1. Advance Topics in Change Management
Lecture 2: Organizational Design and Capabilities in Changing Markets

2. Objectives
To understand how organizational design helps to explain organizational capabilities – and hence competitive advantages and the ability of firms to achieve their strategic objectives.

3. Concepts Resources Capabilities Routines
Firm specific, valuable, rare, difficult to imitate and non-substitutable
They are the foundations of:
Capabilities
At an abstract level, these can be thought of as the ability to co-ordinate activities, learn within an organization, and re-configure resources
Routines
Help to build resources and capabilities

4. PROBLEM OF LOCK-IN

5. Illustrations of Lock-In 1
Northern Rock:
Baker [a senior manager at Northern Rock] could not allow that [analysts to get worried] to happen. Northern Rock's rampant growth in the years before its nationalisation was delivered on the back of two things: cheap wholesale funding and an industry-beating risk profile. Northern Rock may have been the pioneer of 125pc mortgages, but its arrears rate was half the industry average. Jeopardise that and cheap funding might not have been so readily available.
The Daily Telegraph,

6. Illustrations of Lock-In 2
Christensen (1997), The Innovators Dilemma.
Disk drives
Incumbents versus new comers (with disruptive innovations)
Sony Playstation and Microsoft’s X-Box versus Nintendo Wii

7. CHARACTERISTICS OF FORDISM
PRODUCTION SYSTEMS
Dedicated specialised machinery
Standardised products in long production runs
Standardised work processes
Infrequent and expensive product and process changes
MARKETS
Stable mass consumption of standardised goods
Price based competition
Adversarial links with suppliers
Oligopolistic
ORGANISATIONS
Mechanistic and bureaucratic
Inflexible with high fixed costs
Focused on efficiency and cost reduction
Narrow tasks and skills
Little or no task autonomy by workers

8. Fordism

9. The application of Fordist principles becomes counterproductive

10. An alternative production system to Fordism: Toyotaism

11. Models of Competition and Coordination I
Characteristics
Fordism
Customised Production
Diversified Quality Production
Discontinuous Innovation
Examples
Some cars, consumer electronics, call centres
Some advertising agencies, consultancies
Some cars, mechanical engineering
Biotechnology, some software developers
Primary basis of market competition
Price
Quality
Innovation
Production volumes
Very large
Limited
Medium/High
Standardisation of outputs
High
Medium
Differentiation and change of products
Low
Ability to respond quickly to competence destructive changes

12. Models of Competition and Coordination II
Characteristics
Fordism
Customised Production
Diversified Quality Production
Discontinuous Innovation
Flexibility of work processes
Low
Medium
High
Inter-firm relations
Adversarial
Cooperation with competition
Adversarial but some narrowly focused partnerships
Key organizational and managerial capabilities
Coordination and control
Integrating skills and adapting to changing demands
Coordination and organisational learning
Reconfiguring assets rapidly in response to technical and market opportunities

13. Organizational and Managerial Capabilities
Characteristics
Coordinating
Learning
Reconfigurational
Competitive Focus
Realise economies of scale and scope through systematic integration of work activities
Continual improvement of processes and products to meet changing conditions
Fast adaptation to rapidly changing market and technical contexts
Key Processes
Establishing routines for controlling work and integrating activities
Continual collective problem solving and knowledge development
Rapid adaptation of work processes, skills and other assets to meet changing conditions
Involvement of Employees and Business Partners in Developing Capabilities
Varies
High
Considerable
Longevity of Employer-employee Commitment
Considerable for managers
Considerable for skilled workers
Limited

14. Questions about Tecso
Think about all of the activities that Tesco carries out.
In terms of ‘co-ordinating’, ‘learning’ and ‘re-configurational’, what organizational and managerial capabilities are needed to perform these activities successfully?
How would you justify your selections?

15. Many of their activities (buying, selling, transporting products)
Tesco’s Capabilities?
Characteristics
Coordinating
Many of their activities (buying, selling, transporting products)
Competitive Focus
Realise economies of scale and scope through systematic integration of work activities
Search for economies of scale by centralizing purchasing, expanding into new geographical markets (different cities etc, formats) at home and abroad (Poland, Czech Republic, Thailand, US) and product markets (finance)
Key Processes
Establishing routines for controlling work and integrating activities
Most of the above activities would have clear routines.
Involvement of Employees and Business Partners in Developing Capabilities
Varies
Probably limited in most cases, though there may be some scope for involving certain business partners.
Longevity of Employer-employee Commitment
Considerable for managers
Probably limited to managers.

16. Tesco’s Capabilities? Characteristics Learning
Probably strong focus on learning, too, but more or less than co-ordination?
Competitive Focus
Continual improvement of processes and products to meet changing conditions
Learning about product demand – Clubcard? Enables Tesco to learn about changing consumer choices.
Key Processes
Continual collective problem solving and knowledge development
Collective? Probably limited to management and those involved in Clubcard scheme
Involvement of Employees and Business Partners in Developing Capabilities
High
Probably quite limited for most employees and business partners
Longevity of Employer-employee Commitment
Considerable for skilled workers
For certain groups directly attached to learning (managers and those involved in Clubcard) there is likely to be a need for high levels of commitment.

17. Tesco’s Capabilities? Characteristics Reconfigurational
No - if reconfigurational is in the sense of changing rapidly to product market changes
Competitive Focus
Fast adaptation to rapidly changing market and technical contexts
Adapt to product market changes, but how radical are these?
Key Processes
Rapid adaptation of work processes, skills and other assets to meet changing conditions
Assets probably unchanged most of the time (although there has been a logistics revolution)
Involvement of Employees and Business Partners in Developing Capabilities
Considerable
Some as noted above
Longevity of Employer-employee Commitment
Limited
Considerable for some groups.

18. Tesco’s Capabilities
Main capabilities are co-ordination and learning. The ability to radically reconfigure its capabilities is less important – probably completely unimportant in most instances.

19. Conclusion Strategies are closely linked to capabilities
The ability of firms to develop those capabilities (and the necessary resources to support those capabilities) is, in turn, shaped by key features of organizational design that affect routines within companies.
But don’t forget the external environment that influences other contingencies (other ‘things’ that a particular strategy or capability depend upon).