Implementing Strategy in Companies That Compete in a Single Industry 12 Implementing Strategy in Companies That Compete in a Single Industry

Overview Strategy implementation How a company should create, use, and combine organizational structure, control systems, and culture to pursue strategies that lead to a competitive advantage and superior performance Copyright © Houghton Mifflin Company. All rights reserved.

Organizational structure Implementing Strategy Through Organizational Structure, Control, and Culture Organizational structure Assigns employees to specific value creation tasks and roles and specifies how those are linked to increase efficiency, quality, innovation, and responsiveness to customers To coordinate and integrate the efforts of all employees Copyright © Houghton Mifflin Company. All rights reserved.

Implementing Strategy Through Organizational Structure, Control, and Culture (cont’d) Control system A set of incentives to motivate employees to increase efficiency, quality, innovation, and responsiveness to customers Provides feedback on performance so corrective action can be taken Organizational culture The collection of values, norms, beliefs, and attitudes shared within an organizations and that control interactions within and outside the organization Copyright © Houghton Mifflin Company. All rights reserved.

Implementing Strategy Copyright © Houghton Mifflin Company. All rights reserved.

Building Blocks of Organizational Structure Grouping tasks, functions, and divisions Organizational structure follows the range and variety of tasks that an organization pursues Companies group people and tasks into functions and then functions into divisions Bureaucratic costs Copyright © Houghton Mifflin Company. All rights reserved.

Building Blocks of Organizational Structure (cont’d) Allocating authority and responsibility Hierarchy of authority (chain of command) Span of control (number of subordinates) Tall and flat organizations Drawbacks of taller organizations Less flexibility and slower response time Communication problems Distortion of commands Expense Copyright © Houghton Mifflin Company. All rights reserved.

Tall and Flat Structures Copyright © Houghton Mifflin Company. All rights reserved.

Allocating Authority and Responsibility (cont’d) The minimum chain of command To combat an organization that is too tall Hand responsibility up and empower those below Centralization or decentralization? Delegating responsibility reduces information overload and enables managers to focus on strategy Empowering lower-level managers increases motivation and accountability Empowering employees requires fewer managers Centralized decisions allow easier coordination of activities Centralization means that decisions fit broad organizational objectives Copyright © Houghton Mifflin Company. All rights reserved.

Building Blocks of Organizational Structure (cont’d) Integration and integrating mechanisms Direct contact among managers across functions or divisions Liaison roles Gives one manager in each function or division the responsibility for coordinating with the other Teams Copyright © Houghton Mifflin Company. All rights reserved.

Strategic Control Systems Four basic building blocks Control and efficiency Control and quality Control and innovation Control and responsiveness to customers Copyright © Houghton Mifflin Company. All rights reserved.

Steps in Designing an Effective Control System Copyright © Houghton Mifflin Company. All rights reserved.

Levels of Organizational Control Copyright © Houghton Mifflin Company. All rights reserved.

Types of Strategic Control System Personal control Face-to-face interaction Output control Performance goals for each division, department, and employee Behavior control Rules and procedures to direction actions or behaviors of divisions, functions, and individuals Operating budget Standardization Copyright © Houghton Mifflin Company. All rights reserved.

Using Information Technology Behavior control IT standardizes behavior through the use of a consistent, cross-functional software platform Output control IT allows all employees or functions to use the same software platform to provide information on their activities Integrating mechanism IT provides people at all levels and across all functions with more information Copyright © Houghton Mifflin Company. All rights reserved.

Strategic Reward Systems Based on strategy managers must decide which behaviors to reward A control system measures those behaviors and links the reward structure to them Copyright © Houghton Mifflin Company. All rights reserved.

Organizational Culture Culture and strategic leadership Traits of strong and adaptive corporate cultures Bias for action Nature of the organization’s mission (sticking with what the organization does best) How to operate the organization (motivating employees to do their best) Copyright © Houghton Mifflin Company. All rights reserved.

Building Distinctive Competencies at the Functional Level Grouping by function: functional structure Grouping people on the basis of their expertise or because they use the same resources Advantages People can learn from one another People can monitor each other Managers have greater control With different functional hierarchies, the company can avoid becoming too tall Copyright © Houghton Mifflin Company. All rights reserved.

Functional Structure Copyright © Houghton Mifflin Company. All rights reserved.

The Functional Level The role of strategic control Developing culture Managers and employees can monitor and improve operating procedures Easier to apply output control Developing culture Managers must implement functional strategy and develop incentive systems to allow each function to succeed Manufacturing: TQM R&D: innovation to bring products quickly to market Sales: output and behavior controls Copyright © Houghton Mifflin Company. All rights reserved.

Functional Structure and Bureaucratic Costs Communications problems Measurement problems Customer problems Location problems Strategic problems The outsourcing option Copyright © Houghton Mifflin Company. All rights reserved.

Implementing Strategy in a Single Industry Implementation begins at the functional level, however, managers must coordinate and integrate across functions and business units Effective strategy implementation at the business level Increases differentiation, adds value for customers, allows for a premium price Reduces bureaucratic costs Copyright © Houghton Mifflin Company. All rights reserved.

How Organizational Design Increases Profitability Copyright © Houghton Mifflin Company. All rights reserved.

Implementing Strategy in a Single Industry (cont’d) Implementing a cost-leadership approach Reducing costs across all functions Continuously monitoring for effective operation Implementing a differentiation approach Design structure around the source of distinctive competency, differentiated product, and customer groups Copyright © Houghton Mifflin Company. All rights reserved.

Implementing Strategy in a Single Industry (cont’d) Implementing a broad product line—product structure Group the overall product line into product groups Centralize support value chain functions to lower costs Divide support functions into product-oriented teams of functional specialists who focus on the needs of one specific product group Copyright © Houghton Mifflin Company. All rights reserved.

Kodak’s Product Structure Copyright © Houghton Mifflin Company. All rights reserved.

Implementing Strategy in a Single Industry (cont’d) Increasing responsiveness to customer groups—market structure Group people and functions by customer or market segments Different managers are responsible for developing products for each group of customers Copyright © Houghton Mifflin Company. All rights reserved.

Market Structure Copyright © Houghton Mifflin Company. All rights reserved.

Implementing Strategy in a Single Industry (cont’d) Expanding nationally—geographic structure To be responsive to needs of regional customers To reduce transportation costs Copyright © Houghton Mifflin Company. All rights reserved.

Geographic Structure Copyright © Houghton Mifflin Company. All rights reserved.

Implementing Strategy in a Single Industry (cont’d) Competing in fast-changing, high-tech environments—product-team and matrix structures Matrix structure Value chain activities are grouped by function and by product or project Flat and decentralized Promotes innovation and speed Norms and values based on innovation and product excellence Copyright © Houghton Mifflin Company. All rights reserved.

Matrix Structure Copyright © Houghton Mifflin Company. All rights reserved.

Implementing Strategy in a Single Industry (cont’d) Competing in fast-changing, high-tech environments—product-team and matrix structures (cont’d) Product-team structure Tasks divided along product or project lines Functional specialists are part of permanent cross-functional teams Copyright © Houghton Mifflin Company. All rights reserved.

Product-Team Structure Copyright © Houghton Mifflin Company. All rights reserved.

Implementing Strategy in a Single Industry (cont’d) Focusing on a narrow product line Tends to have higher production costs because output is lower, reducing opportunity for scale economies Has to develop some form of distinctive competency Functional structure is appropriate Copyright © Houghton Mifflin Company. All rights reserved.

Restructuring and Reengineering Restructuring involves Streamlining hierarchy of authority and reducing number of levels Downsizing the workforce to reduce costs Reasons Change in the business environment Excess capacity Organization grew too tall and inflexible; bureaucratic costs To improve competitive advantage and stay on top Copyright © Houghton Mifflin Company. All rights reserved.

Restructuring and Reengineering (cont’d) Fundamental rethinking and radical redesign of business processes to achieve dramatic improvements Focuses not on functions, but on processes (which cut across functions) Copyright © Houghton Mifflin Company. All rights reserved.