1 Session Two Strategy, Organization Design and Effectiveness

2 Top Management Role in Organization Direction, Design, and Effectiveness CEO, Top Management Team External Environment Opportunities Threats Uncertainty Resource Availability Internal Situation Strengths Weaknesses Distinctive Competence Leadership Style Past Performance Strategic Direction Organization Design Effectiveness Outcomes Define mission, official goals Select operational goals, competitive strategies Resources Efficiency Goal attainment Competing values Structural Form – learning vs. efficiency Information and control systems Production technology Human resource policies, incentives Organizational culture Interorganizational linkages Source: Adapted from Arie Y. Lewin and Carroll U. Stephens, “Individual Properties of the CEO as Determinants of Organization Design,” unpublished manuscript, Duke University, 1990; and Arie Y. Lewin and Carroll U. Stephens, “CEO Attributes as Determinants of Organization Design: An integrated Model,” Organization Studies 15, no. 2 (1994):

Top Management Responsibilities Determine the organization’s purpose Determine the organization’s goals in order to enact and fulfill the purpose Develop strategy to achieve the goals Design the organization to enact the strategy given the demands of:  Changing and uncertain stakeholders  Changing and uncertain environment 3

Environment/Goals/Strategy/Structure Analysis Process 4 External Environmental Assessment Internal Environmental Assessment 2. Goals3. Strategy4. Structure 6. Outcome Assessment – have you been successful? Learning or Efficiency Learning or Efficiency 1. Tells you what you should do 5. Outcome

5 Selecting Strategy and Design to Achieve Organizational Goals 1. Goals  Where you want to go 2. Strategy  How you are going to get there. A plan for interacting with the competitive environment to achieve organizational goals. 3. Structure  How you can do what you need to do to implement strategy and achieve goals Environment Goals Strategy Structure

Selecting Strategy to Achieve Organizational Goals Different strategies are better for achieving certain types of goals We need to understand the theoretical types of strategies that organizations follow and which ones fit which types of goals, which in turn are best implemented by certain types of structures Looking to understand the types, how to implement them and what their outcomes are 6

7 Selecting Strategy to Achieve Organizational Goals Competitive Advantage Competitive Scope Low Cost Uniqueness Broad Narrow Low-cost Leadership Differentiation Focused Low-cost Leadership Focused Differentiation Porter’s Competitive Strategies

8 Competitive Advantage:  The ability to earn extraordinary profits from activities or resources that no one else can do or possess Cost Leadership:  Producing at a price that is lower than any others’ to gain market share to gain profits lost by low prices Uniqueness:  Producing things that are different, producing things differently than others’ that are valued by the market and can command a price premium

9 Porter’s Competitive Strategies Competitive Scope:  The degree to which an organization operates in different markets or segments  Broad – many  Narrow – few

10 Porter’s Competitive Strategies Differentiation:  Organizations attempt to distinguish their products/services from competitors  Can reduce rivalry and threats of substitutes by creating loyalty  Costly, heavy product research and marketing, creative employees

11 Porter’s Competitive Strategies Low-cost Leadership:  Attempts to increase market share via low cost  Organization aggressively seeks efficiencies, cost reductions and tight controls

12 Miles and Snow’s Strategy Typology Prospector  Learning orientation; flexible, fluid, decentralized structure  Strong capability in research  Values creativity, risk-taking, and innovation Defender  Efficiency orientation; centralized authority and tight cost control  Emphasis on production efficiency, low overhead Close supervision; little employee empowerment Source: Based on Michael Treacy and Fred Wiersema, “How Market Leaders Keep Their Edge,” Fortune February 6, 1995, 88-98; Michael Hitt, R. Duane Ireland, and Robert E. Hoskisson, Strategic Management (St. Paul, Minn.: West, 1995), ; and Raymond E. Miles, Charles c. Snow, Alan D. Meyer, and Henry L. Coleman, Jr., “Organizational Strategy, Structure, and Process,” Academy of Management Review 3 (1978),

13 Miles and Snow’s Strategy Typology (cont’d) Analyzer  Balances efficiency and learning; tight cost control with flexibility and adaptability  Efficient production for stable product lines; emphasis on creativity, research, risk-taking for innovation Reactor  No clear organizational approach; design characteristics may shift abruptly depending on current needs Source: Based on Michael Treacy and Fred Wiersema, “How Market Leaders Keep Their Edge,” Fortune February 6, 1995, 88-98; Michael Hitt, R. Duane Ireland, and Robert E. Hoskisson, Strategic Management (St. Paul, Minn.: West, 1995), ; and Raymond E. Miles, Charles c. Snow, Alan D. Meyer, and Henry L. Coleman, Jr., “Organizational Strategy, Structure, and Process,” Academy of Management Review 3 (1978),

14 Organization Design Outcomes of Strategy Porter Strategy: Differentiation Org. Design:  Learning org. flexible, strong horizontal coordination  Research emphasis  Values and builds mechanisms for customer intimacy  Rewards creativity, risk- taking and innovation Miles and Snow Strategy: Prospector Org. Design:  Learning oriented, flexible, decentralized  Research emphasis Strategy: Analyzer Org. Design:  Balance efficiency and learning, cost control with flexibility and adaptability  Efficient production for stable product lines, emphasis on creativity, research, risk-taking for innovation

15 Organization Design Outcomes of Strategy Porter Strategy: Low-cost Leadership Org. Design:  Efficiency, strong central authority, cost control, frequent detailed reporting  Standard operating procedures  Efficient procurement and distribution  Close employee supervision, routine tasks, limited empowerment Miles and Snow Strategy: Defender Org. Design:  Efficiency, centralized, cost control  Production efficiency, low overhead  Close supervision, little empowerment Strategy: Reactor Org. Design:  No clear org. approach, design characteristics may shift depending on current needs

16 Strategy Comparisons Efficiency/ Mechanical System High Low Low-cost Leadership Defender Differentiation Analyzer Focused Low-cost Leadership Reactor Focused Differentiation Prospector Learning/Organic System LowHigh Frameworks: Porter Miles & Snow

17 Contingency Factors Affecting Organization Design Strategy Environment Technology Size/ Life Cycle Culture Organizational Structure and Design The Right Mix of Design Characteristics Fits the Contingency Factors

18 Contingency Approaches to the Measurement of Organizational Effectiveness Organization Internal activities and processes Resource Inputs Product and Service Outputs Resource-based approach Internal Process approach Goal approach External Environment

19 Assessing Effectiveness - Goal Approach Concerned with identifying the organization’s output goals and assessing how well it did in attaining them Indicators:  Must consider the operative goals as they are more specific and reflect the activities the organization is actually doing

20 Assessing Effectiveness - Goal Approach Usefulness:  Often used by businesses because of the ease of measurement – often objective  Must deal with multiple and sometimes conflicting goals due to potential subjectivity of evaluation – objective measures preferred but not always available Triangulation of results

21 Reported Goals of U.S. Corporations Goal% Corporations Profitability89 Growth82 Market Share66 Social Responsibility65 Employee welfare62 Product quality and service60 Research and development54 Diversification51 Efficiency50 Financial stability49 Resource conservation39 Management development35 Source: Adapted from Y. K. Shetty, “New Look at Corporate Goals,” California Management Review 22, no. 2 (1979), pp

22 Assessing Effectiveness - Resource-based Approach Looks at the input side of the transformation process and assumes that effectiveness is determined by the degree of success the organization has in obtaining, managing and integrating its valued, scarce and needed resources

23 Assessing Effectiveness - Resource-based Approach Indicators:  Bargaining Position: the extent to which the organization is able to obtain its resources from the environment (i.e. how hard is it to get them and who has the power?)  The ability to correctly perceive and interpret the influencing factors in the external environment (i.e. forecasting needs)

24 Assessing Effectiveness - Resource-based Approach Indicators:  The ability to use tangible and intangible resources to achieve superior performance  The ability of the organization to respond to environmental changes

25 Assessing Effectiveness - Resource-based Approach Usefulness:  Often more appropriate in not-for-profit organizations or when outcomes are difficult to quantify or specify  More internally than externally focused

26 Assessing Effectiveness - Internal Process Approach Effectiveness is measured as internal organizational health and efficiency.  Effectiveness = Smooth operations Happy employees Good interaction and integration of departments for high productivity  No focus on the external environment (i.e. inputs or market)

27 Assessing Effectiveness - Internal Process Approach Indicators: Corporate Cultural Efficacy:  Strong corporate culture, positive work climate  Team spirit, group loyalty, teamwork  Confidence, trust, communication between workers and management  Flat org. structure and decision empowerment  Undistorted horizontal and vertical communication  Managers rewarded for employee development  Conflicts resolved with org’s best interests in mind

28 Assessing Effectiveness - Internal Process Approach Usefulness:  Efficient use of resources via a harmonious group of internal subsystems leads to effective operations, learning and environmental adaptation  Does not focus on ability or requirement to gain needed resources or effectively meet market needs  Difficult to accurately measure what are often subjective measures

Assessing Effectiveness – Competing Values Model Balancing the concerns of many parts of the organization, recognizing that many of the subsystems have differing and potentially competing definitions of effectiveness. It is therefore hard to get consensus without understanding and recognizing many indicators 29

Assessing Effectiveness – Competing Values Model Indicators  Focus – are dominant concerns internal (managerial concern for well-being and efficiency of employees) or external (well-being of the organization’s relationship with its environment) to the organization  Structure – is stability (efficiency) or flexibility (learning/change) the dominant structural consideration for management 30

Assessing Effectiveness – Competing Values Model Dimensions:  External focus and flexible structure – open systems emphasis Growth and resource acquisition  External focus and structural control – rational goal emphasis Productivity and efficiency 31

Assessing Effectiveness – Competing Values Model Dimensions:  Internal focus and structural control – internal process emphasis Stability and equilibrium  Internal focus and flexibility – human relations emphasis Development of human resources 32

Assessing Effectiveness – Competing Values Model Usefulness  Allows managers to prioritize assessment based on which stakeholder is more vital to achieving certain specific overall goals  Assessment will change over time as priority of values changes as strategy and environment changes 33

34 Assessing Effectiveness – Competing Values Model Human Relations Emphasis Primary Goal: human resource development Subgoals: cohesion, morale, training Internal Process Emphasis Primary Goal: stability, equilibrium Subgoals: information management, communication Rational Goal Emphasis Primary Goal: productivity, efficiency, profit Subgoals: planning, goal setting Open Systems Emphasis Primary Goal: growth, resource acquisition Subgoals: flexibility, readiness, external evaluation Flexibility Control Internal External STRUCTURE FOCUSFOCUS Adapted from Robert E. Quinn and John Rohrbaugh, “A Spatial Model of Effectiveness Criteria: Toward a Competing Values Approach to Organizational Analysis,” Management Science 29 (1983): ; and Robert E. Quinn and Kim Cameron, “Organizational Life Cycles and Shifting Criteria of Effectiveness: Some Preliminary Evidence,” Management Science 29 (1983):

The Balanced Scorecard 35

The Balanced Scorecard A comprehensive management control system that balances financial and operational measures Designed to be integrative and self- reinforcing to link short and long term goals  Set goals  allocate resources  plan budgets  set rewards 36

The Balanced Scorecard Financial  Ensuring activities contribute to continued short and long term financial performance  Net income, ROI etc. Customer Service  How do customers/clients view the organization?  Retention and satisfaction 37

The Balanced Scorecard Process Indicators  Operating statistics – relates to efficiency and productivity  Order fulfillment, cost per client Potential for Learning and Growth  How well are human resources and capital managed for the future  Employee retention, product/service/program innovations 38