Ch. 8. Organizational Design and Strategy PDF

§8 Organiza onal design and strategy in a changing global environment 8.1 strategy and the environment A strategy is a specic pa9ern of decisions and acons that managers take to use core competences to achieve a compeve advantage and outperform competors. Through its strategy, an organizaon se...

§8 Organiza onal design and strategy in a changing global environment 8.1 strategy and the environment A strategy is a specic pa9ern of decisions and acons that managers take to use core competences to achieve a compeve advantage and outperform competors. Through its strategy, an organizaon seeks to use and develop core competences to gain a compeve advantage. Core competences are skills and abilies in value-creaon acvies , such as manufacturing, markeng or R&D that allow company to achieve superior e;ciency, quality, innovaon or customer responsiveness. Sources of competences The strength of its core competences is a product of the specialized resources and coordinaon abilies that it possesses and other organizaon’s lack. Specialized resources To kinds of resources provide an organizaon with core competences that give it a compeve advantage. Func onal resources are the skills possessed by an organizaon’s funconal personnel. However, it’s not su;cient that an organizaon has high-quality funconal resources; these resources must also be unique and di;cult to imitate. Organiza onal resources are the companyspecic skills and competences that give an organizaon a compeve advantage. They include the skills of a company’s top management team, the vision of its founder/CEO, and the possession of valuable and scarce resources. They must be unique and hard to imitate. 36 Coordinaon abilies Coordina on ability is an organizaon’s ability to coordinate its funconal and organizaonal resources to create the most value. E*ecve coordinaon of resources leads to a compeve advantage. Examples are: the control systems that an organizaon uses to coordinate and movate people and an organizaon’s ability to use its structure and culture to coordinate its acvies. An organizaon’s ability to coordinate and movate its funcons and departments is di;cult to imitate. Global expansion and core competences There are four ways in which global expansion allows an organizaon to create value for its stakeholders. 1. Transferring core competences abroad, which gives an organizaon a low-cost or di*erenaon advantage over its competors. 2. Establishment of a global network: sets of tasks and reporng relaonships among managers, funcons, and divisions that link an organizaon’s value-creaon acvies around the world. 3. Gaining access to global skills and resources. 4. Use of global learning to enhance core competences: the access to global resources and skills that a global network provides allows an organizaon to nd new ways to improve. Four levels of strategy An organizaon should match its strategy and structure so it can create value from its funconal and organizaonal resources. Strategy is formulated at four organizaonal levels: funconal, business, corporate, and global. Business-level strategy is a plan to use and combine an organizaon’s funconal core competences to posion it so it has a compeve advantage in its domain of segment of the industry. This is a responsibility of the top-management team. Their job is to decide how to posion the organizaon to compete for resources in its environment. Corporate-level strategy is a plan to use and develop core competences so the organizaon not only can protect and enlarge its exisng domain, but can also expand into new domains. This is a responsibility of corporate-level managers (the top-management team of a mul-business organizaon). They have to combine value-creaon skills to improve the compeve posion of each division and of the organizaon as a whole. Global expansion strategy involves choosing the best strategy to expand into overseas markets to obtain scarce resources and develop core competences. 8.2 Func onal-level strategy 37 The strategic goal of each funcon is to create a core competence that gives the organizaon a compeve advantage. To gain a compeve advantage, an organizaon must be able to perform funconal acvies (1) at lower costs, so it can charge lower prices than competors, or (2) in a way that allows it to di*erenate its products by giving them unique values that customers desire. Func onal-level strategy and structure The organizaon’s structure and culture are very important to the development of funconal-level strategy. The strength of a funcon’s core competence depends not only on its skills and resources, but also on its ability to coordinate the use of its resources. In turn, an organizaon’s coordinaon abilies are a product of its structure. Func onal-level strategy and culture The development of funconal abilies that lead to core competences is also a result of the culture that emerges in a funcon or department. A competor can easily imitate another organizaon’s structure, but it is very di;cult to imitate a culture. 8.3 Business-level strategy The challenge of a business-level strategy is for an organizaon to take the core competences created by its funcons and combine them to take advantage of opportunies in the environment to create value. The organizaon needs a business-level strategy that (1) selects the domain the organizaon will compete in, and (2) posions the organizaon so it can use its resources and abilies to manage its specic and general environments in order to protect and enlarge that domain. Strategies to lower costs or dieren ate products Business-level strategy focuses on selecng the domain in which an organizaon can take advantage of its funconal-level core competences. The organiza onal domain is the range of goods and services that the organizaon produces to a9ract customers and other stakeholders. Once an organizaon has chosen its domain, it has two bases on which it can posion itself to compete with its rivals: low-cost business-level strategy and dieren a on business-level strategy. An organizaon can also a9empt to pursue both strategies simultaneously and produce di*erenated products at low cost, but it is extremely di;cult. Over me, an organizaon has to change its business-level strategy to match changes in its environment. Organizaons have to defend, protect, and connuously improve the sources of their compeve advantage if they are to control their environment successfully in the long run. 38 Focus strategy Another business-level strategy is a focus strategy, which refers to specializing in one segment of a market and focusing all of the organizaon’s resources on that segment. Business-level strategy and structure An organizaon pursuing a di*erenaon strategy has to be able to develop products quickly because only if it gets it products to customers ahead of its competors can it exploit its di*erenaon advantage → an organic structure (because of the complex, uncertain environment) that permits the development of a decentralized, cross-funconal team approach to decision-making. A low-cost strategy is associated with the need for close control of funconal acvies to monitor and lower the costs of product development. Manufacturing and material management become the central funcons for the organizaon → a mechanisc structure (because of the slow-moving environment), with a centralized decision-making. From a strategy perspecve, three factors a*ect an organizaon’s choice of structure to create a compeve advantage for itself: 1. Wider range of products → needs greater control over the development, markeng, and producon of these products. 2. If an organizaon seeks to nd new customer groups for its products → needs a structure that allows it to serve the needs of its customers. 3. As the pace of new product development in an industry increases, an organizaon will need a structure that increases coordinaon among its funcons. Normally, a funconal structure is su;cient to coordinate the core competences of a low-cost organizaon. If handling di*erent groups of customers is the key to success, a market structure or a geographical structure will best t the di*erenator’s needs. A product team structure or a matrix structure can be adopted when rapid product development and speedy response to competors are the keys to compeve advantage. To summarize, an organizaon must match its business-level strategy to the organizaonal structure that allows the organizaon to use its funconal and organizaonal resources to create compeve advantage. Business-level strategy and culture The challenge at the business-level is to develop organizaon-wide values, and specic norms and rules, all of which allow the organizaon to combine and use its funconal resources to the best advantage. 39 Organizaons pursuing a low-cost strategy must develop values of economy and frugality. The funcons within a low-cost organizaon are likely to develop gaols that re:ect the organizaon’s values of economy. Cultural values of innovaon, quality, excellence, and uniqueness help a di*erenator implement its chosen strategy, and they become a source of compeve strength. 8.4 Corporate-level strategy Corporate-level strategy involves a search for new domains in which to exploit and defend an organizaon’s ability to create value from the use of its low-cost or di*erenaon core competences. Two important corporate-level strategies are: vercal integraon and diversicaon. Ver cal integra on is a strategy in which an organizaon takes over and owns its suppliers (backward vercal integraon) or its distributors (forward vercal integraon) The value-creaon advantages of vercal integraon can be obtained by creang strategic alliances with independent suppliers and distributors, and by doing so an organizaon avoids the bureaucrac costs associated with owning its suppliers or distributors. Related diversi=ca on is the entry into a new domain that is related in some ways to an organizaon’s domain. Unrelated diversi=ca on is the entry into a new domain that is not related in any way to an organizaon’s core domain. The value creaon comes from a top-management team’s ability to operate a set of organizaons in concert more e*ecvely than if each of the organizaons were controlled by separate top-management teams. Corporate-level strategy and structure For organizaons operang in more than one domain, a muldivisional structure is the appropriate choice. There are a few variants of the muldivisional structure. Organizaons that pursue a strategy of unrelated diversicaon a9empt to create value by acquiring underperforming businesses, restructuring them, and then managing them more e;ciently. For this, a conglomerate structure can be used, which is a structure in which each business is placed in a selfcontained division and there is no contact between divisions. The bureaucrac costs of related diversicaon are much greater than those associated with vercal integraon or unrelated diversicaon, because of the bigger need of communicaon and coordinaon. Corporate-level strategy and culture A corporate culture is an important tool that organizaons can use to coordinate and movate employees. An organizaon that can use an interorganizaonal strategy to enter and compete in a new domain can o2en secure the benets of the diversicaon and integraon strategies without incurring bureaucrac costs. 8.5 Implemen ng strategy across countries Companies can use four principal strategies as they begin to market their products and establish producon facilies abroad: (1) a muldomesc strategy, which is oriented towards local 40 responsiveness with divisions in each country, (2) an internaonal strategy, which is based on R&D and markeng being centralized and all the other value-creaon funcons being decentralized to naonal units, (3) a global strategy, oriented towards cost reducon, with all value-creaon funcons centralized at the lowest cost global locaon, or (4) a transnaonal strategy, focused on achieve local responsiveness and cost reducon. The need to coordinate and integrate global acvies increases as a company moves from a muldomesc to an internaonal to a global and then to a transnaonal strategy. The choice of structure and control systems for managing a global business is a funcon of three factors: 1. The decision how to distribute and allocate responsibility and authority between managers at home and abroad so that e*ecve control over a company’s global operaons is maintained. 2. The selecon of the organizaonal structure that groups divisions both at home and abroad in a way that allows the best use of resources and serves the needs of foreign customers most e*ecvely. 3. The selecon of the right kinds of integraon and control mechanisms and organizaonal culture to make the overall global structure funcon e*ecvely. Implemen ng a mul domes c strategy When a company pursues a muldomesc strategy, it generally operates with a global geographic structure. A company duplicates all value-creaon acvies in every country in which it operates. Authority is decentralized. The divisions don’t interact, so there’s no integraon mechanism needed. One problem is that it raises a company’s overall cost structure. Also, the company is not taking advantage of opportunies to transfer and share its competences and capabilies on a global basis; it loses the benets of operang globally. Implemen ng interna onal strategy In an internaonal strategy, companies with a wide range of products use a global product group structure, with product group headquarters that coordinate the acvies of both home and internaonal divisions, product group managers are responsible for organizing all aspects of value creaon on a global level. This arrangement of tasks and roles reduces the transacon costs involved in managing hando*s across countries and world regions. Implemen ng global strategy When a company embarks on a global strategy, it locates its manufacturing and other value chain acvies at the global locaons that will allow it to increase e;ciency and quality. The soluon for most companies is again a product group structure. This structure allows managers to decide how best to pursue global strategy, to decide which value-chain acvies should be performed in which country to increase e;ciency. Implemen ng a transna onal strategy The main failing of the product-group structure is that although it allows a company to achieve superior e;ciency and quality, it is weak when it comes to responsiveness to customers because the focus is sll on centralized control. A global matrix structure can simultaneously lower global cost structures and di*erenate their acvies through superior innovaon and responsiveness to customers globally. Implemenng a matrix structure decentralizes control to overseas managers and 41 provides them with considerable :exibility for managing local issues, but it can sll give product and corporate managers the centralized control needed to coordinate company acvies globally. 42