Chapter 2

Strategy, Organization Design and

Effectiveness

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 Organization Direction, Design, and
Effectiveness

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whole or in part.
 Organizational Purpose
• Strategic intent - organization’s energies and
resources are directed toward a focused,
unifying, and compelling goal
Operative Goals
• Overall Performance
• Mission • Resources
• Competitive Advantage • Market
• Core Competence • Employee Development
• Innovation and Change
• Productivity

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whole or in part.
 The Importance of Goals
• Official goals and mission statements
describe a value system
– Legitimize the organization

• Operative goals serve several purposes

– Employee direction and motivation
– Decision guidelines
– Standards of performance

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whole or in part.
 Selecting Strategy
• A strategy is a plan for interacting with the
competitive environment
• Managers must select specific strategy
design
• Models exist to aid in formulating strategy:
– Porter’s Five Forces
– Miles and Snow’s Strategy Typology

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whole or in part.
 Porter’s Competitive Five Forces
• Managers should understand forces in
industry and environment
– The Threat of New Entrants
– The Power of Suppliers
– The Power of Buyers
– The Threat of Substitutes
– Rivalry among Existing Competitors

• Porter suggests that companies adopt

strategies based on five forces analysis

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whole or in part.
 Porter’s Competitive Strategies

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whole or in part.
 Miles and Snow’s
Strategy Typology
Managers should seek to formulate strategy that matches
the demands of the external environment.
• Prospector
– Learning orientation; flexible, fluid, decentralized structure
– Values creativity, risk-taking, and innovation
• Defender
– Efficiency orientation; centralized authority and tight cost control
– Emphasis on production efficiency, low overhead
• Analyzer
– Balances efficiency and learning; tight cost control with flexibility
and adaptability
– Emphasis on creativity, research, risk-taking for innovation
• Reactor
– No clear organizational approach; design characteristics may shift
abruptly depending on current needs

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whole or in part.
 How Strategy Affects
Organization Design

Strategy impacts internal

organization characteristics
Managers must design the
organization to support the
firm’s competitive strategy.

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whole or in part.
 Contingency Factors
Affecting Organization Design

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whole or in part.
 Assessing Organizational
Effectiveness

→ Managers must evaluate goals

→ Effectiveness can be difficult to measure
→ Managers determine what to measure

Effectiveness takes into consideration a range of

variables at both the organizational and
departmental levels.

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whole or in part.
 Sample Goals
• Profitability
– The positive gain from business operations or investments
• Market Share
– The proportion of the market the firm is able to capture relative to
competitors
• Growth
– The ability of the organization to increase its sales, profits, or
clients
• Social Responsibility
– How well the organization serves the community
• Product Quality
– The ability of the organization to achieve high quality
products/services

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whole or in part.
 Resource and Internal
Process Goals
• Resource-based indicators look at the
inputs regarding processes
– The use of tangible and intangible resources
in operations (i.e. supplies, people)
• Internal processes must be measured for
effectiveness
– Operational efficiency
– Growth and development of employees

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whole or in part.
 Contingency Approaches to the Measurement
of Organizational Effectiveness

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whole or in part.
 Balance Scorecard Approach

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whole or in part.
 Design Essentials
 Organization exist for a purpose
 Strategic intent include competitive advantage
and core competence
 Strategies may include many techniques
 There are models to aid in the development of
strategy
 Organizational effectiveness must be assessed
 No approach is suitable for every organization

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whole or in part.