51043927 Organizational or Organisational Design and Strategy in Changing Environment

7/30/2019 51043927 Organizational or Organisational Design and Strategy in Changing Environment

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8-Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1

Organizational Theory,Design, and Change

Sixth Edition

Gareth R. Jones

Organizational Design

and Strategy in

Changing Environment


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Topic 7

Organizational Design and Strategy

Questions Dr. Anwar F. Chishti

7.1 Four Major Levels of Strategy?

7.2 The ways managers use functional-level

strategy (to develop core competences that

allow to create value and have competitive

advantage)?

7.3 The ways managers use business-level strategy

(to compete for scarce resources)


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3

Questions Anwar F. Chishti (cont.)

7.4 The ways managers use corporate-level strategy (to

enter new domains and to continue to grow and create

value?

7.5 The ways managers link strategies to structure and

culture at each level to increase the ability to create

value?

7.6 Understand how global expansion strategies allow an

organization to seek new opportunities to exploit its core

competences to create value for stakeholders


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Strategy and the Environment

Organizational strategy: the specificpattern of decisions and actions thatmanagers take to use core

competences to achieve a competitiveadvantage and outperform competitors

Core competences: the skills and

abilities in value creation activities thatallow a company to achieve superiorefficiency, quality, innovation, or

customer responsiveness


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Figure 8.1: The Value-Creation Cycle


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Sources of Core Competences

Specialized resources

Functional resources: the skillspossessed by an organizations

functional personnel

Organizational resources: theattributes that give an organization a

competitive advantage such as the skillsof the top-management team orpossession of valuable and scarceresources


7/528-Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 7

Sources of Core Competences(cont.)

Coordination ability

An organizations ability to coordinate itsfunctional and organizational resources

to create maximal value Effective coordination of resources leads

to competitive advantage by means of:

Control systems

Centralization or decentralization ofauthority

Development and promotion of sharedcultural values



Global Expansion andCore Competences

Transferring core competences abroad

Transfer core competence overseas toproduce cheaper or improved product

Establishing a global network Establish value-creation activities in

countries where economic, political, and

cultural conditions are likely to enhanceits low-cost or differentiation advantage



Global Expansion and CoreCompetences (cont.)

Gaining access to global resources andskills

Different countries have different

resources and skills that give them acompetitive advantage

Using global learning to enhance core

competences Global activities provide access to

knowledge that will allow an organizationto improve its core competences


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Four Levels of Strategy

Functional-level strategy: a plan tostrengthen an organizations functionaland organizational resources, as well

as its coordination abilities, in order tocreate core competences

Business-level strategy: a plan to

combine functional core competencesto position the organization so that ithas a competitive advantage in itsdomain



Four Levels of Strategy(cont.)

Corporate-level strategy: a plan touse and develop core competences sothat the organization not only can

protect and enlarge its existing domainbut can also expand into new domains

Global expansion strategy: a plan

that involves choosing the beststrategy to expand into overseasmarkets to obtain scarce resources and

develop core competences



Functional-Level Strategy

The strategic goal of each function isto create a core competence thatgives the organization a competitiveadvantage

To gain a competitive advantage, anorganization must be able to do atleast one of the following:

Perform functional activities at a cost lowerthan that of its rivals, or

Perform functional activities in a way thatclearly differentiates its goods and servicesfrom those of its rivals



Functional-Level Strategy(cont.)

Strategies to lower costs ordifferentiate products

The manufacturing function can lowerthe costs of production by pioneeringthe adoption of the most efficientproduction methods

The human resource management

(HRM) function can lower costs bydesigning appropriate control andreward systems to increase employeemotivation and reduce absenteeism andturnover




Strategies to lower costs ordifferentiate products (cont.)

The materials managements just-in-time

inventory systems, computerizedwarehousing, purchasing managers skillsin developing long-term links withsuppliers and distributors, and fostering

of an organizations reputation can leadto a low-cost or differentiation advantage





The skills and expertise of sales and

marketing can contribute directly to alow-cost or differentiation advantage

R&D can reduce costs by developing

cheaper ways of making a product



Table 8.1: Low-Cost and DifferentiationAdvantages Resulting From Functional-LevelStrategy




Functional-level strategy and structure

The strength of a functions corecompetence depends not only on the

functions resources, but on its ability tocoordinate the use of its resources

According to contingency theory, each

function should develop a structure thatsuits its human and technical resources

Fi 8 3 S l Ch i i



Figure 8.3: Structural CharacteristicsAssociated with Development of CoreCompetences in Production, Sales, and R&D




Functional-level strategy and culture A competitor can easily imitate an

organizations structure but it is verydifficult to imitate their culture

The coordination abilities that stem froman organizations culture emergegradually and are a product of theproperty rights system, structure, ethics,and characteristics of its top-management team




Functional-level strategy and culture(cont.)

The importance of culture for functional-

level strategy To gain a competitive advantage, an

organization must design its functionalstructure and culture to provide a setting in

which core competences develop If culture is embedded in the day-to-day

interactions of functional personnel, it isdifficult for a competitor to imitate anotherorganizations culture



Business-Level Strategy

The business-level strategy involves:

Selecting and managing the domain theorganization will compete in

Positioning the organization so that itcan use its resources and abilities tomanage its specific and general

environments to protect and enlargethat domain


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Business-Level Strategy(cont.) Strategies to lower costs or

differentiate products Low-cost business-level strategy:

use of skills in low-cost value creation toproduce for a customer group thatwants low-priced goods and services

Differentiation business-level

strategy: use of skills to differentiateproducts for customer groups that wantand can afford differentiated productsthat command a high or premium price


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Business-Level Strategy (cont.)


Focus business-level strategy:

specialization in one segment of a market,and focusing all of the organizationsresources on that segment

Fi 8 4 T f


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Figure 8.4: Types ofBusiness-Level Strategy

B i L l St t d


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8-Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

Business-Level Strategy andStructure

With a differentiation strategy,companies must be able to developproducts quickly; therefore close

cooperation between functions isrequired

A organic structure permits the

development of a decentralized, cross-functional team approach to decisionmaking

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B i L l St t d


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Business Level Strategy andStructure (cont.)

A low-cost strategy is associated withthe need for close control of functionalactivities to monitor and lower the

costs of production

A mechanistic structure is often themore appropriate choice

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Business-Level Strategy andStructure (cont.)

Three factors affect an organizations choiceof a structure to create a competitiveadvantage: As an organization produces a wider range of

products, it needs greater control over thedevelopment, marketing, and production of theseproducts

As an organization seeks to find new customergroups for its products, it needs a structure thatallows it to serve the needs of its customers

As the pace of new product development in anindustry increases, an organization will need astructure that increases coordination among its

functions

Fi 8 5 Ch i i f O i i l


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Figure 8.5: Characteristics of OrganizationalStructure Associated with Business-LevelDifferentiation and Low-Cost Strategies

l d


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Business-Level Strategy andCulture

Challenge is to develop organization-widevalues and specific norms and rules thatallow the organization to combine and use

its functional resources to the bestadvantage

Organizations pursuing low-cost strategymust develop values of economy and

frugality Differentiators must develop values of

innovation, quality, excellence, anduniqueness


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Corporate-Level Strategy

Involves a search for new domains inwhich to exploit and defend the ability tocreate value from its core competences

Vertical integration: a strategy in which

an organization takes over and owns itssuppliers (backward vertical integration) orits distributors (forward vertical integration) May be more profitable

May lead to production cost savings May differentiate its products

May avoid opportunistic behavior of suppliers

May lead to savings in distribution


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Corporate-Level Strategy (cont.)

Related diversification: the entryinto a new domain in which it canexploit one or more of its existing

competences

Unrelated diversification: the entryinto new domains that have nothing in

common with its core domain

l


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Figure 8.6: Corporate-LevelStrategies for Entering New Domains

Corporate Level Strategy and


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Corporate-Level Strategy andStructure

For organizations operating in morethan one domain, a multidivisionalstructure is appropriate

Conglomerate structure and unrelateddiversification

Conglomerate structure: a structure in

which each business is placed in a self-contained division and there is no contactbetween divisions

Fi 8 8 C l t


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Figure 8.8: ConglomerateStructure

Corporate Level Strategy and


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Corporate-Level Strategy andStructure (cont.)

Related diversification creates value by sharingresources or transferring skills from onedivision to another

Requires lateral communication betweendivisions as well as vertical communicationbetween divisions and headquarters

Integrating roles and teams of functional

experts are needed to coordinate skills andresource transfers

Multidivisional structures or matrix allow for thecoordination needed

Corporate Level Strategy


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Corporate-Level Strategyand Culture

Cultural values and the commonnorms, rules, and goals that reflectthose values can greatly facilitate the

management of a corporate strategy

Organizations need to create culturesthat reinforce and build on the

strategy they pursue

Implementing Strategy


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Implementing StrategyAcross Countries

Four principal strategies Multidomestic strategy: oriented

toward local responsiveness by

decentralizing control to subsidiaries anddivisions in each country

International strategy:decentralization of all value-creation

functions except for R&D and marketing



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Implementing StrategyAcross Countries (cont.)

Four principal strategies (cont.) Global strategy: oriented toward cost

reduction, with all the principal value-creation functions centralized at thelowest-cost global location

Transnationalstrategy: somefunctions are centralized, while others are

decentralized at the global location bestsuited to achieving these objectives toachieve both local responsiveness andcost savings



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Choice of structure and controlsystems for managing a globalbusiness is a function of:

The decision of how to distribute andallocate responsibility and authoritybetween managers at home and abroadso that effective control over a

companys global operations ismaintained



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The selection of the organizationalstructure that groups divisions both athome and abroad in a way that allowsthe best use of resources and serves the

needs of foreign customers mosteffectively

The selection of the right kinds of

integration and control mechanisms andorganizational culture to make the overallglobal structure function effectively


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Table 8.2: Strategy-StructureRelationships in the International Arena

Implementing a


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Implementing aMultidomestic Strategy

Generally operates with a globalgeographic structure

Duplication of value-creation activities in

all countries

Authority delegated to each overseasdivision

Managers at global headquarters usemarket and output controls

Figure 8 9: Global Geographic


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Figure 8.9: Global GeographicStructure

Implementing International


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Implementing InternationalStrategy

Companies use a global product groupstructure and create product groupheadquarters to coordinate the

activities of domestic and foreigndivisions

Product managers responsible fororganizing all aspects of value creation ona global level

Managers abroad are in the control of theinternational division managers

Figure 8 10: Global Product


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Figure 8.10: Global ProductGroup Structure


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Implementing Global Strategy

Manufacturing and other value-chainactivities placed at the global locationthat will allow it to increase efficiency

and quality Must find ways to reduce bureaucratic

costs associated with transfers betweencorporate headquarters and the global

divisions

May establish a global product groupstructure

Implementing Transnational


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Implementing TransnationalStrategy

Global matrix structure Lowers global cost structures Differentiates activities through superior

innovation and responsiveness to global

customers Managers at the regional or country level

control local operations Companys corporate product groups are

grouped by world region Decentralizes control to overseas managers Corporate managers exert centralized

control to coordinate companys globalactivities

Figure 8 11: Global Matrix


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Figure 8.11: Global MatrixStructure

Assignment 4


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Assignment4Case for Analysis

.Due in next class

Two Cases

A Tale of Two CulturesLevi Strauss Goes Global

Go through these cases and answer the

discussion questions given at the end.ALSO

(ANSWER TO THE DISCUSSION QUESTIONSPROVIDED ON NEXT SLIDE)

Copyright 2010

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ALSO


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ALSOANSWER TO THE FOLLOWING

DISCUSSION QUESTIONS

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How should an organization design its structure andculture to obtain a core competence in manufacturingand in research and development?

Pick an organization like a restaurant or a departmentstore and analyze how it might pursue (a) a marketpenetration strategy, (b) a product developmentstrategy, and (c) a market development strategy

What is the difference between a low-cost strategy and

a differentiation strategy? How should a differentiatedbiotechnology organization and a low-cost fast-foodorganization design their structures and cultures topromote their respective competitive advantages?


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ALSOANSWER TO THE FOLLOWING

DISCUSSION QUESTIONS..cont

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Why would an organization choose a corporate-levelstrategy to expand its value-creation activities beyondits core domain? Discuss how an organizationsstructure and culture might change as the organizationbegins to enter new domains.

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51043927 Organizational or Organisational Design and Strategy in Changing Environment