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

1. 12 Chapter 12: Implementing Strategy in Companies That Compete in a Single Industry BA 469 Spring Term, 2007 Prof. Dowling

2. Overview • Strategy implementation • How a company should create, use, and combine organizational structure, control systems, and culture to pursue strategies that lead to a competitive advantage and superior performance

3. Implementing Strategy Through Organizational Structure, Control, and Culture • Organizational structure • Assigns employees to specific value creation tasks and roles and specifies how those are linked to increase efficiency, quality, innovation, and responsiveness to customers • To coordinate and integrate the efforts of all employees

4. Implementing Strategy Through Organizational Structure, Control, and Culture (cont’d) • Control system • A set of incentives to motivate employees to increase efficiency, quality, innovation, and responsiveness to customers • Provides feedback on performance so corrective action can be taken • Organizational culture • The collection of values, norms, beliefs, and attitudes shared within an organizations and that control interactions within and outside the organization

5. Implementing Strategy

6. Building Blocks of Organizational Structure • 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 • Bureaucratic costs

7. Building Blocks of Organizational Structure (cont’d) • Allocating authority and responsibility • Hierarchy of authority (chain of command) • Span of control (number of subordinates) • Tall and flat organizations • Drawbacks of taller organizations • Less flexibility and slower response time • Communication problems • Distortion of commands • Expense

8. Tall and Flat Structures

9. Allocating Authority and Responsibility (cont’d) • The minimum chain of command • To combat an organization that is too tall • Hand responsibility up and empower those below • Centralization or decentralization? • Delegating responsibility reduces information overload and enables managers to focus on strategy • Empowering lower-level managers increases motivation and accountability • Empowering employees requires fewer managers • Centralized decisions allow easier coordination of activities • Centralization means that decisions fit broad organizational objectives

10. Building Blocks of Organizational Structure (cont’d) • Integration and integrating mechanisms • Direct contact among managers across functions or divisions • Liaison roles • Gives one manager in each function or division the responsibility for coordinating with the other • Teams

11. Strategic Control Systems • Four basic building blocks • Control and efficiency • Control and quality • Control and innovation • Control and responsiveness to customers

12. Steps in Designing an Effective Control System

13. Levels of Organizational Control

14. Types of Strategic Control System • Personal control • Face-to-face interaction • Output control • Performance goals for each division, department, and employee • Behavior control • Rules and procedures to direction actions or behaviors of divisions, functions, and individuals • Operating budget • Standardization

15. 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

16. Strategic Reward Systems • Based on strategy managers must decide which behaviors to reward • A control system measures those behaviors and links the reward structure to them

17. Organizational Culture • Culture and strategic leadership • Traits of strong and adaptive corporate cultures • Bias for action • Nature of the organization’s mission (sticking with what the organization does best) • How to operate the organization (motivating employees to do their best)

18. Building Distinctive Competencies at the Functional Level • Grouping by function: functional structure • Grouping people on the basis of their expertise or because they use the same resources • Advantages • People can learn from one another • People can monitor each other • Managers have greater control • With different functional hierarchies, the company can avoid becoming too tall

19. Functional Structure

20. The Functional Level • The 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 • Manufacturing: TQM • R&D: innovation to bring products quickly to market • Sales: output and behavior controls

21. Functional Structure and Bureaucratic Costs • Communications problems • Measurement problems • Customer problems • Location problems • Strategic problems • The outsourcing option

22. 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 at the business level • Increases differentiation, adds value for customers, allows for a premium price • Reduces bureaucratic costs

23. How Organizational Design Increases Profitability

24. Implementing Strategy in a Single Industry (cont’d) • Implementing a cost-leadership approach • Reducing costs across all functions • Continuously monitoring for effective operation • Implementing a differentiation approach • Design structure around the source of distinctive competency, differentiated product, and customer groups

25. Implementing Strategy in a Single Industry (cont’d) • Implementing a broad product line—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 of functional specialists who focus on the needs of one specific product group

26. Kodak’s Product Structure

27. Implementing Strategy in a Single Industry (cont’d) • Increasing responsiveness to customer groups—market structure • Group people and functions by customer or market segments • Different managers are responsible for developing products for each group of customers

28. Market Structure

29. Implementing Strategy in a Single Industry (cont’d) • Expanding nationally—geographic structure • To be responsive to needs of regional customers • To reduce transportation costs

30. Geographic Structure

31. Implementing Strategy in a Single Industry (cont’d) • Competing in fast-changing, high-tech environments—product-team and matrix 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

32. Matrix Structure

33. Implementing Strategy in a Single Industry (cont’d) • Competing in fast-changing, high-tech environments—product-team and matrix structures (cont’d) • Product-team structure • Tasks divided along product or project lines • Functional specialists are part of permanent cross-functional teams

34. Product-Team Structure

35. Implementing Strategy in a Single Industry (cont’d) • Focusing on a narrow product line • Tends to have higher production costs because output is lower, reducing opportunity for scale economies • Has to develop some form of distinctive competency • Functional structure is appropriate

36. Restructuring and Reengineering • Restructuring involves • Streamlining hierarchy of authority and reducing number of levels • Downsizing the workforce to reduce costs • Reasons • Change in the business environment • Excess capacity • Organization grew too tall and inflexible; bureaucratic costs • To improve competitive advantage and stay on top

37. Restructuring and Reengineering (cont’d) • Reengineering • Fundamental rethinking and radical redesign of business processes to achieve dramatic improvements • Focuses not on functions, but on processes (which cut across functions)