Chapter

Twelve
Implementing
Strategy in
Companies
That Compete
in a Single
Industry

Implementing Strategy
Through Organizational Design
Organizational Design is the process of selecting the

right combination of organizational structure, control systems,

and culture to pursue a business model successfully.

Organizational Structure
Assigns employees to specific value creation tasks and roles
To coordinate and integrate the efforts of all employees

Strategic Control Systems

A set of incentives to motivate employees
To provides feedback on performance so corrective action can
be taken

Organizational Culture
The collection of values, norms, beliefs, and attitudes shared
within an organizations
To control interactions within and outside the organization

Implementing Strategy
Through Organizational Design
Figure 12.1

Organizational structure, control, and culture shape peoples

behaviors, values, and attitudes and determine how they will
implement an organizations business model and strategies.

Building Blocks of
Organizational Structure
An organization structure assigns people to tasks
and connects the activities of different people and
functions:

Grouping tasks, functions, and divisions

How best to group tasks into functions and functions
into business units or divisions to create distinctive
competencies and pursue a particular strategy

Allocating authority and responsibility

How to allocate authority and responsibility to these
functions and divisions

Integration and integrating mechanisms

How to increase the level of coordination or integration
between functions and divisions as a structure evolves
and becomes more complex

 Group Tasks, Functions

and Divisions

Choice of structure is made on its ability to implement

companys business model and strategies successfully:

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.
A function is a collection of people who work together and
perform similar tasks or hold similar positions.
A division is a way of grouping functions to allow an
organization to better serve its customers.
Handoffs are the work exchanges between people,
functions, and subunits.

Bureaucratic costs result from the inefficiencies

surrounding these handoffs.

 Allocating Authority

and Responsibility

To economize on bureaucratic costs and effectively

coordinate the activities, company must develop a
clear and unambiguous hierarchy of authority :
Organizational Structure
Span of control (number of subordinates)
Tall versus flat organizations

Flexibility Communication problems Response time

Expense Distortion of commands

Decision Making: Centralized versus Decentralized

Delegating and empowering employees

Requires fewer managers Reduces information overload

Increases motivation and accountability

Centralized decisions

Easier coordination of activities

Decisions fit broad organizational objectives

Principle of the Minimum Chain of Command:

Choose hierarchy with the fewest levels of authority necessary

to use organizational resources efficiently and effectively.

Tall and Flat Structures

Figure 12.2

 Integration and

Integrating Mechanisms

Integration and integrating mechanisms:

are used to increase communication and

coordination among functions and divisions
Direct contact
Creates a context within which managers across
functions or divisions can work together

Liaison roles
Increases coordination
Gives one manager in each function or division
the responsibility for coordinating with the other

Teams
Use when multiple functions share mutual problems

The greater the complexity of an organizations

structure, the greater the need for formal
coordination among people, functions, and divisions.

Strategic Control Systems

The formal target-setting, measurement, and
feedback systems to evaluate whether a company
is implementing its strategy successfully
Characteristics of an effective control system:
Flexible to allow managers to respond
as necessary to unexpected events
Accurate information giving a true
picture of organizational performance
Timely presentation of information
for timely decision making
Measures should be tied to the goals of developing
distinctive competencies in efficiency, quality,
innovativeness, and responsiveness to customers.

Steps in Designing
an Effective Control System
Figure 12.3

Levels of Organizational Control

Controls at each level should provide
the basis on which managers at lower
levels design their controls systems.

Figure 12.4

Types of
Strategic Control Systems
Personal Control
Shape and influence the behavior of a person in a face-to-face
interaction in the pursuit of a companys goals.
Managers question and probe to better understand
subordinates.
The result is more possibilities for learning to occur and
competencies to develop.

Output Control

Forecast appropriate performance goals for each division,

department, and employee then measure actual performance
relative to these goals .
The achievement of these goals is a sign that the companys
strategy is working.

Behavior Control
Establish a system of rules and procedures to direct the actions
or behavior of divisions, functions, or individuals.
The result is standardization, predictability, and accuracy.

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.

Organizational Culture
Organizational Culture is the specific collection of
values and norms shared by people in the
organization.
Organizational socialization how people learn the
culture so that they become organization members.
Strategic leadership style established by the
founder and transmitted to the companys managers.
The culture becomes more distinct as the
organizations members become more similar.
Strong and adaptive cultures are innovative,
encourage and reward initiative, and have common values:

Bias for action autonomy, entrepreneurship, and risk-taking

Organizations mission sticks to its knitting and business model
How to operate the organization motivate employees to do
..their best

Building Distinctive Competencies at

the Functional Level
Most companies group people and tasks around a
functional structure on the basis of their common
expertise or because they use the same resources.

Functional Structure advantages:

People doing similar functions can learn from one another.

People can monitor each other and improve work processes.
Managers have greater control over organizational activities.
Managing is easier with separately managed specialized groups.

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.

Functional Structure
Figure 12.5

Functional Structure
and Bureaucratic Costs
Whenever different functions work together, bureaucratic
costs arise because of communication and measurement
problems arising from the hand-offs across the functions.
Communications problems
Stem from differences in goal orientations and outlooks

Measurement problems
Difficulties measuring contribution as product range widens

Customer problems
Satisfying customer needs and coordinating value-chain functions

Location problems
Functional structure not the best way to handle regional diversity
when selling or producing in multiple locations

Strategic problems
These problems mean a company has outgrown its structure.
Consider a more complex structure or outsourcing options.

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 and
organization design at the business level:
Increases differentiation, adds value for
customers, allows for a premium price
Reduces bureaucratic costs associated with
measurement and communications problems

Effective organization design often means

moving to a more complex structure that:
Economizes on bureaucratic costs
Increase revenue from product differentiation
Lowers overall cost structure by obtaining
economies of scope or scale

Implementing Cost Leadership

and Differentiation
Pursuing a cost leadership approach
The aim is to become the lowest cost producer in
the industry
Reducing costs across all functions
Lowering cost structure while preserving its ability
to attract customers
Continuously monitoring for effective operation
In practice, the functional structure is the most
suitable for cost leadership.

Implementing a differentiation approach

Design organization structure around the source of

distinctive competency, differentiated products, and

customer groups.

How Organizational Design

Increases Profitability
Figure 12.6

Product Structure:
Implementing a Wide Product
Lineto solve
Product structure is used
the control problems that result
from producing may different kinds
of products for many different
market segments.

Implementing a broad 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
who focus on the needs of one specific product
group.
Measure the performance of each product group
separately from the others.
Closely link rewards to performance of product group.

Nokias Product Structure

Figure 12.7

Market Structure: Increasing

Responsiveness to Customer Groups
Market structure focuses on the ability to met the needs
of distinct and important sets of customers or different
customer groups.

Increasing responsiveness to customer groups:

Identify the needs of each
customer group.
Group people and functions by
customer or market segments.
Make different managers
responsible for developing
products for each group of
customers.
Establish market structure brings managers and
employees closer to specific groups of customers.

Market Structure
Figure 12.8

Geographic Structure:
Expanding Nationally
Geographic regions may become the basis for grouping
organizational activities when companies expand
nationally through internal expansion, horizontal
integration, or mergers.

Expanding nationally geographic structure

More responsive to needs of
regional customers
Can achieve a lower cost
structure and economies
of scale
Provides more coordination
and control than a functional
structure through the
regional hierarchies

Geographic Structure
Figure 12.9

Matrix Structure and

Product-Team Structures
In fast-changing, high-tech environments, competitive
success depends on fast mobilization of company skills
and resources to ensure that product development and
implementation meet customer needs.

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

Product-team structure
Tasks divided along product or project lines
Functional specialists are part of permanent
cross-functional teams

Matrix Structure
Figure 12.10

Product-Team Structure
Figure 12.11

Focusing on a
Narrow Product Line
A focused company concentrates on developing a
narrow range of products aimed at one or two market
segments as defined by type of customer or location.

Focusing on a narrow product line:

Focusers tend to have higher production costs
Output is lower
Reduced opportunity for
economies of scale

Has to develop some form

of distinctive competency
Structure and controls
systems need to be:
Inexpensive to operate
Flexible enough to allow distinctive competency

Focuser normally adopts a functional structure.

Restructuring and Reengineering

To improve performance, a single business company
often employs restructuring and reengineering:

Restructuring
Streamlining hierarchy of and reducing number of levels
Downsizing the workforce to lower operating costs
Reasons to restructure and downsize
Change in the business environment
Excess capacity
Bureaucratic costs: organization grew
too tall and inflexible
To improve competitive advantage and stay on top

Reengineering
Fundamental rethinking and radical redesign of business
processes to achieve dramatic improvements
Focuses on processes (which cut across functions),
not on functions