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

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

2. Learning objectives • Understand how organizational design requires managers to select the right combination of organizational structure, control, and culture • Discuss how effective organizational design enables a company to increase product differentiation, reduce its cost structure, and build competitive advantage

3. Organizational Design • Process of deciding how a company should create, use, and combine organizational structure, control systems, and culture • To pursue a business model successfully • Organizational structure: Means through which a company assigns employees to specific tasks and roles that are to be linked together to increase: • Efficiency, quality, and innovation • Responsiveness to customers

4. Organizational Design • Controlsystem: Provides managers with incentives for employees as well as feedback on how the company performs • Organizational culture: Specific collection of values, norms, beliefs, and attitudes that: • Are shared by people and groups in an organization • Control the way people interact with each other and with stakeholders outside the organization

5. Implementing Strategy through Organizational Design

6. Grouping tasks, functions, and divisions • Function - Collection of people who work together and perform the same types of tasks • Amount and complexity of handoffs increase with growth of the organization • Handoffs - Transfers among people, functions, and subunits • Division - Way of grouping functions to allow an organization to better produce and transfer its goods and services to customers

7. Allocating Authority and Responsibility Hierarchy of authority • Clear and unambiguous chain of command that defines each manager’s relative authority Span of control • Number of subordinates reporting directly to a particular manager

8. Tall and Flat Structures

9. Tall Organizations Limitations • Communication problems • Long time taken in decision making and adherence • Distortion of commands and orders • Increases expenses Solution • Principle of the minimum chain of command: Company should design its hierarchy with the fewest levels of authority necessary to use organizational resources effectively

10. Integrating Mechanisms • Ways to increase communication and coordination among functions and divisions • Direct contact • Liaison roles • Teams: Formation of a group that represents each division or department: • Facing a common problem • With a goal of finding a solution to the problem

11. Strategic Control • Design a system that sets ambitious goals and targets for all managers and employees • Management by objectives: Employees are encouraged to help set their own goals • Managers manage by exception, intervening only when they sense something is not going right

12. Strategic Control Systems • Mechanism that allows managers to monitor and evaluate: • Whether their business model is working as intended • How their business model could be improved • Basic structure of competitive advantage • Control and efficiency • Control and quality • Control and innovation • Control and responsiveness to customers

13. Steps in Designing an Effective Strategic Control System

14. Levels of Organizational Control

15. Types of Strategic Control Systems Personal control • Way one manager shapes and influences the behavior of another in a face-to-face interaction in the pursuit of a company’s goals Output control • Establishes performance goals and then measures performance relative to these goals Behavior control • Establishes comprehensive system of rules that specify the appropriate behavior through: • Operating budget • Standardization • Rules and procedures

16. Organizational Culture • Specific collection of values and norms shared by people and groups in an organization • Organizational socialization - Describes how people learn organizational culture • Culture and strategic leadership • Organization’s founder and top managers help create its organizational culture and provide strategic leadership • Shared values and common culture increase integration and improve coordination among members

17. Adaptive Corporate Cultures • Innovative culture that encourages and rewards middle- and lower-level managers for taking the initiative to achieve organizational goals • Common value sets • Values promoting a bias for action • Values stem from nature of the organization’s mission • Values determine how to operate the organization

18. Developing Culture at the Functional Level Production • Functional strategy improves efficiency and quality R&D • Develops distinctive competencies in innovation, quality, and excellence that result in products that fit customers’ needs Sales • Monitor sales behavior • Encourage high responsiveness to customers to develop sophisticated output and behavior controls

19. How Organizational Design Increases Profitability

20. Implementing Cost Leadership and Differentiation Implementing cost leadership • Choosing a combination compatible with lowering cost structure while preserving ability to attract customers Implementing differentiation • Company must design its structure, control, and culture around the particular source of its competitive advantage • Makes it difficult to standardize activities and increases the bureaucratic costs