Implementing Strategy in Companies That Compete in a Single Industry Chapter 12 Implementing Strategy in Companies That Compete in a Single Industry

Learning objectives Understand how organizational design requires managers to select the right combination of organizational structure, control, and culture Discuss how effective organizational design enables a company to increase product differentiation, reduce its cost structure, and build competitive advantage

Organizational Design Process of deciding how a company should create, use, and combine organizational structure, control systems, and culture To pursue a business model successfully Organizational structure: Means through which a company assigns employees to specific tasks and roles that are to be linked together to increase: Efficiency, quality, and innovation Responsiveness to customers

Organizational Design Control system: Provides managers with incentives for employees as well as feedback on how the company performs Organizational culture: Specific collection of values, norms, beliefs, and attitudes that: Are shared by people and groups in an organization Control the way people interact with each other and with stakeholders outside the organization

Implementing Strategy through Organizational Design

Grouping tasks, functions, and divisions Function - Collection of people who work together and perform the same types of tasks Amount and complexity of handoffs increase with growth of the organization Handoffs - Transfers among people, functions, and subunits Division - Way of grouping functions to allow an organization to better produce and transfer its goods and services to customers

Allocating Authority and Responsibility Clear and unambiguous chain of command that defines each manager’s relative authority Hierarchy of authority Number of subordinates reporting directly to a particular manager Span of control

Tall and Flat Structures

Tall Organizations Limitations Communication problems Long time taken in decision making and adherence Distortion of commands and orders Increases expenses Limitations Principle of the minimum chain of command: Company should design its hierarchy with the fewest levels of authority necessary to use organizational resources effectively Solution

Integrating Mechanisms Ways to increase communication and coordination among functions and divisions Direct contact Liaison roles Teams: Formation of a group that represents each division or department: Facing a common problem With a goal of finding a solution to the problem

Strategic Control Design a system that sets ambitious goals and targets for all managers and employees Management by objectives: Employees are encouraged to help set their own goals Managers manage by exception, intervening only when they sense something is not going right

Strategic Control Systems Mechanism that allows managers to monitor and evaluate: Whether their business model is working as intended How their business model could be improved Basic structure of competitive advantage Control and efficiency Control and quality Control and innovation Control and responsiveness to customers

Steps in Designing an Effective Strategic Control System

Levels of Organizational Control

Types of Strategic Control Systems Way one manager shapes and influences the behavior of another in a face-to-face interaction in the pursuit of a company’s goals Personal control Establishes performance goals and then measures performance relative to these goals Output control Establishes comprehensive system of rules that specify the appropriate behavior through: Operating budget Standardization Rules and procedures Behavior control

Organizational Culture Specific collection of values and norms shared by people and groups in an organization Organizational socialization - Describes how people learn organizational culture Culture and strategic leadership Organization’s founder and top managers help create its organizational culture and provide strategic leadership Shared values and common culture increase integration and improve coordination among members

Adaptive Corporate Cultures Innovative culture that encourages and rewards middle- and lower-level managers for taking the initiative to achieve organizational goals Common value sets Values promoting a bias for action Values stem from nature of the organization’s mission Values determine how to operate the organization

Developing Culture at the Functional Level Functional strategy improves efficiency and quality Production Develops distinctive competencies in innovation, quality, and excellence that result in products that fit customers’ needs R&D Monitor sales behavior Encourage high responsiveness to customers to develop sophisticated output and behavior controls Sales

How Organizational Design Increases Profitability

Implementing Cost Leadership and Differentiation Choosing a combination compatible with lowering cost structure while preserving ability to attract customers Implementing cost leadership Company must design its structure, control, and culture around the particular source of its competitive advantage Makes it difficult to standardize activities and increases the bureaucratic costs Implementing differentiation