IMPLEMENTING STRATEGY IN COMPANIES THAT COMPETE IN A SINGLE INDUSTRY Chapter 12 IMPLEMENTING STRATEGY IN COMPANIES THAT COMPETE IN A SINGLE INDUSTRY

Learning Objectives Understand how organizational design requires the right combination of structure, control, and culture Discuss how effective organizational design enables company to increase product differentiation, reduce costs, & build competitive advantage Explain importance of flat hierarchy & factors determining centralization/decentralization Explain advantages of functional structure & why/when necessary to move to more complex structure Differentiate between complex forms of structure used for specific business-level strategies 12-2 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Organizational Design “...the process of deciding how a company should create, use, and combine organizational structure, control systems, and culture to pursue a business model successfully.”

Implementing Strategy Through Organizational Design Organizational Structure- assigns employees to specific value creation tasks & roles Control System Incentives to motivate employees Specific feedback on performance Organizational Culture- values, norms, beliefs, & attitudes shared within organization 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Implementing Strategy Through Organizational Design Figure 12.1 Organizational structure, control, and culture shape people’s behaviors, values, and attitudes – and determine how they will implement an organization’s business model and strategies. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Building Blocks of Organizational Structure Grouping tasks, functions, & divisions Allocating authority & responsibility Integration & integrating mechanisms 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Choice of Structure “...made on ability to implement company’s business model and strategies successfully.”

 Grouping Tasks, Functions & Divisions Organizational structure – follows range & variety of tasks an organization pursues. Companies group people & tasks into functions, & then functions into divisions. Function - collection of people who work together & perform same tasks/hold similar positions. Division- way of grouping functions to allow organization to better serve customers. Handoffs- work exchanges between people, functions, & subunits. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Bureaucratic Costs To economize on bureaucratic costs and effectively coordinate the activities, company must develop a clear and unambiguous hierarchy of authority

 Allocating Authority and Responsibility Organizational Structure Decision Making Centralized- Tall Decentralized- Flat Principle of the Minimum Chain of Command- choose hierarchy with the fewest levels of authority necessary to use organizational resources efficiently and effectively 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Tall and Flat Structures Figure 12.2 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Integration and integrating mechanisms are used to increase communication and coordination among functions and divisions

 Integration and Integrating Mechanisms Direct contact Liaison roles Teams The greater the complexity of an organization’s structure, the greater the need for formal coordination among people, functions, and divisions. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Strategic Control Systems The formal target-setting, measurement, and feedback systems to evaluate whether a company is implementing its strategy successfully

Characteristics of Effective Control System Flexible Accurate Timely 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Steps in Designing an Effective Control System Figure 12.3 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Levels of Organizational Control Controls at each level should provide the basis on which managers at lower levels design their control systems. Figure 12.4 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Types of Strategic Control Systems Personal Control Managers question/probe to better understand subordinates. Result is more possibility for learning & competencies to develop. Output Control- set appropriate performance goals for each division, department, & employee, then measure actual performance relative to goals. Behavior Control- establish standardization, predictability, & accuracy by creating system of rules to direct actions and/or behaviors of divisions, functions, or individuals. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Operating Budget “... a blueprint that states how managers intend to use organizational resources to achieve organizational goals.”

Using Information Technology Behavior control- standardizes behavior through use of consistent, cross-functional software platform. Output control- allows all employees or functions to use same software platform to provide information on their activities. Integrating mechanism- provides people at all levels and across all functions with more information. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Strategic Reward Systems Linking to reward systems to control systems Decide which behaviors to reward Create control system to measure & link to reward 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Organizational Culture “... specific collection of values and norms shared by people and groups in an organization... created by strategic leadership... [that] must take actions... to adapt to environmental changes...”

Organizational Values “... beliefs and ideas about what kinds of goals the members of an organization should pursue and about the appropriate kinds of standards of behavior... members should use...”

Traits of Corporate Cultures Bias for action Nature of organization’s mission How to operate organization 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Most companies group people and tasks around a functional structure on the basis of their common expertise or because they use the same resources.

Building Distinctive Competencies at Functional Level Functional Structure Advantages People doing similar functions learn from each other. People monitor and improve work processes. Managers have greater control over activities. Managing easier with separately managed specialized groups. Role of Strategic Control Managers/employees monitor/improve operating procedures. Easier to apply output control. Developing Culture- Managers implement functional strategy & develop incentive systems. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Functional Structure Figure 12.5 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Role of Strategic Control “... stretch and encourage managers and employees to excel in their quest to raise performance.”

Culture at Functional Level Manufacturing R & D Sales 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Whenever different functions work together, bureaucratic costs arise because of communication and measurement problems arising from the handoffs across the functions.

Sources of Information Distortions Communication- differences in goal orientations & outlooks Measurement- difficulties measuring contribution as product range widens Customer- satisfying customer needs and coordinating value-chain functions Location- functional structure not best way to handle regional diversity when selling/producing in multiple locations Strategic- company has outgrown its structure 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Outsourcing Option “... Solving the organizational design problem by contracting with other companies to perform specific functional tasks.”

Implementing Strategy in a Single Industry Begins at functional level Effective organization design Increases differentiation, adds value for customers, allows for premium price Reduces bureaucratic costs associated with measurement & communications problems Economizes on bureaucratic costs Increase revenue from product differentiation Lowers overall cost structure by obtaining economies of scope or scale Move to more complex structure 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Organizational Design Increases Profitability Figure 12.6 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Implementing Cost Leadership Aim to become lowest cost producer in industry Reducing costs across all functions Lowering cost structure while preserving ability to attract customers Continuously monitoring for effective operation 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Implementing Differentiation Design organization structure around the source of distinctive competency, differentiated products, and customer groups. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Product Structure: Wide Product Line Group product line into product groups Centralize support value chain functions to lower costs Divide support functions into product-oriented teams who focus on needs of one product group. Measure performance of each product group separately Link rewards to performance of product group 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Nokia’s Product Structure Figure 12.7 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Market Structure Focuses on ability to meet needs of distinct and important sets of customers or different customer groups.

Increase Responsiveness to Customer Groups Identify needs of each customer group. Group people/functions by customer or market segments. Make different managers responsible for developing products for each group of customers. Market structure brings managers & employees closer to specific groups of customers. 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Market Structure Figure 12.8 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Geographic Structure Geographic regions may become basis for grouping organizational activities when companies expand nationally through internal expansion, horizontal integration, or mergers.

Expanding Nationally More responsive to needs of regional customers Can achieve lower cost structure and economies of scale Provides more coordination & control than functional structure through regional hierarchies 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Geographic Structure Figure 12.9 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Matrix & Product Team Structures In fast-changing, high-tech environments, competitive success depends on fast mobilization of company skills and resources to ensure product development and implementation meet customer needs.

Matrix/Product-Team Structures Value chain activities grouped by function and by product or project Flat & decentralized Promotes innovation & speed Norms & values based on innovation & product excellence Product-team Tasks divided along product/project lines Functional specialists part of permanent cross- functional teams 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Matrix Structure Figure 12.10

Product-Team Structure Figure 12.11 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Focus on Narrow Product Line Company concentrates on developing narrow range of products aimed at one/two market segments as defined by type of customer/location. Tend to higher production costs Has to develop some form of distinctive competency Structure & controls systems need to be: Inexpensive to operate Flexible enough to allow distinctive competency 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Restructuring and Reengineering Streamlining hierarchy reducing levels Downsizing workforce to lower costs Reasons to restructure/downsize: Change in business environment Excess capacity Too tall & inflexible Improve competitive advantage & stay on top Reengineering Fundamental rethinking/radical redesign of business processes to achieve dramatic improvements Focuses on processes not on functions 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

“Successful organizations understand the importance of implementation, not just strategy, . . . and... recognize the crucial role of their people in the process.” - Jeffrey Pfeffer 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.