1. STRATEGIC FIT: MATCHING STRATEGY TO STRUCTURE AND THE SITUATION
Payne
(7)

2. Two Primary Types of Fit
FIT WITH INDUSTRY OR MARKET CONDITIONS – external fit
Strategies for Emerging Industries
Strategies for High Velocity Markets
Strategies for Maturing Industries
Strategies for Declining Industries
Strategies for Fragmented Industries
FIT WITH ORGANOZATIONAL STRUCTURE – internal fit

3. The Industry Life Cycle
Industry Sales
Introduction Growth Maturity Decline
Time

4. Changes in the Population of Firms over the
Industry Life Cycle: US Auto Industry
250
200
150
No. of firms
100 50
1895
1905
1915
1925
1935
1945
1955
Source: S. Klepper, Industrial & Corporate Change, August 2002, p. 654.

5. Strategy and Performance at across the Industry Life Cycle12 10 8
Growth
Maturity
Decline 6 4 2
ROI
Note: The figure shows
standardized means for each variable for businesses at each stage of the life cycle.
Technical
Change
Product
R&D/Sales
New Products
% Sales from
New Products
Age of Plant &
Equip.
Added/Revenue
Value
Investment/Sales
Advertising/Sales

6. 1. Features of an Emerging Industry
New and unproven market
Proprietary technology
Low entry barriers
Experience curve effects may permit cost reductions as volume builds
Buyers are first-time users
Marketing involves inducing initial purchase and overcoming customer concerns
Possible difficulties in securing raw materials
Firms struggle to fund R&D, operations and build resource capabilities for rapid growth

7. 1. Options in an Emerging Industry
Win early race for leadership by employing a bold, creative strategy
Push hard to:
Perfect technology
Improve product quality
Develop attractive performance features
Move quickly when technological uncertainty clears and a dominant technology emerges
Form strategic alliances
Capture potential first-mover advantages
Pursue:
New customers and user applications
Entry into new geographical areas
Focus advertising emphasis on:
Increasing frequency of use
Creating brand loyalty
Use price cuts to attract price-sensitive buyers
Prepare for entry of established firms when industry future clears and risk lessens

8. 2. Features of High Velocity Markets
Rapid-fire technological change
Short product life-cycles
Rapidly evolving customer expectations
Frequent launches of new competitive moves
Entry of important new rivals
Examples:
Smart Phones Industry
Biotechnology Industry
Gaming Industry

9. 2. Options in the High Velocity Markets
Invest aggressively in R&D
Develop quick response capabilities
Match rivals
Shift resources
Adapt competencies
Create new competitive capabilities
Speed new products to market
Use strategic partnerships to develop specialized expertise and capabilities
Keys to success:
Cutting-edge expertise
Speed in responding to new developments
Collaboration with others
Agility
Innovativeness
Opportunism
Resource flexibility
First-to-market capabilities

10. 3. Characteristics of Industry Maturity
Slowing demand generates stiff competition
More sophisticated buyers demand bargains
Greater emphasis on cost and service
“Topping out” problem in adding production capacity
Product innovation and new end uses harder to come by
International competition increases
Industry profitability falls
Mergers and acquisitions reduce the number of industry rivals

11. 3. Strategy Options for Competing in a Mature Industry
Prune product line
Emphasize process innovation
Strong focus on cost reduction
Increase sales to present customers
Purchase rivals at bargain prices
Expand internationally
Build new, more flexible competitive capabilities

12. 4. Characteristics of Stagnant or Declining Industries
Demand grows more slowly than economy as whole (or even declines)
Competitive pressures intensify--rivals battle for market share
To grow and prosper, firm must take market share from rivals
Industry consolidates to a smaller number of key players via mergers and acquisitions

13. 4. Options for Competing in a Stagnant or Declining Industry
Pursue focus strategy aimed at fastest growing market segments
Stress differentiation based on quality improvement or product innovation
Work diligently to drive costs down by
Outsourcing
Redesign internal processes
Consolidate under-utilized production facilities
Close low-volume, high-cost distribution outlets
Cut marginal activities from value chain

14. 5. Characteristics of a Fragmented Industry
No seller has a sizable market share (sometimes because the industry is so new that no large firms have yet emerged)
Exploding technologies force firms to specialize just to keep up in their area of expertise
Low entry barriers
Absence of scale economies
Buyers require small quantities of customized products (a condition that allows small firms to serve the special needs of a few buyers)
Market is so big or diverse that it requires many firms to satisfy buyer needs
Examples:
1) Landscaping
2) Auto repair
3) Meat packing.

15. 5. Options for a Fragmented Industry
Construct and operate “formula” facilities
Become a low-cost operator
Increase customer value via backward or forward integration
Specialize by product type
Specialize by customer type
Focus on limited geographic area

16. Strategy & Structure Fit
Concepts:
Strategy and Structure Relationship
Structure Characteristics
Dealing with Size Issues

17. Purposes of Structure Coordination Integration
create activities towards a productive goal while still operating separately
mechanisms for coordination include
rules and procedures
hierarchical referral
liaison personnel
Integration
come together and create something new by combining knowledge and operating as a unit
mechanisms for integration include
teams and task forces

18. Structure and Strategy
Old
Strategy
Structure
Old Performance
New
Strategy
New Structure
New Performance
*This is a cyclical process where the past informs the future.

19. Dimensions of Structure
Complexity: Creation of distinct tasks and responsibilities within the organization
Types of Complexity
Degree of Specialization
Levels of Hierarchy
Geographic Spread or Dispersion
Control: Design of hierarchy to supervise various differentiated elements of the organization
Extent to which authority for decision making is held at higher levels of the organization
Higher levels - Centralization
Lower levels - Decentralization
Formalization: Extent to which rules and procedure govern the actions of individuals and groups within the organization
Balancing act
Too Low - Uncertainty about authority and responsibility
Too High - Limit innovation and creativity

20. Tall vs. Flat Organizations
Tall Organization
Flat Organization
President / CEO
Senior Vice
President VP
Director
Governing Body
Director
President / CEO

21. Types of Structures Need to focus on task efficiency
Functional Structure
Matrix Structure
Divisional Structure
Multidivisional Structure
Grouping by function
Grouping by function and purpose
Primary grouping by purpose;
secondary grouping by function
secondary grouping by purpose;
lowest grouping by function
Need to focus on task efficiency
Need to focus on purpose

22. Growth Patterns of Large Corporations
Phase 1
Strategy: Low revenue base; simple product-market scope
Structure: Simple
Phase 2
Strategy: Increase in revenues; engage in vertical integration (backward and/or forward)
Structure: Functional
Phase 3
Strategy: Expand into new, related product-markets and/or geographical areas
Structure: Divisional
Phase 4
Strategy: Expand into international markets
Structure: International Division, Geographic Area, Worldwide Product Division, Worldwide Functional, or Worldwide Matrix

23. Functional Structure Chief Executive Officer or President
Manager Production
Manager Engineering
Manager Marketing
Manager R&D
Manager Personnel
Manager Accounting
Lower-level managers, specialists, and operating personnel

24. Chief Executive Officer or President Organized similarly to Division 1
Divisional Structure
Chief Executive Officer or President
Corporate Staff
Division A
General Manager
Division B
Division C
Manager Production
Manager Engineering
Manager Marketing
Manager R&D
Manager Personnel
Manager Accounting
Organized similarly to Division 1
Lower-level managers, specialists, and operating personnel

25. Matrix Structure Board of Trustees CEO Functional Managers
Project D
Design
Functional Managers
Program/Project Managers
Project C
Testing
Project B
Admin
Project A
Manufacturing

26. Functional, Divisional, and Matrix Structures: Advantages and Disadvantages
Functional Structure
Advantages
Disadvantages
Pooling of specialists enhances coordination and control
Centralized decision making enhances an organizational perspective across functions
Efficient use of managerial and technical talent
Career paths and professional development in specialized areas are facilitated
Differences in functional area orientation impede communication and coordination
Tendency for specialists to develop short-term perspective and overly narrow functional orientation
Functional area conflicts may overburden top level decision makers
Difficult to establish uniform performance standards
Divisional Structure
Advantages
Disadvantages
Increases strategic and operational control, permitting corporate-level executives to address strategic issues
Quick response to environmental changes
Increased focus on products and markets
Minimizes problems associated with sharing resources across functional areas
Facilitates development of general managers
Increased costs incurred through duplication of personnel, operations, and investment
Dysfunctional competition among divisions may detract from overall corporate performance
Difficulty in maintaining uniform corporate image
Overemphasis on short-term performance
Matrix Structure
Advantages
Disadvantages
Increases market responsiveness through collaboration and synergies among professional colleagues
Allows more efficient utilization of resources
Improves flexibility, coordination, and communication
Increases professional development through broader range of responsibility
Dual reporting relationships can result in uncertainty regarding accountability
Intense power struggles may lead to increased levels of conflict
Working relationships may be more complicated and human resources duplicated
Excessive reliance on group processes and teamwork may impede timely decision making