Chapter Twelve

1. 12-1 Chapter Twelve Implementing Strategy in Companies That Compete in a Single Industry

2. 12-2 Implementing Strategy Through Organizational Design

3. 12-3 Implementing Strategy Through Organizational Design

4. 12-4 Building Blocks of Organizational Structure Grouping tasks, functions, and divisions Allocating authority and responsibility Integration and integrating mechanisms 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 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

5. 12-5 ? Grouping Tasks, Functions and Divisions 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.

6. 12-6 ? Allocating Authority and Responsibility Organizational Structure Decision Making: Centralized versus Decentralized Delegating and empowering employees Centralized decisions

7. 12-7 Authority vs. Responsibility Rights inherent in managerial position to give orders and expect them to be followed Related to one’s position--not the characteristics of person Obligation to perform Goes hand-in-hand with authority Another component of organizational design are the concepts of authority and responsibility. Authority refers to the inherent rights managers have in giving direction and orders and expecting those orders to be followed. It is important to note that the concept of authority is related to the position and not the person. When a person has been delegated authority, the person also has the responsibility--or obligation to perform the tasks or assignments. These concepts become quite important when a manager wants to empower employees. Remember empowerment from preceding chapters? Empowerment is the delegation of decision-making (authority) over some work process. However, for this to work effectively, employees need to be responsible for the success of the process. And for empowerment to truly work, a person needs to have both responsibility and authority--it isn’t appropriate to hold someone accountable for something that they have no authority over.Another component of organizational design are the concepts of authority and responsibility. Authority refers to the inherent rights managers have in giving direction and orders and expecting those orders to be followed. It is important to note that the concept of authority is related to the position and not the person. When a person has been delegated authority, the person also has the responsibility--or obligation to perform the tasks or assignments. These concepts become quite important when a manager wants to empower employees. Remember empowerment from preceding chapters? Empowerment is the delegation of decision-making (authority) over some work process. However, for this to work effectively, employees need to be responsible for the success of the process. And for empowerment to truly work, a person needs to have both responsibility and authority--it isn’t appropriate to hold someone accountable for something that they have no authority over.

8. 12-8 The Concept of Authority Here is a diagram of authority. This is a more detailed example linking the chain of command with authority. In this example, the CEO has authority over the departments of finance, accounting, marketing and so forth. Here is a diagram of authority. This is a more detailed example linking the chain of command with authority. In this example, the CEO has authority over the departments of finance, accounting, marketing and so forth.

9. 12-9 Span of control

10. 12-10 Tall and Flat Structures

11. 12-11 The Chain of Command The next component is the chain of command--the principle that no person should report to more than one boss. As you can see in this example, one individual only reports to another individual. The next component is the chain of command--the principle that no person should report to more than one boss. As you can see in this example, one individual only reports to another individual.

12. 12-12 The Degree of Centralization The term centralization refers to how much decision-making authority is pushed down to lower levels in the organization. It is not an either-or concept, but is a matter of degree. Traditional organizations were structured in a pyramid, with power and authority centralized at the top.Today’s organizations, on the other hand, are more complex and need to be able to respond to the dynamic changes in their environments. To do this, managers believe that decisions need to be made closed to the problems. As a consequence, managers will make decisions about the best amount of decentralization to achieve organizational goals. Recall our discussion earlier about empowerment. For this to work, decision-making must be decentralized.The term centralization refers to how much decision-making authority is pushed down to lower levels in the organization. It is not an either-or concept, but is a matter of degree. Traditional organizations were structured in a pyramid, with power and authority centralized at the top.Today’s organizations, on the other hand, are more complex and need to be able to respond to the dynamic changes in their environments. To do this, managers believe that decisions need to be made closed to the problems. As a consequence, managers will make decisions about the best amount of decentralization to achieve organizational goals. Recall our discussion earlier about empowerment. For this to work, decision-making must be decentralized.

13. 12-13 ? Integration and Integrating Mechanisms Direct contact Liaison roles Teams

14. 12-14 Direct contact and Liaison

15. 12-15 Team

16. 12-16 Strategic Control Systems Characteristics of an effective control system: Flexible Provides accurate information Timely

17. 12-17 Balanced Scorecard as a strategic control system

18. 12-18

19. 12-19 Steps in Designing an Effective Control System

20. 12-20 Levels of Organizational Control

21. 12-21 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. Types of Strategic Control Systems

22. 12-22 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.

23. 12-23 IT as an Integration Platform

24. 12-24 Building Distinctive Competencies at the Functional Level

25. 12-25 Functional Structure 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.

26. 12-26 Functional Structure and Bureaucratic Costs Communication problems Differences in goal orientations and outlooks Measurement problems Customer problems Satisfying customer needs and coordinating value-chain functions Location problems Regional diversity Strategic problems 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. 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.

27. 12-27 Implementing Strategy in a Single Industry Effective strategy implementation and organization design: 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

28. 12-28 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.

29. 12-29 How Organizational Design Increases Profitability

30. 12-30 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 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

31. 12-31 Nokia’s Product Structure

32. 12-32 Market Structure: Increasing Responsiveness to 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.

33. 12-33 Market Structure

34. 12-34 Geographic Structure: Expanding Nationally 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

35. 12-35 Geographic Structure

36. 12-36 Matrix and Product-Team Structures 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

37. 12-37 Matrix Structure

38. 12-38 Product-Team Structure

39. 12-39 Focusing on a Narrow Product Line 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

40. 12-40 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 Restructuring and Reengineering

41. 12-41