Chapter 11 Attaining Integration

for Advantage

Chapter Topics

• The concept of organization design practices• Why organization design practices are crucial in

helping the firm achieve integration• Why many companies are moving to a ’networked’

organization• The evolving ‘virtual organization’ design• The broad types of reward systems used by many

organizations• How corporate culture can contribute to competitive

advantage• The dangers of relying too long on established

organizational practices and corporate culture

Disney World and Advantage

• Socialization

• Job training

• Performance

measurement

• Rewards

Cisco Systems and Advantage

• Near total reliance on suppliers and manufacturing

partners

• Fast product design capability

• Retention of people from acquisitions

Flexibility and Stability

• Loose Coupling

An organization design and structure that fosters a balance between the need to centralize and decentralize activities

• Network Organization

Organizational format in which firms try to balance their reliance on performing internal value-creating activities with the need to stay responsive and open to the environment

Ex. 11-1. Different Configurationsof Broad Organization Designs

Emphasis on vertical integration in product, area, functional structures; fosters high stability

Emphasis on extreme specialization; tight focus on one or two key activities

Emphasis on high responsiveness and partnering; balances stability with flexibility

Traditional Organizations

Network Organizations

Virtual Organizations

Moving to a Network

• Semi-permeable Boundaries

Flexible separations between organizational subunits across which communication, knowledge, and information flow more readily.

• Core Processes & Technologies

The key levers or drivers that form the basis of a firm’s distinctive competence and critical value-adding activities.

Ex. 11-2. Characteristics of theNetwork Organization

Semipermeable Boundaries• Looser organizational walls• Faster information flow among subunits

Alliances and Partnerships• Divide up the industry value chain• Specialize among partners

Focus on Core Processes/Technologies• Specialization along a core activity• Redefining ways to create value in core activity

Moving to Virtual

• Virtual Organization

An organizational format that coordinates and links up people and activities from different locations to communicate and act together, often on real-time basis.

• Lateral Communications

Coordinating work and communications among people who are on the same reporting level within the organization.

Ex. 11-3. Key Characteristics of Virtual Organizations

• High specialization of knowledge

• Rapid assembly/disassembly of project teams

• Ability to interconnect quickly with other firms

Organizations and Design

• Organization Design Practices

Support mechanisms that facilitate the implementation of a strategy within the framework of a given structure.

• Socialization

The process by which shared values and ways of behaving are instilled in new managers and employees.

Key Organizational Design Practices -Reward Systems

Reward and Performance Evaluation Systems• Hierarchy-based systems• Performance-based systems• Impact on corporate

performance

Performance RewardCriteria

• The performance payoff must be a major, not minor, piece of the total compensation package.

• The incentive plan should extend to all managers and workers not just top management.

• The reward system must be administered with scrupulous care and fairness.

• The incentives must be tightly linked to achieving only those performance targets spelled out in the strategic plan.

• The performance targets each individual is expected to achieve should involve outcomes that the individual can personally effect.

• Keep the time between the performance review and payment of the reward short.

• Make liberal use of non-monetary rewards; don’t rely solely on monetary rewards.

• Absolutely avoid skirting the system to find ways to reward non-performers.

Reward Systems -Characteristics of Hierarchy-Based System

• Close superior-subordinate relationships

• Extensive use of subjective and objective criteria to measure performance

• Superiors will guide the career and actions of subordinates

• Emphasis on group and team efforts and results

• Emphasis on long-term thinking and actions that help the organization

• Supports differentiation strategies at the business unit level

• Supports related diversification and global strategies at the corporate and business levels

Ex. 11-6. Reward Systems – Characteristics of Performance-Based System

• Superior-subordinate relationships not typically close

• Emphasis on tangible, concrete measures of output or performance

• Focus on individual, not group, measures of performance

• Bonuses are a big portion of total compensation

• Enhances individual initiative, entrepreneurial thinking, and personal efforts to excel

• Supports low-cost leadership strategies at the business level

• Supports unrelated diversification and multi-domestic strategies at the corporate and business levels

Organizational Design Practices -Values and Culture

• Shared Values

The basic norms and ideals that guide people’s behaviors in the firm and form the underpinning of a firm’s corporate culture.

• Corporate Culture

The system of unwritten rules that guide how people perform and interrelate with one another.

Ex. 11-7. Ideal Key Characteristics

of Shared Values• Simple to understand• Crystallized at top• Consistent over time

Ex. 11-7. Examples of Shared Values

McDonald’s QSVC

Southwest Fun, warm, friendly Airlines

Wal-Mart Friendly service and low prices

Motorola Quality is key

Ex. 11-8. Ways to Transmit Shared Values

Myths and Legends• Develop internal folklore• Heighten awareness of key

cherished values

Socialization• Learn “proper” behaviors

and ways of doing things• Extensive mentoring and

coaching

Keeping the Organization Vital

• Creative Tension

A process in which senior management systematically attempts to encourage people to think about new strategies and directions, which prevents the firm from becoming complacent.

Ex. 11-9. Implementation Methodsto Encourage Ethical Behavior

• Corporate credo that defines ethical values• Thorough instillation and training of values• High-level support for ethical values• Ethically relevant control systems