Organ - Structure in Single Industries

12
Implementing Strategy in Companies That Compete in a Single Industry
Coverage of Chapter 12
Strategy implementation This refers to how a company should create, use, and combine organizational structure, control systems, and culture for competitive advantage
How these elements can build distinctive competencies at the functional level
Their use in implementing a single-business firms generic business strategy The use of restructuring and reengineering in improving the performance of a single-business firm
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Implementing Strategy Through Organizational Structure, Control, & Culture (1)
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
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12 - 3
Implementing Strategy Through Organizational Structure, Control & Culture (2)

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 organization It guides interactions within the organization and with outside stakeholders
Implementing Strategy
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Building Blocks of Organizational Structure (overview)

Grouping of
tasks into functions functions into business units or divisions
Allocating authority & responsibility Increasing coordination as the structure evolves
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Building Blocks of Organizational Structure (1)

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 Functions are designed to minimize bureaucratic costs - the costs of operating the structure
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Building Blocks of Organizational Structure (2)

Allocating authority and responsibility Hierarchy of authority (chain of command) Span of control (number of subordinates) Tall and flat organizations (see next slide) Drawbacks of taller organizations
Communication problems
Less flexibility and slower response time
Distortion of commands (can be deliberate) Expensive, proportionally more managers

Tall and Flat Structures
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Allocating Authority and Responsibility (3)

The minimum chain of command
Delayering, and empowering those below To prevent an organization structure becoming too tall Delegating responsibility reduces information overload and enables managers to focus on strategy Empowering lower-level managers increases autonomy, motivation and accountability Empowering employees requires fewer managers Centralized decisions make coordination easier Centralization means that decisions are quicker, and may better fit broad organizational objectives Centralization fosters strong leadership
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Centralization or decentralization?
Building Blocks of Organizational Structure (contd)

Integration and integrating mechanisms
Direct contact among managers across functions or divisions
Simple, but what happens if they disagree?
Liaison roles
Gives one manager in each function or division the responsibility for coordinating with the other
Teams
Composed of one manager from each of the various functions, who meet to make decisions jointly about common issues
Strategic Control Systems

Keep an organization on track and future focused. Help managers achieve the 4 basic building blocks: superior...

The process of designing a strategic control system contains four steps.

Consist of target-setting, monitoring, and feedback mechanisms;
efficiency (i.e. measured inputs and outputs) quality (e.g. measured complaints, returned goods) innovation responsiveness to customers (e.g. measured interactions)
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Steps in Designing an Effective Control System (1)
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Steps in Designing an Effective Control System (2)

Step 1 - Set standards that express the way the company chooses to evaluate its performance. (Generally derived from the strategy). Step 2 - Create the measuring and monitoring systems that indicate whether or not the targets are being achieved. (A complex task). Step 3 - Compare performance against the established targets. (Puzzle out why). Step 4 - Initiate corrective action when the standards and targets are not being achieved. (Appropriate corrections depend upon an appropriate diagnosis).
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Levels of Organizational Control

* Care must be taken to ensure that the controls used at different levels are compatible
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Balanced scorecard was discussed in Ch 11 Personal control
Types of Strategic Control System

Face-to-face interaction
Output control
Behavior control
Challenging performance goals for each division, department, and employee Danger: they can encourage conflict between units Danger: they provide an incentive for dishonesty. Rules and procedures to direct actions or behaviors of divisions, functions, and individuals Operating budgets Standardization (see next slide)
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Standardisation
(1)
Inputs can be standardized by screening so that only high-quality inputs enter the company. (2) Conversion activities are standardized so that tasks are done consistently to improve predictability. (3) Outputs are standardized by specifying performance characteristics of the final product. Only goods and services that meet these criteria are allowed to leave the organization. All must be reviewed and kept up to date.
Using Information Technology for Control

Behavior control
IT standardizes behavior through the use of a consistent, cross-functional software platform
IT allows all employees or functions to use the same software platform to provide information on their activities IT provides people at all levels and across all functions with more information
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Output control
Integrating mechanism
Strategic Reward Systems

The design of the organizations incentive system is crucial because it motivates and reinforces desired behaviors. It helps to overcome the agency problem and to align the interests of shareholders, managers, and employees at other levels in the organization. Typically, companies use some combination of base pay, bonuses, and stock options.
Organizational Culture (1)

Culture: shared organisational values and norms Values: beliefs about the kinds of goals members of an organization should pursue and about appropriate standards of behavior Based on values, organizations develop norms, expectations that prescribe appropriate behavior. Managers use culture as a strategic control when they (try to) develop and nurture values that support the objectives that they have set for the organization.

Employees learn org. culture through socialization. Culture is transmitted through stories, myths, and language at work. Once socialized, they will behave appropriately without much conscious thought. Culture is a very powerful form of control.
An organizations values are strongly influenced by those of its founder and top managers. People are often attracted to a company because they share its founders values, Many organizations select only such people. Cultures become distinct over time
Organizational structure also affects culture.


Adaptive cultures adapt readily to environmental changes. Characterised by
Bias toward action: emphasis on autonomy and entrepreneurship. Encouragement to take risks and adopt a hands-on approach.
Promoting the organizations mission and business model and the need to stay close to customers. This is called stick to the knitting. Helping to motivate employees to do their best, increase co-ordination and integration, by respecting employees and recognizing good performance.
Inert cultures are more cautious and conservative

Building Distinctive Competencies at the Functional Level (recap)

Recap: there are three important components of implementing strategy at the functional level.
Organizational structure Control systems Culture
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Building Distinctive Competencies at the Functional Level Through a Functional Structure

Functional structure = grouping by function:
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
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(Some functions are left off this e.g.)
Functional Structure
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Strategic Control Under a Functional Structure

The strategic control system should enable managers to set ambitious goals and encourage employees to meet those goals. A functional structure may enable this because:
Shared expertise helps managers and employees to monitor and improve operating procedures It allows organizational learning, as employees and their superiors work closely together It facilitates output control because each function can see its contribution to org. performance It facilitates a fair, objective system of rewards
Building Culture Under a Functional Structure

Functional structures make it easy to build a cohesive culture, which also supports effective control.
Manufacturing: In TQM, work teams may develop their own work group culture R&D: Team-based structures, competition and rewards can be used to encourage an innovation oriented culture to bring products quickly to market Sales: While there are typically output and behavior controls for large sales forces, it is important also to build norms of customer service through training ,
Functional Structure and Bureaucratic Costs (1)

5 Sources of information distortions under functional structures
Communications problems
functions drift apart over time
Measurement problems
this happens as more product lines are added to the portfolio
Customer problems
customer needs become more diverse over a greater product range
Functional Structure and Bureaucratic Costs (2)

5 Sources of information distortions under functional structures (contd)
Location problems
functions can be too centralized if the company operates over a large geographical area (e.g. China)
Strategic problems
Strategic issues are neglected as managers wrestle with the other problems
The outsourcing option

Outsourcing can allow the firm to focus on the most important functions.
Implementing Strategy in a Single Industry (overview)

To pursue its business-level strategy successfully, managers must find the right combination of structure, control, and culture across functions Effective strategy implementation at the business level
Can increase differentiation, add value for customers, allow for a premium price Can reduce bureaucratic costs
How Org.Design Increases Profitability
12 - 31
Implementing Strategy in a Single Industry (1)

Implementing a cost-leadership approach
Emphasis on reducing costs across all functions (including R & D) Use of output measures of functional effectiveness
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Implementing a differentiation approach
A broad product line leads to high bureaucratic costs. This requires a good co-ordination mechanism. Functions must co-operate together.
Requires behavioral and cultural controls because its hard to measure the relative contribution of different groups when they are co-operating.
Differentiators tend to have a collegial or professional culture, based on expertise & cooperation.
Implementing differentiation and reducing costs simultaneously

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 (PTO) Retain organization-based rewards
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Kodaks Product Structure
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Companies that are focused on meeting the needs of many different groups of customers market structure
Group people and functions by customer or market segments, to understand their particular needs Different managers are responsible for developing products for each group of customers Support functions are centralized (PTO)
Market Structure
12 - 37

Expanding nationally geographic structure
Geographic regions become the basis for grouping organizational activities. Activities at the level of the region are controlled by regional managers Control is retained by top managers at the centre, with centralized support from specialist functions. To be responsive to needs of regional customers To reduce transportation costs
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Geographic Structure
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Competing in fast-changing, high-tech environments either product-team or matrix structures (1) Matrix structure (PTO)
The R & D function is pivotal, but must work closely with the other functions Value chain activities are grouped by function and by product or project Flat and decentralized; self-directed teams Flexible team membership Promotes innovation and speed Norms and values based on innovation and product excellence
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Matrix Structure
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Competing in fast-changing, high-tech environments either product-team or matrix structures (2) (contd) Product-team structure
Tasks divided along product or project lines Functional specialists are part of permanent crossfunctional teams Teams have decentralized authority and are ultimately responsible for new product development. Unlike in the matrix, support functions are distributed to each team. Lower costs of co-ordinating the teams activities
Product-Team Structure
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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 can be appropriate
so long as the co. has a strong and adaptive culture
Restructuring & Reengineering (1)

Restructuring involves
Streamlining hierarchy of authority and reducing number of levels Downsizing the workforce to reduce costs
Reasons
Often reflects prior failure to make incremental changes Change in the business environment Excess capacity Organization grew too tall and inflexible; bureaucratic costs To improve competitive advantage and stay on top
Reengineering
Restructuring and Reengineering (contd)
Fundamental rethinking and radical redesign of business processes to achieve big improvements Focuses not on functions, but on processes (which cut across functions) A blank slate approach, taking a customers point of view, and attempting to maximize value for customers Often used in tandem with TQM, which further refines the processes Advances in information technology have helped firms reengineer

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12

Implementing Strategy in Companies That Compete in a Single Industry

Implementing Strategy Through Organizational Structure, Control, & Culture (1)

Copyright Houghton Mifflin Company. All rights reserved.

Implementing Strategy Through Organizational Structure, Control & Culture (2)

Copyright Houghton Mifflin Company. All rights reserved.

Building Blocks of Organizational Structure (overview)

Allocating authority & responsibility Increasing coordination as the structure evolves

Copyright Houghton Mifflin Company. All rights reserved.

Building Blocks of Organizational Structure (1)

Copyright Houghton Mifflin Company. All rights reserved.

Building Blocks of Organizational Structure (2)

Distortion of commands (can be deliberate) Expensive, proportionally more managers

Tall and Flat Structures

Copyright Houghton Mifflin Company. All rights reserved.

Allocating Authority and Responsibility (3)

Copyright Houghton Mifflin Company. All rights reserved.

Building Blocks of Organizational Structure (contd)

Strategic Control Systems

The process of designing a strategic control system contains four steps.

Consist of target-setting, monitoring, and feedback mechanisms;

Steps in Designing an Effective Control System (1)

Copyright Houghton Mifflin Company. All rights reserved.

Steps in Designing an Effective Control System (2)

Copyright Houghton Mifflin Company. All rights reserved.

Levels of Organizational Control

Copyright Houghton Mifflin Company. All rights reserved.

Balanced scorecard was discussed in Ch 11 Personal control

Types of Strategic Control System

Copyright Houghton Mifflin Company. All rights reserved.

Using Information Technology for Control

Copyright Houghton Mifflin Company. All rights reserved.

Strategic Reward Systems

Organizational Culture (1)

Organizational Culture (2)

Organizational structure also affects culture.

Organizational Culture (3)

Inert cultures are more cautious and conservative

Building Distinctive Competencies at the Functional Level (recap)

Copyright Houghton Mifflin Company. All rights reserved.

Building Distinctive Competencies at the Functional Level Through a Functional Structure

Copyright Houghton Mifflin Company. All rights reserved.

(Some functions are left off this e.g.)

Copyright Houghton Mifflin Company. All rights reserved.

Strategic Control Under a Functional Structure

Building Culture Under a Functional Structure

Functional Structure and Bureaucratic Costs (1)

Functional Structure and Bureaucratic Costs (2)

The outsourcing option

Implementing Strategy in a Single Industry (overview)

How Org.Design Increases Profitability

Copyright Houghton Mifflin Company. All rights reserved.

Implementing Strategy in a Single Industry (1)

Copyright Houghton Mifflin Company. All rights reserved.

Implementing Strategy in a Single Industry (2)

Implementing differentiation and reducing costs simultaneously

Implementing Strategy in a Single Industry (3)

Copyright Houghton Mifflin Company. All rights reserved.

Kodaks Product Structure

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Implementing Strategy in a Single Industry (4)

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Implementing Strategy in a Single Industry (5)