Chapter Twelve

Implementing Strategy in Companies That Compete in a Single Industry

Implementing Strategy Through Organizational Design

Organizational Design: the process of selecting the right combination of organizational structure, control systems, and culture to pursue a business model successfully.

 Organizational Structure
Assigns employees to specific value creation tasks and roles To coordinate and integrate the efforts of all employees

 Strategic Control Systems

A set of incentives to motivate employees To provides feedback on performance so corrective action can be taken

 Organizational Culture
The collection of values, norms, beliefs, and attitudes shared within an organizations To control interactions within and outside the organization
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Implementing Strategy Through Organizational Design

Figure 12.1

Organizational structure, control, and culture shape peoples behaviors, values, and attitudes and determine how they will implement an organizations business model and strategies.
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Building Blocks of Organizational Structure

Grouping tasks, functions, and divisions
How best to group tasks into functions and functions into business units or divisions to create distinctive competencies and pursue a particular strategy

N Allocating authority and responsibility

How to allocate authority and responsibility to these functions and divisions

Integration and integrating mechanisms

How to increase the level of coordination or integration between functions and divisions as a structure evolves and becomes more complex
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Grouping Tasks, Functions and Divisions

Choice of structure is made on ability to implement companys business model and strategies successfully:

Organizational structure follows the range and variety of tasks that an organization pursues. Companies group people and tasks into functions, and then functions into divisions.
A function is a collection of people who work together and perform similar tasks or hold similar positions. A division is a way of grouping functions to allow an organization to better serve its customers. Handoffs are the work exchanges between people, functions, and subunits. Bureaucratic costs result from the inefficiencies surrounding these handoffs.
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Allocating Authority and Responsibility

To economize on bureaucratic costs and effectively coordinate the activities, company must develop a clear and unambiguous hierarchy of authority

Organizational Structure Decision Making: Centralized versus Decentralized Delegating and empowering employees Centralized decisions 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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Tall and Flat Structures

Figure 12.2

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Integration and Integrating Mechanisms

Integration and integrating mechanisms are used to increase communication and coordination among functions and divisions

Direct contact Liaison roles Teams

The greater the complexity of an organizations structure, the greater the need for formal coordination among people, functions, and divisions.
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Strategic Control Systems

The formal target-setting, measurement, and feedback systems to evaluate whether a company is implementing its strategy successfully Characteristics of an effective control system:

Flexible Provides accurate information Timely Measures should be tied to the goals of developing distinctive competencies in efficiency, quality, innovativeness, and responsiveness to customers.
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Steps in Designing an Effective Control System

Figure 12.3

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Levels of Organizational Control

Controls at each level should provide the basis on which managers at lower levels design their controls systems.

Figure 12.4

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Types of Strategic Control Systems

 Personal Control
Managers question and probe to better understand
subordinates. The result is more possibilities for learning to occur and competencies to develop.

 Output Control

Set appropriate performance goals for each

division, department, and employee, then measure actual performance relative to these goals.

 Behavior Control

Establish standardization, predictability, and

accuracy by creating a system of rules to direct actions and/or behaviors of divisions, functions, or individuals.

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Using Information Technology

 Behavior control
IT standardizes behavior through the use of a consistent, cross-functional software platform.

 Output control
IT allows all employees or functions to use the same software platform to provide information on their activities.

 Integrating mechanism
IT provides people at all levels and across all functions with more information.
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Organization Culture
Culture and Stategic Leadership

Traits of Strong and Adaptive Corporate Culture

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Building Distinctive Competencies at the Functional Level

Most companies group people and tasks around a functional structure on the basis of their common expertise or because they use the same resources.

 Functional Structure advantages:

People doing similar functions can learn from one another. People can monitor each other and improve work processes. Managers have greater control over organizational activities. Managing is easier with separately managed specialized groups.

 Role of Strategic Control

Managers and employees can monitor and improve operating procedures. Easier to apply output control.

 Developing Culture
Managers must implement functional strategy and develop incentive systems to allow each function to succeed.
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Functional Structure
Figure 12.5

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Functional Structure and Bureaucratic Costs

Whenever different functions work together, bureaucratic costs arise because of communication and measurement problems arising from the handoffs across the functions.  Communication problems
Stem from differences in goal orientations and outlooks

 Measurement problems
Difficulties measuring contribution as product range widens

 Customer problems
Satisfying customer needs and coordinating value-chain functions

 Location problems
Functional structure not the best way to handle regional diversity when selling or producing in multiple locations

 Strategic problems
These problems mean a company has outgrown its structure
Consider a more complex structure or outsourcing options.
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Implementing Strategy in a Single Industry

Implementation begins at the functional level  Effective strategy implementation and organization design at the business level:
Increases differentiation, adds value for customers, allows for a premium price Reduces bureaucratic costs associated with measurement and communications problems

 Effective organization design often means moving to a more complex structure that:
Economizes on bureaucratic costs Increase revenue from product differentiation Lowers overall cost structure by obtaining economies of scope or scale

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Implementing Cost Leadership and Differentiation

 Pursuing a cost leadership approach
The aim is to become the lowest cost producer in the industry Reducing costs across all functions Lowering cost structure while preserving its ability to attract customers Continuously monitoring for effective operation
In practice, the functional structure is the most suitable for cost leadership.

 Implementing a differentiation approach

Design organization structure around the source of
distinctive competency, differentiated products, and customer groups.
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How Organizational Design Increases Profitability

Figure 12.6

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Product Structure: Implementing a Wide Product Line

Implementing a broad product structure:
Group the overall product line into product groups Centralize support value chain functions to lower costs Divide support functions into productoriented teams who focus on the needs of one specific product group. Measure the performance of each product group separately from the others Closely link rewards to performance of product group

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Nokias Product Structure

Figure 12.7

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Market Structure: Increasing Responsiveness to Customer Groups

Market structure focuses on the ability to meet the needs of distinct and important sets of customers or different customer groups.

Increasing responsiveness to customer groups:

Identify the needs of each customer group. Group people and functions by customer or market segments. Make different managers responsible for developing products for each group of customers. Establish market structure brings managers and employees closer to specific groups of customers.

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Market Structure
Figure 12.8

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Geographic Structure: Expanding Nationally

Geographic regions may become the basis for grouping organizational activities when companies expand nationally through internal expansion, horizontal integration, or mergers.

 Expanding nationally geographic structure

More responsive to needs of regional customers Can achieve a lower cost structure and economies of scale Provides more coordination and control than a functional structure through the regional hierarchies

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Geographic Structure
Figure 12.9

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Matrix and Product-Team Structures

In fast-changing, high-tech environments, competitive success depends on fast mobilization of company skills and resources to ensure that product development and implementation meet customer needs.

 Matrix structure
Value chain activities are grouped by function and by product or project Flat and decentralized Promotes innovation and speed Norms and values based on innovation and product excellence

 Product-team structure
Tasks divided along product or project lines Functional specialists are part of permanent cross-functional teams
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Matrix Structure
Figure 12.10

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Product-Team Structure
Figure 12.11

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Focusing on a Narrow Product Line

focused company concentrates on developing a narrow range of products aimed at one or two market segments as defined by type of customer or location.

 Focusing on a narrow product line:

Focusers tend to have higher production costs Has to develop some form of distinctive competency Structure and controls systems need to be:
Inexpensive to operate Flexible enough to allow distinctive competency Focuser normally adopts a functional structure

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Restructuring and Reengineering

 Restructuring
Streamlining hierarchy of and reducing number of levels Downsizing the workforce to lower operating costs Reasons to restructure and downsize:
Change in the business environment Excess capacity Bureaucratic costs: organization grew too tall and inflexible To improve competitive advantage and stay on top

 Reengineering

Fundamental rethinking and radical redesign of business processes to achieve dramatic improvements Focuses on processes (which cut across functions), not on functions

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