Choosing an Organizational Design in Light of Strategy v The choice process v The importance of organizational strategy v The mapping of design on to strategy v The critical contingencies v Case Discussion: ABB’s Relays Business

The process of design choice Contextual Factors Environment Technology Size & Life-cycle Strategic Choices Corporate Business Functional Design Choices Design Effectiv. Value Creation

Types of Organizational Strategies v Functional : Plan of action to strengthen an organization’s functional capabilities to create core competencies v Business : Plan of action to combine functional core competencies to create competitive advantage v Corporate : Plan of action to protect and/or enhance an organization’s domain of activities to sustain its competitive advantages

Functional-level strategies to support business-level strategies v Manufacturing v Human Resources v Sales and Marketing v Research and Development v Development of skills in flexible manufacturing v Reduction of turnover v Increased demand and lower production costs v Improved efficiency of manufacturing technology FunctionLow Cost Str. F Increase product quality F Hiring of highly skilled personnel and new training programs F Tailoring products to customers, Promoting brand names F Creation of new products Differentiation Str.

Critical contingencies to consider v What is your business level strategy? v What is the nature of the specific environment you deal with? v Should you emphasize efficiency or flexibility? –Are there ways to buffer your operations from this environment? –How difficult is it to acquire new resources? –How easy is it to make predictions about your activity levels in the medium term? v Which departments do you interact with the most and what is the nature of interdependencies with these critical parties?

Unifying Functional and Business Level Strategies Focus: The assignment of responsibility to each business unit for the entire value chain. Leverage: The capacity to derive advantages of scale from the common resources shared by the organization. Potential Sources of Leverage Back (Offering) Middle Infrastructure Front (Market/Customer) Creation of Products Platforms for Manufacturing Products Technologies underlying Products Means used to produce and deliver products and services to customers The customers interface How the business goes to market How the organization responds to customer

oDell creates a bunch of different configurations designed for Ford employees in different departments. oWhen Dell receives an order via the Ford intranet, it knows immediately what type of worker is ordering and what kind of computer he needs. oThe company assembles the proper hardware and even installs the right software, some of which consists of Ford-specific code that's stored at Dell. oSince Dell's logistics software is so sophisticated, it can do the customization relatively inexpensively. oFord pays a premium for this individualized service.

Business Level Strategy: Strategies to enlarge the organizational domain PRODUCT Existing New DOMAIN Existing New Market Penetration Market Development Product Development Diversification

Critical contingencies to consider v What is your corporate level strategy? v Which function is the most critical element for implementing your business level strategy? v How is the product market organized? v What is the nature of overall interdependency among functional units? v What is the nature of your relationship with the critical constituencies?

Corporate-level Strategies CORE DOMAIN Related Domains Related Diversification Input Domains Backward Vertical Integration Output Domains Forward Vertical Integration Unrelated Domains Unrelated Diversification

Critical Contingencies to consider v How related are the businesses? v What is the role of the corporate staff? v Does the multidivisional structure you want to create look like a holding structure or more like a product division structure? v What is the nature of the interdependencies among the business units? v Which economies are emphasized? Economies of scale Economies of scope Economies of risk