1. Contingency Factors Affecting Organization Design

2. Organization Direction, Design, and Effectiveness

3. Strategy What is Strategy? From where has the word come? Why have a Strategy? Strategy to do what?

4. Strategy Goals & Strategies……same? Goals = Ends Strategy = Means + Ends Goals – Long Term Objectives Strategy – LTO + course of action + resource allocation Environmen tal Factors Organizatio nal Capabilities Strategy Structure

5. Strategy Organizational Strategy: the specific pattern of decisions and actions that managers take to use core competences to achieve a competitive advantage and outperform competitors Core competences: the skills and abilities in value creation activities that allow a company to achieve superior efficiency, quality, innovation, or customer responsiveness HLL = Branding, Distribution; Asian Paints = Supply Chain; Airtel = Retailing; TATA Steel = Primary Steel Making

6. The Value Creation Cycle

7. Sources of Core Competences Coordination Abilities An organization’s ability to coordinate its functional and organizational resources to create maximal value – Effective coordination of resources leads to competitive advantage by means of: Control systems Centralization or decentralization of authority Development and promotion of shared cultural values Basically, design and management of structure and culture Specialized Resources Coordination Abilities Organizational Resources (Brand, Captive Sources, Top Management) Functional Resources (Skills, People) Functional Resources Organizational Resources

8. Different Levels Functional Level: Develop Core Competence Business Level: Combine functional Core Competence to position for competitive advantage in domain Corporate Level: Leverage core competence not only to protect and develop core competence in existing domain but expand into new domains Global Level (Or, Global Expansion)

9. Functional-level Strategy The strategic goal of each function  Create a core competence That will lead to a  Competitive advantage To gain a competitive advantage:  Functional activities at a cost lower than that of its rivals, or  Functional activities in a way that clearly differentiates its goods and services from those of its rivals

10. Value Creation FunctionSource of Low-Cost Advantage Source of Differentiation Advantage ManufacturingDevelopment of skills in low cost manufacturing technology Increase in product quality and reliability Human Resource Management Reduction of turnover and absenteism Hiring of highly skilled personnel Development of innovative training programmes Materials ManagementUse of JIT inventory system/warehousing Development of long term relationships with suppliers and customers Use of company reputation with suppliers and customers to provide high quality inputs and efficient distribution systems Low-Cost and Differentiation Advantages Resulting from Functional Level Strategy

11. Value Creation FunctionSource of Low-Cost Advantage Source of Differentiation Advantage Sales and MarketingIncreased demand and lower production costs Targeting of customer groups Tailoring products to customers Promoting brand names R&DImprove efficiency of manufacturing technology Creation of new products Improvement of existing products Low-Cost and Differentiation Advantages Resulting from Functional Level Strategy (Cont’d)

12.  The strength of a function’s core competence = fn(function’s resources AND ability to coordinate the use of these resources)  Each function should develop a structure that suits its skills and resources (contingency theory) Functional-level strategy and structure

13. Structural Characteristics Associated with Development of Core Competences

14. Product Development at 3M? If culture is embedded in day to day work….difficult to imitate Property Rights, Ethics, People, Structure Functional-level Strategy and Culture

15. Business-level Strategy The business-level strategy involves: Selection: of domain in which to compete Positioning: to manage its specific and general environments in order to protect and enlarge that domain

16. Porter’s Competitive Strategies

17. Miles and Snow’s Strategy Typology Prospector – Learning orientation; flexible, fluid, decentralized structure – Values creativity, risk-taking, and innovation (Apple, Google) Defender – Efficiency orientation; centralized authority and tight cost control – Emphasis on production efficiency, low overhead (Continental Can) Analyzer – Balances efficiency and learning; tight cost control with flexibility and adaptability – Emphasis on both efficiency, costs, creativity, research, risk-taking for innovation (Micromax?) Reactor – No clear organizational approach; design characteristics may shift abruptly depending on current needs Managers should seek to formulate strategy that matches the demands of the external environment.

18. How Strategy Affects Organization Design Managers must design the organization to support the firm’s competitive strategy. Strategy impacts internal organization characteristics

19. Characteristics of Structure Associated with Business-Level Differentiation and Low-Cost Strategy

20. Low Cost Strategy – Values of economy and frugality (Acme, Continental Can) Differentiators – Values of innovation, quality, excellence, and uniqueness (3M, Apple, Google, Maruti?, Indigo?) Business Level Strategy - Culture

21. Corporate-level Strategy  Involves a search for new domains in which to exploit and defend the ability to create value from its core competences  Vertical integration: a strategy in which an organization takes over and owns its suppliers (backward vertical integration) or its distributors (forward vertical integration)  May be more profitable  May lead to production cost savings  May differentiate its products  May avoid opportunistic behavior of suppliers

22.  Related diversification: the entry into a new domain in which it can exploit one or more of its existing competences  Unrelated diversification: the entry into new domains that have nothing in common with its core domain

23. Corporate-Level Strategies for Entering New Domains

24. Corporate-level Strategy and Structure For organizations operating in more than one domain, a multidivisional structure is appropriate Conglomerate structure and unrelated diversification Conglomerate structure: a structure in which each business is placed in a self-contained division and there is no contact between divisions

25. Corporate-level Strategy and Structure  Structures for related diversification  Related diversification creates value by sharing resources or transferring skills from one division to another  Requires lateral communication between divisions as well as vertical communication between divisions and headquarters  Integrating roles and teams of functional experts are needed to coordinate skills and resource transfers

26. Motivations for Global Expansion Motivation to Expand:  Economies of Scale  Economies of Scope  Low-Cost Production Factors Economic, technological, and competitive forces have combined to push companies from a domestic to a global focus.

27. Global Expansion and Core Competences  Transferring core competences abroad  Microsoft, Macdonald’s  Establishing a global network  value creation activities in countries where economic, political, and cultural conditions are likely to enhance its low-cost or differentiation advantage  Nike, TATA Steel, Auto Manufacturing

28. Global Expansion and Core Competences  Gaining access to global resources and skills  Design competence in India, Lean Manufacturing in Japan, Low cost manufacturing in China  Using global learning to enhance core competences  Japanese Auto Makers, learn-enhance-transfer

29. Creation of value through global expansion 1. Transfer of core competences abroad 2. Establishment of Global Network 3. Gaining access to global skills and resources 4. Use of global learning to enhance core competences

30. Stages of International Evolution  Domestic  International  Multinational  Global

31. Global Organization Structure  International Division  Global Product Division  Global Geographic Division  Global Matrix Structure

32. Model for Global vs. Local Opportunities  Global standardization versus national responsiveness  Globalization or multidomestic strategy  Globalization strategy - products are standardized throughout the world  Multidomestic - competition is handled in each country independently

33. Fitting Organization Structure to International Advantages

34. Strategy-Structure Relationship StrategyExportMulti-domesticGlobalisationMD+Global Lo Need for Coordination Hi Vertical Differentiation Choices Levels in VHLo HiLo CentralisationHiLoHiLo Horizontal Differentiation FunctionalGlobal Geographic Global Product Group Global Matrix Need for sophisticated integrating mechanisms like CFT/Task forces Lo MediumHi

35. Strategy-Structure Relationship StrategyExportMulti-domesticGlobalisationMD+Global Need for electronic integration management networks LoMediumHiVery Hi Need for integration through international organisational culture LoMediumHiVery Hi Lo Bureaucratic Cost Hi

36. Four Stages of International Evolution DomesticInternationalMultinationalGlobal Strategic Orientation Domestically oriented Export oriented multi domestic MultinationalGlobal Stage of Development Initial Foreign Involvement Competitive positioning ExplosionGlobal StructureDomestic structure, plus export department Domestic Structure plus international division Worldwide geographical, product Matrix, transnational Market Potential Moderate, mostly domestic Large, multi- domestic Very large, Multinational Whole world

37. The Global Organizational Challenge

38. Bosch Group in India: Transition to a Transnational Organisation  What was the ‘core competence’ of Bosch at the beginning?  Examples of diversification in early days?  Related or unrelated?  What share of business of the Bosch Group comes outside of Germany?  R&D cost is what % of sales?  What are some of the ‘stories’ that you could find in the case?

39. Bosch Group in India: Transition to a Transnational Organisation  What is ‘verticalisation’? What are ‘verticals’?  What is a ‘transnational’ strategy?  What was the imperative for changing the structure of Bosch in India?  What benefits could Indian units derive from new structure/strategy?  What were some of the challenges faced by Bosch units in India consequent upon structure/strategy changes?

40. Phases of Growth  Phase 1:  Craft business  Size = 40  Simple (informal) structure (entrepreneurial), no need to differentiate or integrate  Core Competence?  Phase 2: ‘Magneto Ignition’  Magneto Ignition – fast growing automotive supplier  Two factories  Size = 1000  From ‘craft’ to ‘industrial’ production  Formalisation  Mainly a functional structure (single product – magneto ignitions)  Early ‘internationalisation’ (Functional Structure + International Sales Division)

41. Phases of Growth  Phase 3:  Diversification (reduce dependence on Automotive business)  Related and unrelated products  A multinational electrical engineering group  Gradual movement from a functional structure to a geographical division structure  Phase 4:  Restructuring into divisions along product lines (Power Tools, Packaging Technology, Automation Technology) in Europe  Elsewhere, Geographic Divisions

42. Phases of Growth  Phase 5:  Eastern Europe, Asian Growth, Global networking  A matrix structure with more power to geographical divisions  Phase 6:  Blur the distinction of national markets – one global market  Transnational strategy  Cost & Differentiation?  Differentiation: Products, Regions, Markets….functions  Global Divisions  Corporate Departments  Regional Organisations  Global Sales & Marketing organisation Challenges of Integration

43. Phases of Growth  Phase 6: Challenges of Integration: Targets Discipline Functional Coordination A three way Global Matrix, with more power to Products over RBUs

44. Matrix 1 Automotive Technology Industrial Technology Consumer Goods & Building Technology Region 1 Bosch Limited; Robert Bosch Chassis Systems India Ltd; Bosch Automotive Electronics Bosch Rexroth; Bosch Electrical Drives MHB Filter India Region 2 Region 3

45. Matrix 2 (Sales) Automotive Technology Industrial Technology Consumer Goods & Building Technology Key Customer Group 1 (Mercedez) Bosch Limited; Robert Bosch Chassis Systems India Ltd; Bosch Automotive Electronics Bosch Rexroth; Bosch Electrical Drives MHB Filter India Key Customer Group 2 (Industrial Drives) Japan and Korea Auto Manufacturers) Functional Coordination