Strategy, Organization Design, and Effectiveness Chapter Two Strategy, Organization Design, and Effectiveness

Organization Direction, Design, and Effectiveness

Organizational Purpose Strategic intent - organization’s energies and resources are directed toward a focused, unifying, and compelling goal Operative Goals Overall Performance Resources Market Employee Development Innovation and Change Productivity Mission Competitive Advantage Core Competence

The Importance of Goals Official goals and mission statements describe a value system Legitimize the organization Operative goals serve several purposes Employee direction and motivation Decision guidelines Standards of performance

Selecting Strategy A strategy is a plan for interacting with the competitive environment Managers must select specific strategy design Models exist to aid in formulating strategy: Porter’s Five Forces Miles and Snow’s Strategy Typology

Porter’s Competitive Five Forces Managers should understand forces in industry and environment The Threat of New Entrants The Power of Suppliers The Power of Buyers The Threat of Substitutes Rivalry among Existing Competitors Porter suggests that companies adopt strategies based on five forces analysis

Porter’s Competitive Strategies

Miles and Snow’s Strategy Typology Managers should seek to formulate strategy that matches the demands of the external environment. Prospector Learning orientation; flexible, fluid, decentralized structure Values creativity, risk-taking, and innovation Defender Efficiency orientation; centralized authority and tight cost control Emphasis on production efficiency, low overhead Analyzer Balances efficiency and learning; tight cost control with flexibility and adaptability Emphasis on creativity, research, risk-taking for innovation Reactor No clear organizational approach; design characteristics may shift abruptly depending on current needs

How Strategy Affects Organization Design Managers must design the organization to support the firm’s competitive strategy. Strategy impacts internal organization characteristics

Contingency Factors Affecting Organization Design

Assessing Organizational Effectiveness Managers must evaluate goals Effectiveness can be difficult to measure Managers determine what to measure Effectiveness takes into consideration a range of variables at both the organizational and departmental levels.

Sample Goals Profitability Market Share Growth Social Responsibility Profitability The positive gain from business operations or investments Market Share The proportion of the market the firm is able to capture relative to competitors Growth The ability of the organization to increase its sales, profits, or clients Social Responsibility How well the organization serves the community Product Quality The ability of the organization to achieve high quality products/services

Resource and Internal Process Goals Resource-based indicators look at the inputs regarding processes The use of tangible and intangible resources in operations (i.e. supplies, people) Internal processes must be measured for effectiveness Operational efficiency Growth and development of employees

Contingency Approaches to the Measurement of Organizational Effectiveness

Balance Scorecard Approach

Design Essentials Organization exist for a purpose Organization exist for a purpose Strategic intent include competitive advantage and core competence Strategies may include many techniques There are models to aid in the development of strategy Organizational effectiveness must be assessed No approach is suitable for every organization