STRATEGY

Goals and strategy are interrelated but are not the

same
Goals refer to ends - Strategy refers to both means
and end - Goals are a part of organization strategy

STRATEGY: DETERMINATION OF THE BASIC
LONG_TERM GOALS AND OBJECTIVES OF AN
ENTERPRISE< AND THE ADOPTION OF
COURSES OF ACTION AND THE ALLOCATION
OF RESOURCES NECESSARY FOR CARRYING
OUT THESE GOALS

Strategy: Premeditated or it just emerges
Planning Mode: Earlier view - Strategy a plan
an explicit of guidelines developed in advance
where going systematic/structured plan to get
there
Evolutionary Mode: Current perspective
evolves over time as a pattern in a stream of
significant decisions e.g. womens clothing
manufacturer buying local hotel priced right,
generating high ROI copes with both
static/dynamic view
If there is strategy imperative, then strategy
should predict structure - as strategy changes,
whether explicitly planned or implicitly evolving,
structure should follow


The Strategy Imperative
Environmental
Factors
and
Organizational
Capabilities
Structure
Strategy
Types of Strategy:
Corporate level strategy: Organization in more
than one line of business what set of
businesses to be in - role each business in
organization to play GE: top managements
corporate level strategy integrates business-
level strategies for multimillion dollar power
systems for hydroelectric systems, consumer
products like microwave ovens and light bulbs
Business-level strategy: How to compete in each
of our businesses small organization with one
line or large non-diversified large organization:
business level strategy = corporate level
strategy (uniform structure) in multiple
businesses organizations: each division own
strategy; defines products/services, customers
to reach etc (variety of structural configurations)
LEVELS OF STRATEGY:
Multi-business
Corporation
Business
Unit 1
Business
Unit 2
Business
Unit 3
Product
2
Product
3
Product
1
Corporate
level
Business
level
Classifying Strategic Dimensions:
Tradition focus in strategy-structure relationship
restricted to narrow degree of product
diversification
Strategy much broader than diversification into
various products/services
For instance decision for a family owned private
firm to go public is a significant change in
strategy envisages more disclosure to
stakeholders/board approval for larger number
of decisions
This strategic action -> more centralization and
increased formalization


Diversity in strategic dimensions
1. Innovation strategy: extent of introduction of
new products not simple or cosmetic
changes to existing products, but
meaningful/unique innovations all firms do
not pursue innovation
2. Marketing differentiation strategy: strives to
create customer loyalty by uniquely meeting a
particular need not necessarily a higher
quality/more up-to-date product - create
favorable image of product through
advertising, market segmentation, prestige
pricing e.g. premium beer products, designer
apparel manufacturers
3. Breadth strategy: refer to scope of the market
to which the business caters: variety of
customers, geographic range, number of
products grocery chin in a given community
vs. regional, national, multinational level
4. Cost control strategy: extent to which
organization tightly controls costs, refrain from
incurring unnecessary innovation/marketing
expenses, cuts prices in selling a basic product
Wal-Mart strategy
Chandlers strategy-structure thesis:
A new strategy required a new or at least refashioned
structure if the enlarged organization was to be operated
efficiently..unless structure follows strategy,
inefficiency results.
Unless new structures are developed to meet new
administrative needs which result from an expansion of a
firms activities into new areas, functions, or product
lines, the technological, financial, and personnel
economies of growth and size can not be realized.
Single product strategy: simple, high centralization, low
formalization, low complexity
Single product to expansion within same industry
(vertical integration) to product diversification strategy(
demands structure for efficient allocation of resources,
accountability, coordination between units)
Time t t+1 t+2
Product-
Diversification
Strategy
low high
Structure Simple Functional Divisional
Chandlers Thesis
Is Chandler right?
Claim that strategy influences structure well-
supported, but constrained by
limitations/definitions inherent in Chanlers work
Considered only very large, powerful industrial
business firms small/medium, service firms,
PSUs not considered
Meant only growth strategy, not profitability
Definition far from all-inclusive ( concern with
market segmentation, financial strengths,
leverage opportunities, actions of competitors,
assessment of organizations comparative
advantage vis--vis competition etc not
considered)

Contemporary Strategy-Structure
Theory
Miles and Snows Four Strategic Types:
Classify organizations into four strategic types:
defenders, prospectors, analyzers, and reactors rate
at which they change products or markets scope:
business firms as well as nonprofit organizations
1. Defenders: seek stability by producing only a limited
set of products directed at narrow segment of potential
market competititive pricing, high quality goods
growth through market penetration little/no market
scanning full focus on cost and other efficiency
issues structure characterized by high horizontal
differentiation, centralized control, elaborate formal
hierarchy for communication

Miles and Snows Strategic Typologies
Strategy Goal (s) Environment Structural
Characteristics
Defender Stability and
Efficiency
Stable Tight control; extensive
division of labor; high
formalization; centralized
Analyzer Stability and
Flexibility
Changing Moderately centralized
control; tight control over
current activities; looser
control for new undertakings
Prospector Flexibility Dynamic Loose structure; low division
of labor; low formalization;
decentralized
2. Prospectors: find and exploit new products, market
opportunities innovation more important than high
profitability capacity to survey wide environmental
conditions, trends, events structure flexible reliance
of multiple technologies that have low routinization,
mechanization numerous decentralized units, low
formalization lateral/vertical communications
3. Analyzers: minimize risk, maximize opportunity for
profit move into new markets after viability proved by
prospectors live by imitation e.g. IBM, Caterpillar
follow smaller competitors after product success
seek both flexibility, stability profit margin low
compared to prospectors (low risk, no innovation)
structure has two parts: one: high standardization,
routinization, mechanization; second: adaptive to
enhance flexibility
4. Reactors: residual strategy describes inconsitant,
unstable patterns when any above strategy pursued
inappropriately reason: lack of top management
commitment organization fails to meet change





Little change
And uncertainty
Rapid change
and high
uncertainty
Defender Reactor
Analyzer Prospector
Environment-Strategy Continuum
Porters Competitive Strategy
Select strategy that gives organization a competitive
advantage choose from 3 strategies: cost leadership,
differentiation, focus
Cost leadership: low cost producer in an industry
product comparable to rivals, acceptable to buyers
operation efficiency, low-cost labor, preferential access
to RMs Hyundai automobiles
Differentiation: seeks to be viewed as unique in ways
widely valued by buyers emphasis on high-quality,
extraordinary service, innovative design, technological
capability, unusual positive brand image significant
attribute to justify premium price Toyota (reliability),
IBM (trained personnel), Ferrari (performance)
Focus Strategy: seeks competitive advantage (cost,
differentiation) in a narrow segment size of segment,
cost of focusing determine strategy feasibility weekend
MBA classes for working executives
Stuck in the middle: organizations unable to gain
competitive advantage by one of previous
strategies no LT success succeeds only
when in highly favorable industry or rivals
equally stuck
Cost leadership strategy: tight controls,
minimization of overheads, scale economies -
best structure is high complexity, high
formalization, centralized
Differentiation strategy: unique product
development structure: high flexibility, low
complexity, low formalization, decentralized
decision making
Millers Integrative Framework
Strategic
Dimension
Challenge Predicted Structural
Characteristics
Innovation To understand &
manage more products,
customer types,
technologies, and
markets
Market scanning to discern customer
requirements; low formalization;
decentralization; extensive use of
coordinative committees and task
forces
Market
differentiatio
n
To understand and
cater to consumer
preferences
Moderate to high complexity; extensive
scanning/analysis of customers
reactions and competitor strategies;
moderate to high formalization;
moderate decentralization
Breadth:
Breadth-
innovation
To select the right range
of products, services,
customers and territory
High complexity; low formalization;
decentralization
Breadth-
stability
- Same as above - High complexity; high formalization;
high centralization
Cost control To produce
standardized products
efficiently
High formalization; high centralization
Limitations to the Strategy Imperative
Impact of strategy greater in early development
phase of organization personnel, equipment,
procedures, policies tough to change later on
restrictions on managers discretionary latitude
Capital-to-labor ratio will affect impact of strategy
on structure ratio low (labor intensive:
managers have more flexibility to exercise
change and influence structure
Lag Factor: often no immediate change in
structure following implementation of a new
strategy followers of strong strategy-structure
relationship say structures respond but slowly
Less competition an organization faces, less
rapid its structural response significant lag
Could Strategy follow Structure?
Does structure determine strategy?
Logical possibility: as when a multidivisional
structure is installed because everyone else is
doing it and then an acquisition strategy is
developed to make the structure viable
Study of 110 large manufacturing firms, study of
54 firms in Fortune 500 companies reveal
structure influences and constrains strategy
rather than the other way around
If further such studies emerge: as a structural
determinant, strategy of limited importance
Industry Strategy Structure
Industry-Structure Relationship
Aerospace
Large mainframe
Computer
Manufacturers

Computer
software
manufacturers
Magazine
publishers

Metals & Mining
Appliance
Manufacturers
Retail building
materials sales
Bicycle manufacturers
Capital Requirements
High Low
Product
Innovation
Rate
Hi
Lo
A
B
C
D
Type A industries: high on both
Type C industries: High on capital, low on product
innovation
High capital requirements: result in large organizations
and limited number of competitors firms in A, C highly
structured and standardized C more decentralized for
rapid response to innovations by competitors
Type B and D low capital requirements large number
of small firms
Type D: more division of labor, more formalization
Type B: low product innovation hence greater
standardization
High product innovation: Less formalization, more
decentralization in ecision making