1. Chapter 18 Strategic Capabilities and Design How to compete in the 21 st century

2. Copyright © 2008 John Wiley & Sons, Inc.18-2 Chapter 18 Study Questions Why are strategy, innovation and organizational learning important and linked? What is organizational design and how is it linked to strategy? How does size influence organizational design?

3. Copyright © 2008 John Wiley & Sons, Inc.18-3 Chapter 18 Study Questions How does technology influence organizational design? How does the environment influence organizational design? How do you put it all together to compete in the 21 st century?

4. Copyright © 2008 John Wiley & Sons, Inc.18-4 Why are strategy, innovation and organizational learning important and linked? Strategy –the process of positioning the organization in the competitive environment and implementing actions to compete successfully

5. Copyright © 2008 John Wiley & Sons, Inc.18-5 Why are strategy, innovation and organizational learning important and linked? Innovation –the process of creating new ideas and putting them into practice

6. Copyright © 2008 John Wiley & Sons, Inc.18-6 Why are strategy, innovation and organizational learning important and linked? Product innovations –introduce new goods or services to better meet customer needs Process innovations –introduce into operations new and better ways of doing things

7. Copyright © 2008 John Wiley & Sons, Inc.18-7 Why are strategy, innovation and organizational learning important and linked? Typical process of organizational innovation 1.Idea creation 2.Initial experimentation 3.Feasibility determination 4.Final application

8. Copyright © 2008 John Wiley & Sons, Inc.18-8 Figure 18.1

9. Copyright © 2008 John Wiley & Sons, Inc.18-9 Why are strategy, innovation and organizational learning important and linked? Organizational learning –Process of knowledge acquisition, information distribution, information interpretation, and information retention in adapting successfully to changing circumstances

10. Copyright © 2008 John Wiley & Sons, Inc.18-10 Why are strategy, innovation and organizational learning important and linked? Mimicry –Occurs when managers copy what they believe are the successful practices of others

11. Copyright © 2008 John Wiley & Sons, Inc.18-11 Why are strategy, innovation and organizational learning important and linked? Mimicry –Provides workable, if not ideal, solutions to many problems –Reduces the number of decisions that need to be analyzed separately –Establishes legitimacy or acceptance and narrows the choices requiring detailed explanation

12. Copyright © 2008 John Wiley & Sons, Inc.18-12 Why are strategy, innovation and organizational learning important and linked? Experience –A primary way to acquire knowledge –Besides learning by doing, managers can also systematically embark on structured programs to capture the lessons to be learned

13. Copyright © 2008 John Wiley & Sons, Inc.18-13 Why are strategy, innovation and organizational learning important and linked? Scanning –Involves looking outside the firm and bringing back useful solutions. Grafting –The process of acquiring individuals, units, or firms to bring in useful knowledge.

14. Copyright © 2008 John Wiley & Sons, Inc.18-14 Why are strategy, innovation and organizational learning important and linked? Retention mechanisms –Individuals –Transformation mechanisms –Formal structures –Physical structures (ecology) –External archives –IT systems

15. Copyright © 2008 John Wiley & Sons, Inc.18-15 What is organizational design and how is it linked to strategy? Organizational design –The process of choosing and implementing a structural configuration.

16. Copyright © 2008 John Wiley & Sons, Inc.18-16 What is organizational design and how is it linked to strategy? The choice of an appropriate organizational design is contingent on: –Firm’s size –Operations and information technology –Environment –Strategy for growth and survival

17. Copyright © 2008 John Wiley & Sons, Inc.18-17 What is organizational design and how is it linked to strategy? The structural configuration of organizations should: –Enable senior executives to emphasize the skills and abilities that their firms need to compete, and to remain agile and dynamic in a rapidly changing world. –Allow individuals to experiment, grow, and develop competencies so that the strategy of the firm can evolve.

18. Copyright © 2008 John Wiley & Sons, Inc.18-18 What is organizational design and how is it linked to strategy? Co-evolution –The firm can adjust to external changes even as it shapes some of the challenges facing it –Shaping capabilities via the organization’s design is a dynamic aspect of co-evolution

19. Copyright © 2008 John Wiley & Sons, Inc.18-19 What is organizational design and how is it linked to strategy? Organizational size –As the number of employees increase, the possible interconnections among them increase even more –The design of small firms is directly influenced by core operations technology

20. Copyright © 2008 John Wiley & Sons, Inc.18-20 What is organizational design and how is it linked to strategy? Simple design –A configuration involving one or two ways of specializing individuals and units –Vertical specialization and control emphasize levels of supervision without elaborate formal mechanisms.

21. Copyright © 2008 John Wiley & Sons, Inc.18-21 What is organizational design and how is it linked to strategy? Managerial scripts –A series of well-known routines for problem identification and alternative generation and analysis that are common to managers in a firm

22. Copyright © 2008 John Wiley & Sons, Inc.18-22 What is organizational design and how is it linked to strategy? Organizational myths –Commonly held cause-effect relationship or assertion that cannot be empirically supported

23. Copyright © 2008 John Wiley & Sons, Inc.18-23 What is organizational design and how is it linked to strategy? Common myths Single unbiased organizational truth Presumption of competence Denial of tradeoffs

24. Copyright © 2008 John Wiley & Sons, Inc.18-24 How does technology influence organizational design? Operations technology –The combination of resources, knowledge, and techniques that creates a product or service output Information technology –The combination of machines, artifacts, procedures, and systems used to gather, store, analyze, and disseminate information for translating it into knowledge

25. Copyright © 2008 John Wiley & Sons, Inc.18-25 How does technology influence organizational design? Thomson’s view of technology –Technologies classified according to the degree of specification and degree of interdependence of work units

26. Copyright © 2008 John Wiley & Sons, Inc.18-26 How does technology influence organizational design? Intensive technology –Uncertainty as to how to produce desired outcomes Mediating technology –Links parties that want to become interdependent Long-linked technology –The way to produce desired outcomes is known and broken down into a number of sequential steps

27. Copyright © 2008 John Wiley & Sons, Inc.18-27 How does technology influence organizational design? Woodward’s view of technology Small-batch production Mass production Continuous-process technology

28. Copyright © 2008 John Wiley & Sons, Inc.18-28 How does technology influence organizational design? Small-batch production –a variety of custom products are tailor-made to fit customer specifications Mass production –The organization produces one or a few products through an assembly line system Continuous-process technology –The organization produces a few products using considerable automation

29. Copyright © 2008 John Wiley & Sons, Inc.18-29 How does technology influence organizational design? An adhocracy is characterized by: –Few rules, policies, and procedures –Substantial decentralization –Shared decision making among members –Extreme horizontal specialization –Few levels of management –Virtually no formal controls

30. Copyright © 2008 John Wiley & Sons, Inc.18-30 How does technology influence organizational design? An adhocracy is useful when: –The tasks facing the firm vary considerably and provide many exceptions. –Problems are difficult to define and solve.

31. Copyright © 2008 John Wiley & Sons, Inc.18-31 How does technology influence organizational design? Why IT makes a difference –IT provides a partial substitute for: Some operations Some process controls Some impersonal methods of coordination –IT provides a strategic capability

32. Copyright © 2008 John Wiley & Sons, Inc.18-32 How does technology influence organizational design? IT as a substitute –Initial implementation of IT often displaced routine, highly specified, and repetitious jobs –A second wave of substitution replaced process controls and informal coordination mechanisms with IT

33. Copyright © 2008 John Wiley & Sons, Inc.18-33 How does technology influence organizational design? Information technology as a strategic capability –IT has been used to improve the efficiency, speed of responsiveness, and effectiveness of operations –IT provides individuals the information they need to plan, make choices, coordinate with others, and control their own operations

34. Copyright © 2008 John Wiley & Sons, Inc.18-34 How does technology influence organizational design? IT and e-business –Many dot-com firms adopted some variation of adhocracy –As the dot-coms grew, the adhocracy design became problematic

35. Copyright © 2008 John Wiley & Sons, Inc.18-35 How does technology influence organizational design? Virtual organization –an ever-shifting constellation of firms, with a lead corporation, that pool skills, resources, and experiences to thrive jointly

36. Copyright © 2008 John Wiley & Sons, Inc.18-36 How does the environment influence organizational design? General environment –The set of cultural, economic, legal-political, and educational conditions found in the areas in which the organization operates Specific environment –The owners, suppliers, distributors, government agencies, and competitors with which an organization must interact to grow and survive

37. Copyright © 2008 John Wiley & Sons, Inc.18-37 How does the environment influence organizational design? Environmental complexity –The magnitude of problems and opportunities in the organization’s environment, as reflected in the degree of richness, degree of interdependence and degree of uncertainty

38. Copyright © 2008 John Wiley & Sons, Inc.18-38 How does the environment influence organizational design? Environmental richness –Overall the environment is richer when the economy is growing, individuals are improving their education and those on whom the organization relies are prospering

39. Copyright © 2008 John Wiley & Sons, Inc.18-39 How does the environment influence organizational design? Environmental interdependence –Linkage between environmental independence and organization design may be subtle and indirect Organization may co-opt powerful outsiders Organization may absorb or buffer demands of powerful external elements

40. Copyright © 2008 John Wiley & Sons, Inc.18-40 How does the environment influence organizational design? Environmental uncertainty –Uncertainty and volatility can be particularly damaging to large bureaucracies –A more organic form is the appropriate organizational design response to uncertainty and volatility

41. Copyright © 2008 John Wiley & Sons, Inc.18-41 How does the environment influence organizational design? In a complex global economy, firms must learn to co-evolve by altering their environment Two important ways of co-evolution: –Management of networks –Development of alliances

42. Copyright © 2008 John Wiley & Sons, Inc.18-42 How does the environment influence organizational design? Interfirm alliances –Announced cooperative agreements or joint ventures between two independent firms

43. Copyright © 2008 John Wiley & Sons, Inc.18-43 How do you put it all together to compete in the 21 st century? Barriers that block desired action 1.Over-emphasis on vertical relations 2.Over-emphasis on functions, product lines or organizational units 3.Maintaining rigid lines of demarcation between the firm and its partners 4.Reinforcing natural cultural, national and geographic borders

44. Copyright © 2008 John Wiley & Sons, Inc.18-44 How do you put it all together to compete in the 21 st century? Factors in the inability to co-evolve and develop a cycle with positive benefits Organizational inertia Hubris Issue of detachment

45. Copyright © 2008 John Wiley & Sons, Inc.18-45 How do you put it all together to compete in the 21st century? Benefit cycles –A pattern of successful adjustment followed by further improvements