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

2. 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
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3. 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.”

4. 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
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5. 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.
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6. Building Blocks of Organizational Structure
Grouping tasks, functions, & divisions
Allocating authority & responsibility
Integration & integrating mechanisms
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7. Choice of Structure
“...made on ability to implement company’s business model and strategies successfully.”

8.  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.
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9. Bureaucratic Costs
To economize on bureaucratic costs and effectively coordinate the activities, company must develop a clear and unambiguous hierarchy of authority

10.  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
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11. Tall and Flat Structures
Figure 12.2
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12. Integration and integrating mechanisms are used to increase communication and coordination among functions and divisions

13.  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.
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14. Strategic Control Systems
The formal target-setting, measurement, and feedback systems to evaluate whether a company is implementing its strategy successfully

15. Characteristics of Effective Control System
Flexible
Accurate
Timely
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16. Steps in Designing an Effective Control System
Figure 12.3
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17. 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
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18. 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.
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19. Operating Budget
“... a blueprint that states how managers intend to use organizational resources to achieve organizational goals.”

20. 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.
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21. Strategic Reward Systems
Linking to reward systems to control systems
Decide which behaviors to reward
Create control system to measure & link to reward
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22. 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...”

23. 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...”

24. Traits of Corporate Cultures
Bias for action
Nature of organization’s mission
How to operate organization
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25. Most companies group people and tasks around a functional structure on the basis of their common expertise or because they use the same resources.

26. 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.
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27. Functional Structure Figure 12.5
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28. Role of Strategic Control
“... stretch and encourage managers and employees to excel in their quest to raise performance.”

29. Culture at Functional Level
Manufacturing
R & D
Sales
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30. Whenever different functions work together, bureaucratic costs arise because of communication and measurement problems arising from the handoffs across the functions.

31. 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
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32. Outsourcing Option
“... Solving the organizational design problem by contracting with other companies to perform specific functional tasks.”

33. 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
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34. Organizational Design Increases Profitability
Figure 12.6
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35. 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
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36. Implementing Differentiation
Design organization structure around the source of distinctive competency, differentiated products, and customer groups.
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37. 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
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38. Nokia’s Product Structure
Figure 12.7
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39. Market Structure
Focuses on ability to meet needs of distinct and important sets of customers or different customer groups.

40. 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.
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41. Market Structure Figure 12.8
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42. Geographic Structure
Geographic regions may become basis for grouping organizational activities when companies expand nationally through internal expansion, horizontal integration, or mergers.

43. 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
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44. Geographic Structure Figure 12.9
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45. 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.

46. 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
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47. Matrix Structure
Figure 12.10

48. Product-Team Structure
Figure 12.11
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49. 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
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50. 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
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51. “Successful organizations understand the importance of implementation, not just strategy, and... recognize the crucial role of their people in the process.”
- Jeffrey Pfeffer
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