureaucratic costs


Building Blocks of Organizational Structure (cont’d)

• Allocating authority and responsibility– Hierarchy of authority (chain of command)– Span of control (number of subordinates)– Tall and flat organizations– Drawbacks of taller organizations

• Less flexibility and slower response time

• Communication problems

• Distortion of commands

• Expense


Tall and Flat Structures


Allocating Authority and Responsibility (cont’d)

– The minimum chain of command• To combat an organization that is too tall

• Hand responsibility up and empower those below

– Centralization or decentralization?• Delegating responsibility reduces information overload and enables

managers to focus on strategy

• Empowering lower-level managers increases motivation and accountability

• Empowering employees requires fewer managers

• Centralized decisions allow easier coordination of activities

• Centralization means that decisions fit broad organizational objectives


Building Blocks of Organizational Structure (cont’d)

• Integration and integrating mechanisms– Direct contact among managers across functions or

divisions– Liaison roles

• Gives one manager in each function or division the responsibility for coordinating with the other

– Teams


Strategic Control Systems

• Four basic building blocks– Control and efficiency– Control and quality– Control and innovation– Control and responsiveness to customers


Steps in Designing an Effective Control System


Levels of Organizational Control


Types of Strategic Control System

• Personal control– Face-to-face interaction

• Output control– Performance goals for each division, department, and

employee

• Behavior control– Rules and procedures to direction actions or behaviors of

divisions, functions, and individuals• Operating budget

• Standardization


Using Information Technology

• Behavior control– IT standardizes behavior through the use of a

consistent, cross-functional software platform

• Output control– IT allows all employees or functions to use the

same software platform to provide information on their activities

• Integrating mechanism– IT provides people at all levels and across all

functions with more information


Strategic Reward Systems

• Based on strategy managers must decide which behaviors to reward

• A control system measures those behaviors and links the reward structure to them


Organizational Culture

• Culture and strategic leadership

• Traits of strong and adaptive corporate cultures– Bias for action– Nature of the organization’s mission (sticking with

what the organization does best)– How to operate the organization (motivating

employees to do their best)


Building Distinctive Competencies at the Functional Level

• Grouping by function: functional structure– Grouping people on the basis of their expertise or

because they use the same resources– Advantages

• People can learn from one another

• People can monitor each other

• Managers have greater control

• With different functional hierarchies, the company can avoid becoming too tall


Functional Structure


The Functional Level

• The role of strategic control– Managers and employees can monitor and improve

operating procedures

– Easier to apply output control

• Developing culture– Managers must implement functional strategy and develop

incentive systems to allow each function to succeed

– Manufacturing: TQM

– R&D: innovation to bring products quickly to market

– Sales: output and behavior controls


Functional Structure and Bureaucratic Costs

• Communications problems

• Measurement problems

• Customer problems

• Location problems

• Strategic problems

• The outsourcing option


Implementing Strategy in a Single Industry

• Implementation begins at the functional level, however, managers must coordinate and integrate across functions and business units

• Effective strategy implementation at the business level– Increases differentiation, adds value for customers,

allows for a premium price– Reduces bureaucratic costs


How Organizational

Design Increases Profitability


Implementing Strategy in a Single Industry (cont’d)

• Implementing a cost-leadership approach– Reducing costs across all functions– Continuously monitoring for effective operation

• Implementing a differentiation approach– Design structure around the source of distinctive

competency, differentiated product, and customer groups



• Implementing a broad product line—product structure– Group the overall product line into product groups– Centralize support value chain functions to lower

costs– Divide support functions into product-oriented

teams of functional specialists who focus on the needs of one specific product group


Kodak’s Product Structure



• Increasing responsiveness to customer groups—market structure– Group people and functions by customer or market

segments– Different managers are responsible for developing

products for each group of customers


Market Structure



• Expanding nationally—geographic structure– To be responsive to needs of regional customers– To reduce transportation costs


Geographic Structure



• Competing in fast-changing, high-tech environments—product-team and matrix structures– Matrix structure

• Value chain activities are grouped by function and by product or project

• Flat and decentralized

• Promotes innovation and speed

• Norms and values based on innovation and product excellence


Matrix Structure



• Competing in fast-changing, high-tech environments—product-team and matrix structures (cont’d)– Product-team structure

• Tasks divided along product or project lines• Functional specialists are part of permanent

cross-functional teams


Product-Team Structure



• Focusing on a narrow product line– Tends to have higher production costs because

output is lower, reducing opportunity for scale economies

– Has to develop some form of distinctive competency

– Functional structure is appropriate


Restructuring and Reengineering

• Restructuring involves– Streamlining hierarchy of authority and reducing number

of levels

– Downsizing the workforce to reduce costs

• Reasons– Change in the business environment

– Excess capacity

– Organization grew too tall and inflexible; bureaucratic costs

– To improve competitive advantage and stay on top


Restructuring and Reengineering (cont’d)

• Reengineering– Fundamental rethinking and radical redesign of

business processes to achieve dramatic improvements

– Focuses not on functions, but on processes (which cut across functions)

Documents

12 Implementing Strategy in Companies That Compete in a Single Industry