Implementing Strategy in Companies That Compete in a Single Industry

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

Implementing Strategy Through Organizational Design
Organizational Design is 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 Copyright © Houghton Mifflin Company. All rights reserved.

Implementing Strategy Through Organizational Design
Figure 12.1 Organizational structure, control, and culture shape people’s behaviors, values, and attitudes – and determine how they will implement an organization’s business model and strategies. Copyright © Houghton Mifflin Company. All rights reserved.

Building Blocks of Organizational Structure
An organization structure assigns people to tasks and connects the activities of different people and functions: 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 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 Copyright © Houghton Mifflin Company. All rights reserved.

 Group Tasks, Functions and Divisions
Choice of structure is made on its ability to implement company’s 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. Copyright © Houghton Mifflin Company. All rights reserved.

 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 Span of control (number of subordinates) Tall versus flat organizations  Flexibility  Communication problems  Response time  Expense  Distortion of commands Decision Making: Centralized versus Decentralized Delegating and empowering employees  Requires fewer managers  Reduces information overload  Increases motivation and accountability Centralized decisions  Easier coordination of activities  Decisions fit broad organizational objectives Principle of the Minimum Chain of Command: Choose hierarchy with the fewest levels of authority necessary to use organizational resources efficiently and effectively. Copyright © Houghton Mifflin Company. All rights reserved.

Tall and Flat Structures
Figure 12.2 Copyright © Houghton Mifflin Company. All rights reserved.

 Integration and Integrating Mechanisms
Integration and integrating mechanisms: are used to increase communication and coordination among functions and divisions Direct contact Creates a context within which managers across functions or divisions can work together Liaison roles Increases coordination Gives one manager in each function or division the responsibility for coordinating with the other Teams Use when multiple functions share mutual problems The greater the complexity of an organization’s structure, the greater the need for formal coordination among people, functions, and divisions. Copyright © Houghton Mifflin Company. All rights reserved.

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 – to allow managers to respond as necessary to unexpected events Accurate information – giving a true picture of organizational performance Timely – presentation of information for timely decision making Measures should be tied to the goals of developing distinctive competencies in efficiency, quality, innovativeness, and responsiveness to customers. Copyright © Houghton Mifflin Company. All rights reserved.

Steps in Designing an Effective Control System

Levels of Organizational Control
Figure 12.4 Controls at each level should provide the basis on which managers at lower levels design their controls systems. Copyright © Houghton Mifflin Company. All rights reserved.

Types of Strategic Control Systems
Personal Control Shape and influence the behavior of a person in a face-to-face interaction in the pursuit of a company’s goals. Managers question and probe to better understand subordinates. The result is more possibilities for learning to occur and competencies to develop. Output Control Forecast appropriate performance goals for each division, department, and employee – then measure actual performance relative to these goals . The achievement of these goals is a sign that the company’s strategy is working. Behavior Control Establish a system of rules and procedures to direct the actions or behavior of divisions, functions, or individuals. The result is standardization, predictability, and accuracy. Copyright © Houghton Mifflin Company. All rights reserved.

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. Copyright © Houghton Mifflin Company. All rights reserved.

Organizational Culture
Organizational Culture is the specific collection of values and norms shared by people in the organization. Organizational socialization – how people learn the culture so that they become organization ‘members’. Strategic leadership – style established by the founder and transmitted to the company’s managers. The culture becomes more distinct as the organization’s members become more similar. Strong and adaptive cultures – are innovative, encourage and reward initiative, and have common values: Bias for action – autonomy, entrepreneurship, and risk-taking Organization’s mission – ‘sticks to its knitting’ and business model How to operate the organization – motivate employees to do ..their best Copyright © Houghton Mifflin Company. All rights reserved.

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. Copyright © Houghton Mifflin Company. All rights reserved.

Functional Structure and Bureaucratic Costs
Whenever different functions work together, bureaucratic costs arise because of communication and measurement problems arising from the hand-offs across the functions. Communications 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. Copyright © Houghton Mifflin Company. All rights reserved.

Implementing Strategy in a Single Industry
Implementation begins at the functional level; however, managers must coordinate and integrate across functions and business units. 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 Copyright © Houghton Mifflin Company. All rights reserved.

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. Copyright © Houghton Mifflin Company. All rights reserved.

How Organizational Design Increases Profitability

Product Structure: Implementing a Wide Product Line
Product structure is used to solve the control problems that result from producing may different kinds of products for many different market segments. 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 product-oriented 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. Copyright © Houghton Mifflin Company. All rights reserved.

Nokia’s Product Structure

Market Structure: Increasing Responsiveness to Customer Groups
Market structure focuses on the ability to met 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. Copyright © Houghton Mifflin Company. All rights reserved.

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 Copyright © Houghton Mifflin Company. All rights reserved.

Matrix Structure 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 Copyright © Houghton Mifflin Company. All rights reserved.

Product-Team Structure

Focusing on a Narrow Product Line
A 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 Output is lower Reduced opportunity for economies of scale 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. Copyright © Houghton Mifflin Company. All rights reserved.

Restructuring and Reengineering
To improve performance, a single business company often employs 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 Copyright © Houghton Mifflin Company. All rights reserved.

Implementing Strategy in Companies That Compete in a Single Industry

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