Organizational Design & Strategy in a Changing Global Environment

Organizational Design & Strategy in a Changing Global Environment Chapter 8

Value Creation Cycle • Ability to obtain scarce resources • Allows an organization to create an organizational strategy • Invest resources to develop core competences • Enables organization to gain competitive advantage • Used to create more value for SH • Which increases……

How does an Organization Gain a Competitive Advantage?Where do core competences come from? Functional resources:Unique skills possessed by organizational members/ functional personnel -Use PR to retain talent -Examples? Organizational resources: • Vision of founders • Possession of scarce resources (land, capital, equipment) • Skills of top-management • Brand name • Reputation Your organization’s core competences?

Coordination abilities: Coordination of above resources to create maximum value. How? • Motivation of workforce • Promotion of healthy culture • Effective integration of divisions • Allocation (with minimal conflict) of resources • Rapid D/M • Reduced time to market Remember the 4 design challenges!

Levels of Organizational Strategy • Functional level strategy (FLS) • Business level strategy (BLS) • Corporate level strategy (CLS)

Functional Level Strategy (FLS) • Plan to strengthen functional& organizationalresources &coordinate activities to create corecompetences • Functional managers train employees so skills exceed competitors • Managers scan environment (competition) & find ways to manage uncertainty.

Strategies to Gain Competitive Advantage 1. Produce G/S at lower cost than rivals -or- 2. Produce wide variety of G/S or G/S that are unique or customized (product differentiation) --These are ways to “create value”

How do the various support functions use low cost vs. product differentiation functional levelstrategies to remain competitive? • Manufacturing • HR • Sales & marketing (Papa John’s example) • R & D

How to Provide the Functions w/ Resources & Setting Needed for FLS? Design an organizational structure • Mechanistic v. organic • Tall v. flat • Centralized D/M v. decentralized D/M • Standardization v. mutual adjustment What structure would be advantageous to develop core competence in: Manufacturing? R&D? Sales? Promote an organizational culture • Develop OC that is effective & hard to imitate (TM team, ethics, property rights, socialization) • Promote values that are consistent with goals!!!

What kind of values would we want to promote if our core competence is in • R & D? • Production process? • Sales for Neiman-Marcus? • Customer service?

Business Level Strategy (BLS) • Combining functional core competences in order to position the organization to give it a competitive advantage in its domain • What’s a domain? • The responsibility of the top-management team • Select domain to compete in(exploit core competences) • Decide how to position org. to compete for resources (look for opportunities to manage E. uncertainty) • Manage the environment to protect & enlarge domain 1. Low-cost BLS -or- 2. Differentiation BLS(unique product, premium price) Examples? Tata, Amazon

BLS continued • Organizations change BLS to accommodateE. changes(competition, technology,changing customer needs).Why? --They affect how hard it is for organization to obtain resources • Focus strategy: specialization in 1 segment of the market. Examples?

BLS & Organizational Structure Low cost strategy • Simple or complex structure? Why? • Centralized or decentralized D/M? Why? • Low or high differentiation? • High or low integration? • Mechanistic or organic structure? Why? Common structures used?  Functional, Product, Geographic, Market

BLS & Structure continued Product differentiation strategy • Simple or complex structure? Why? • Centralized or decentralized D/M? Why? • Low or high differentiation? • High or low integration? Why? • Mechanistic or organic structure? Common structures used?  Matrix, Product Team

BLS & Organizational Culture Low-cost strategy Culture that values? • Frugality, economy, efficiency, speed, conservativeness Reflected by norms • Small offices, no company cars/jets, cheap furniture, cheap hotels (share rooms), meeting deadlines Reflected by organizational goals • Efficiency, maximum return for investment.

BLS & OC Product differentiation strategy Culture that values? • Innovation, responsiveness to customers’ needs, uniqueness, quality, excellence Reflected by norms • Employees rewarded/promoted for being risk takers/innovative, fun & creative Reflected by organizational goals • Excellent customer service & quality product.

Corporate Level Strategy (CLS) • Plan to use core competences to protect & enlarge domain & expand into new domains Why would you expand into a new domain? • Responsibility of corporate level managers (Corp HQ) 1. Vertical integration (VI) Take over & buys suppliersBACKWARD VI Take over & buys distributorsFORWARD VI • Benefits? • Disadvantage?

Start here

Vertical integration ____ transaction costs. A. Increases B. Decreases What are the alternatives to vertical integration?  Any of the linkages used to manage symbiotic relationships (Ch 3)

CLS 2. Diversification= entry into new domain Related diversification entry into domain that is related to present org domain • Use existing core competences to create value in new domain • Honda, St. Jude Unrelated diversification entry into domain that is unrelated to org domain • Value is created because mgmt can take over inefficient co, restructure operations, reduce BC, increase efficiency & profitability, keep or sell • GE, P & G

CLS & Organizational Structure Multidivisional structures are appropriate when operating in > 1 domain. Distinguishing features? Unrelated diversification: • Conglomerate structure (p. 225):every unrelated business is a self contained division; very little coordination/ integration needed small corporate HQ Related diversification: • Multidivisional matrix structure: large amount of integration/ coordination/ lateral communication needed large corporate HQ. Why?

CLS Bureaucratic costs are higher for: A. Related diversification B. Unrelated diversification Why?

CLS and Culture Values promoted for unrelated diversification? • Efficient use of resources, cost cutting, economy, bottom line results • Remember: each division can have its own culture Values promoted for related diversification? • Cooperation, cohesiveness, teamwork, consistency, innovation, communication.

Implementing Strategy Across Countries • Skip pages 207-208. • Skip pages 228-232.

Organizational Design & Strategy in a Changing Global Environment