S&O Summary Week 5 PDF

lOMoARcPSD|41123280 Catharina Nguyen Week 5 – Strategy and Organization Introduction to organizations: Chapter 1: Current challenges: - Globalization: it takes less time to exert influence around the world. So, companies large and small are searching for structures and processes that...

lOMoARcPSD|41123280 Catharina Nguyen Week 5 – Strategy and Organization Introduction to organizations: Chapter 1: Current challenges: - Globalization: it takes less time to exert influence around the world. So, companies large and small are searching for structures and processes that can help them reap the advantages of global interdependence and minimize the disadvantages. - Ethics and social responsibility: mostly issues about ecological sustainability, companies are under pressure to hold their organizations and employees to hinder standards of ethics and competency. - Responsiveness: organizations must respond quickly and decisively to environmental changes, organizational crises and shifting customers’ expectations. - Digital workplace: pressuring requirement of leadership in organizations is to become technologically savvy in addition to managing a web of relationships that reaches far beyond the boundaries of physical organization to employees, suppliers, contract partners and customers. - Diversity: variety of challenges, one is being fully recognizing and embracing diversity. Organizations: social entities that are goal directed, are designed as deliberately structured and coordinated activities, and are linked to external environment. Key element: people that interact with each other. Types of organizations: 1. For-profit organization: primary producing goods and services in a way that retains the confidence of shareholders. Managers focus on increasing sales revenues. 2. Non-profit organization: Responds to demands that are inadequately met by markets. Has more difficulties with securing funding, raising capital or competing with profit- making businesses. Financial resources: government grants, private foundation grants and donations. Importance of organizations: 1. Bringing together resources to achieve desired goals and outcome 2. Producing goods and services 3. Facilitating innovation 4. Harnessing modern manufacturing, service and information technologies 5. Adapting to and influencing a changing environment 6. Creating value 7. Accommodating ongoing challenges of diversity, ethics and the motivation and coordination of employees Chapter 2: perspectives on organizations From closed to open systems Closed-system perspective: focus exclusively upon the organization and minimal consideration to the (external) environment. Organizations are conceived as self-contained, and effectively sealed off from the outside world. Open systems: pays attention to the boundary between the organization and its context. A design that effectively manages the exchange across this boundary is key to survival. Organizations are conceived as consumers of resources and exporters of resources. In order to survive the organization must adapt to, or attempt to control a changing environment. 1 Gedownload door Sarah Loukili ([email protected])  lOMoARcPSD|41123280 Catharina Nguyen à Inputs: employees, raw materials and other physical resources, information and financial resources. à Transformation process: turn input into something of value, that can be exported back to the environment. à Output: specific products and services for customers and clients. Also, employee satisfaction pollution and other by-products of the transformation process. System thinking: each system has subsystems. These boundary subsystem is deemed responsible for enabling exchanges with the external environment. Maintenance subsystem: maintaining smooth operation and upkeep of the organization’s physical and human elements. Adaptive subsystem: responsible for organizational change and adaption. Management (distinct subsystem): responsible for coordinating and directing the other subsystems of the organization. Organizational configuration - Technical core: diverse support staff who do the basic work of the organization. Performs the production subsystem function, produces the product and services output. In a manufacturing, firm this is the production department. - Technical support: such as engineers and researches. They scan the environment for problems, opportunities and technological developments. Creating innovation in the technical core, helping the organization change and adapt. Departments: technology, research and development (R&D) and marketing research. - Administrative support: responsible for the smooth operation and upkeep of the organization. For example, cleaning buildings, repair of machines, employee training and development. - Management TOP – MIDDLE : responsible for directing and coordinating the other parts. Top management: directions, strategy, goals and policies for entire organization or major divisions. Middle management: implementation and coordination at the department level. Traditional organization, middle managers are responsible for mediating between top management and technical core, such as implementing rules or passing information up and down the hierarchy. Dimensions of organization design 1. Structural dimensions: provides labels to distinguish some key, internal characteristics of an organization. 2. Contextual dimensions: characterize both the organization as a whole, so including size, technology etc. and the broader organizational setting. Structural dimensions 1. Formalization: reliance upon written documentation in organization. Such as, regulation, job description. 2. Specialization: degree to which organizational tasks are subdivided into separate jobs. 3. Hierarchy of authority: who reports to whom and the span of the control for each manager. 4. Centralization: hierarchical level that has authority to make decisions. (1) centralized or (2) decentralized. 2 Gedownload door Sarah Loukili ([email protected])  lOMoARcPSD|41123280 Catharina Nguyen 5. Professionalism: the level of formal education and training of employees. 6. Personnel ratios: number of employees in a classification divide by the total number of organizational employees. Contextual dimensions 1. Size: so use of numbers 2. Organizational technology: refers to tools, techniques and actions used to transform inputs into outputs. For instance, flexible manufacturing, advanced information systems and the internet. 3. Environment: elements outside the boundary of the organizations. For instance, industry, government, customers, suppliers and financial community. 4. Goals and strategy: define the purpose and competitive techniques. 5. Culture: underlying set of key values, beliefs, understanding and norms shared by employees. Performance and effectiveness outcomes Efficiency: amount of resources used to achieve the organization’s goals. Effectiveness: meaning the degree to which the organization achieve its goals. Stakeholder approach: the idea of balancing the preferences of different groups. Stakeholder: any group within or outside that has a stake in the organization. Major stakeholder groups and what they expect - Owners and shareholders: financial returns - Employees: satisfactions, pay and supervision. - Customers: high-quality goods, services, value. - Creditors: creditworthiness, fiscal responsibility - Management: efficiency and effectiveness - Government: obedience to laws and regulation, fair competition. - Union: employee pay and benefits - Community: good corporate citizen, contribution to community affairs. - Suppliers: satisfactory transactions, revenue from purchases Historical perspectives Classical perspective: apply rational calculations to turn organizations into efficient, well- oiled machines. With the uses of extended hierarchies and bureaucratic procedures of control. Scientific management: (by Frederick Winslow Taylor), decisions about organizations and job design should be based on precise, scientific study of individual situations to determine which method of doing the job delivers the greatest output. Based upon closed system thinking. 1) Standardized procedure for doing each job 2) Select workers with the most appropriate abilities 3) Train them to follow standard procedure 4) Plan work and provide wage incentive to increase put So in the end favouritism and amateurism were replaced by careful research, meritocracy and standardization. Administrative principles: considered the design and functioning of the organization as a whole. à unity of command, unity of direction Bureaucratic organizations: emphasized designing and managing organizations on an impersonal basis, with clearly defined authority and responsibility. 3 Gedownload door Sarah Loukili ([email protected])  lOMoARcPSD|41123280 Catharina Nguyen A problem with the classical perspective is that there is limited attention to the social context and to human feelings. Hawthorne studies: laid the groundwork for subsequent explorations of the human side of the enterprise, including leadership, motivation and human resource management. Context Contingencies: structure/system is viable depens upon the particular circumstances or context of its design. So correct management approach depends on the organization’s (changing) situation. Contemporary organization design Chaos theory: relationships in complex, adaptive systems (incl. organizations) are nonlinear and made up of numerous interconnections and divergent choices. But also suggest that randomness and disorder occur within certain larger patterns of order. Learning organizations: communication and collaboration to be actively promoted so that everyone is engaged in identifying and solving problems. In order to continuously improve, experiment and increase its capability. It’s focused on problem solving instead of the traditional: predictable outcomes. Efficient performance versus Learning organization - From vertical to horizontal structure: structure is created around horizontal workflows/processes rather than departmental functions. Boundaries between functions eroded as teams include members from several functional areas. - From routine tasks to empowered roles: employees are encouraged to take care of problems instead of specialized tasks. - From formal control system to shared information: knowledge is shared instead of using information to control employees. - From competitive to collaborative strategy - From rigid to adaptive culture Chapter 3: Strategy, organization design and effectiveness Learn 3.1, page 54 Organizational purpose Mission: organization’s reason for its existence vision, share values and beliefs. Mission statement/official goals: communicates to current and prospective employees, customers, investors, suppliers and competitors what the organization stand for and what it’s trying to achieve, Operative goals: describe specific measureable outcomes and are often concerned with the short run. They provide direction for the day-to-day decisions within departments. - Overall performance: profitability growth, output volume or maybe even reputation, corporate responsibility etc. - Resources: acquisition of needed material and financial resources from the environment. - Market: market share or market standing desired by the organization. 4 Gedownload door Sarah Loukili ([email protected])  lOMoARcPSD|41123280 Catharina Nguyen - Employee development: training, promotion, health and safety, and growth of employees. - Innovation and change: internal flexibility and readiness to adapt to unexpected changes in the environment. - Productivity: amount of output achieved from available resources. A framework for selecting strategy and design Strategy: how to get there, goals: define the direction of travel Porter’s competitive strategies - Low-cost leadership - Differentiation - Focuses differentiation - Focused low cost Miles and Snow’s strategy Typology : idea that mangagers seek to formulate strategies that will correspond with the external environment. 1. Prospector strategy: innovate, take risks, seek out new opportunities and grow. Suited to a dynamic, growing environment where creativity is more important than efficiency. 2. Defender strategy: concerned with stability or even retrenchment (cutting down). Seeks to hold onto current customers, no need to innovate or seek to grow. Concerned primarily with efficiency. 3. Analyser strategy: maintain a stable business while innovating on the periphery. Midway between defender and prospector. Balance efficient production for current product lines with creative developments of new product lines. 4. Reactor strategy: respond to environmental threats and opportunities in an adhoc fashion. Lean 3.5, page 68 Contingency effectives approach ; measuring effectiveness focus on different parts of the organization (internal activities and processes). - Goal approach: assess effectiveness concerned with output side and whether the organization achieves its foals in terms of desired output. Indicators are operative goals. Organizations have multiple and conflicting goals, effectives often cannot be assesses by a single indicator. It’s difficult to identify operative goals for an organization. - Resource-based approach: assess effectiveness by observing the beginning of the process and evaluating whether the organization effectively obtains resources necessary for high performances. Indicators: o Bargaining position o Organization’s decision-makers to perceive and correctly interpret the external environment. 5 Gedownload door Sarah Loukili ([email protected])  lOMoARcPSD|41123280 Catharina Nguyen o The ability to use tangible and intangible assets resources in day-to-day activities. o The ability to respond appropriately to changes in the environment. - Internal process approach: looks at internal activities and assesses by indicators of internal health and efficiency. o Strong corporate culture and positive work climate o Team spirit, group loyalty and teamwork o Confidence, trust and communication between workers and management o Decision-making near sources of information o Clear horizontal and vertical communication; sharing relevant facts and feelings o Rewards to managers for performance, growth and development of subordinates and for creation of cooperative work groups o Interaction between all parts of the organization, with conflict that occurs over projects being resolved in ways that are collectively beneficial and productive. - Total output and the organization’s relationship with the external environment is not evaluated. - Many aspects of inputs and internal processes are not readily or meaningfully quantifiable. An integrated effectiveness model à competing values model: tries to balance a concerns with different kinds and aspects of effectiveness rather than focusing on one approach. Acknowledge that organizations do many things that have many outcomes. Takes complexities into account. Indicators (value dimensions): 1. Organizational focus: whether dominant values concern issues that are internal or external to the firm. Internal focus: management concern for well-being and productivity of employees. External focus: emphasis on well0being with respect to stakeholders in the environment. 2. Organization structure: whether stability or flexibility is the dominant structural consideration. Stability: management value for efficiency and top-down control. Flexibility: management value for learning and change. External focus + flexible structure à open system emphasis. Management goal’s: growth and resource acquisition. Accomplishes through: sub-goals of flexibility, readiness and a positive external evaluation. Dominant value: establishing a good relationship with key stakeholders in the environment to acquire resources and grow. Rational goal emphasis: management values of structural control and external focus. Primary goal: productivity and efficiency, achieve output goals in a controlled way. Sub-goals: internal planning and goal setting, which are rational management tools. Internal process emphasis: reflects the values of internal focus and structural control. Primary goal: stable organizational settings that maintains itself in an orderly way. Sub-goals: mechanisms for efficient communication, information management and decision- making. 6 Gedownload door Sarah Loukili ([email protected])  lOMoARcPSD|41123280 Catharina Nguyen Human relations emphasis: internal focus and a flexible structure. Primary goal: development of human resources. Chapter 4: Fundamentals of Organization Structure Organization structure components: 1. Designates formal reporting relationships, including the number of levels in hierarchy and the span of control of managers and supervisors. 2. Identifies the grouping together of individuals into departments and of departments into the total organization. 3. Includes the design of systems to ensure effective communication, coordination and integration of efforts across departments. Information-processing perspective on structure Emphasis on control: associated with specialized tasks, a hierarchy of authority, rules and regulations, formal reporting systems, few teams or task forces. Centralized decisions-making: problems and decisions are funnelled to top levels of hierarchy for solutions. Emphasis on learning: associated with shared tasks, relaxed hierarchy, few rules, face0t0face communications, many teams and task forces and informal. Decentralized decision-making: the decision-making authority is pushed down to lower organizational levels. Linkage: extent of communication and coordination among organizational elements. Vertical linkage: used to coordinate activities between top and bottom organizations. Designed for control of the organization. - Hierarchical referral: chain of command - Rules and plans Vertical information system: increasing vertical information capacity, includes: periodic reports, written information and computer-based communication distributed to managers. Horizontal linkage: amount of communication and coordination horizontally across organizational departments. à cross-functional information system - Direct contact: between mangers or employees affected by a problem. Liaison role: is a person located in one department but has the responsibility for communicating and achieving coordination with another department. Usually exists between engineering and manufacturing departments. - Task forces: temporary committee composed of representatives from each organizational unit affected by a problem. - Full-time integrator: located outside the departments and has the job: integrating internal departments, suppliers and customers. Usually a lot of responsibility but little authority. - Teams: strongest horizontal linkage mechanism. Virtual team: made up of organizationally or geographically dispersed members who are linked primarily through advanced information and communication technology. Volvoment dimensions: - Job enlargement: encouraging employee multifunctionality and thus the elimination of inefficiency in the team. - Job enrichment: redesign of the supervision system to delegate management responsibilities to the team members. 7 Gedownload door Sarah Loukili ([email protected])  lOMoARcPSD|41123280 Catharina Nguyen - Cooperation: members work together as a team, building on communication and a sense of shard responsibility. - High performance: team is able to work together to resolve non-routine issues, requiring collaborative innovation. Organization design alternatives Chain of command: hierarchical reporting relationships. Department grouping options: - Functional grouping: employees who perform similar functions/work process or who bring similar knowledge and skills to bear. - Divisional grouping: people are organized according to what the organization produces. - Multifocused grouping: organization embraces two structural grouping alternatives. à matrix or hybrid. - Horizontal grouping: employees are organized around core work processes. - Virtual network grouping: separate organizations are electronically connected. Functional, divisional and geographical design Functional structure: activities are grouped together by common function from the bottom to the top of the organization. Most effective when in-depth expertise is critical to meeting organizational goals, when organizations needs to be controlled and coordinated through vertical hierarchy, and when efficiency is important. It can improve economies of scale by concentrating specialist in groups in common location and sharing activities. It promotes in-depth skill development of employees. Shortcoming: slow response to environmental changes that require coordination across departments. Functional structure with horizontal linkages Strengths: 1. Allows economies of scale within functional departments. 2. Enables in-depth knowledge and skill development. 3. Enables organization to accomplish functional goals. 4. Is the best with only one or a few products. Weaknesses: 1. Slow response time to environmental changes. 2. May cause decision to pile on top, hierarchy overload. 3. Leads to poor horizontal coordination among departments. 4. Results in less innovation. 5. Involves restricted view of organizational goals. Divisional structure/product structure/strategic business units: organized according to individual products, services, product groups, major projects or programmes, divisions, businesses or profit centres. à structure grouping is based on outputs. Decentralizes decision making, in contract to functional structure where it is centralized. Strengths: 8 Gedownload door Sarah Loukili ([email protected])  lOMoARcPSD|41123280 Catharina Nguyen 1. Suited to fast change in unstable environment. 2. Leads to customer satisfaction because product responsibility and contact points are clear. 3. Involves high coordination across functions. 4. Allows unit to adapt to differences in products, regions and customers. 5. Best in large organizations with several products. 6. Decentralize decision-making Weaknesses 1. Eliminates economies of scale in functional departments. 2. Leads to poor coordination across product lines. 3. Eliminates in-depth competence and technical specialization. 4. Makes integration and standardization across product lines difficult. Geographical structure: grouping in the organization’s users or customers. Most common is geography. Strength and weaknesses are exactly the same as the division structure. Matrix structure: equal emphasis and attention to product and function, or product and geography. Usually when technical expertise and product innovation and change are assessed to be of equal importance. Enables two objectives to be pursued simultaneously. Conditions for the matrix: 1. Pressure exists to share scarce resources across product lines. 2. Environmental pressure exists for two or more critical outputs, such as in-depth technical knowledge and frequent new products. à Dual pressures require sharing of power between functional and products sides of the organization. Dual-authority structure is needed to maintain that balance. 3. The environmental domain of the organization is both complex and uncertain. à Functional matrix: The functional bosses have primary authority and the project or product managers simply coordinate product activities. Product matrix: project/product managers have primary authority and functional managers simply assign technical personnel to projects and provide advisory expertise as needed. Strengths: 1. Achieves coordination necessary to meet dual demands from customers. 2. Flexible sharing of human resources across products. 3. Suited to complex decisions and frequent changes in unstable environment. 4. Provides opportunity for both functional and product skill development. 5. Best in medium-sized organizations with multiple products. Weaknesses: 1. Causes participants to experience dual authority, which can be frustrating and confusing. 2. Means participants need good interpersonal skills and extensive training. 3. Is time consuming: involves frequent meetings and conflict resolutions sessions. 4. Will not work unless participants understand it and adopt collegial rather than vertical relationships. 5. Requires great efforts to maintain power balance. Horizontal structure: organizes employees around core process. Usually used as consequences of an intervention like total quality management or re-engineering. Re-engineering/ business process re-engineering: involves the redesign of a vertical organization along its horizontal workflow and processes. 9 Gedownload door Sarah Loukili ([email protected])  lOMoARcPSD|41123280 Catharina Nguyen Process: refers to organization and involve teams of employees working together to serve customers. Characteristics: - Structure is created around cross-functional core processes rather than tasks, functions or geography. Boundaries between departments are removed. - Self-directed teams, not individuals, are the basis of organizational design and performance. - Process owners have responsibility for each core process in its entirety. - People on the team are given he skills, tools, motivation and authority to make decisions central to the team’s performance. Team members are cross-trained to perform one another’s jobs. Combined skills are sufficient to complete major organizational tasks. - Teams have the freedom to think creatively and respond flexibly to new challenges that arise. - Customers drive the horizontal corporation. Effectiveness is measured by end-of- process performance objectives, based on the goal bringing value to the company’s stakeholders, including customers and investors. - The culture is one of openness, trust and collaborations focused on continuous improvement. - The culture values employee empowerment, responsibility and well-being. Strengths: - Promotes flexibility and rapid response to changes in customer needs. - Directs attention of everyone toward the production and delivery of value to customers. - Each employee has a broader view of organizational goals. - Promotes focus on teamwork and collaboration. - Improves quality of life for employees by offering them the opportunity to share responsibility, make decisions and be accountable for outcomes. Weaknesses: - Determining core processes is difficult and time consuming. - Requires changes in culture, job design, management philosophy and information and reward system. - Traditional managers may baulk when they have to give up power and authority. - Requires significant training of employees to work effectively in a horizontal team environment. - Can limit in-depth skill development. Virtual network structure: extends the concept of horizontal coordination and collaboration beyond the boundaries of the traditional organization. Taking outsourcing to the extreme. Like a central hub surrounded by a network ot outside specialists. Outsourcing: contracting out of aspects of work to other companies, this has implication for organization structure. Strengths: 1. Enables even small organizations to obtain talent and resources worldwide. 2. Gives a company immediate scale and reach without huge investments in factories, equipment or distribution facilities. 3. Enables the organization to be highly flexible and responsive to changing needs. 4. Reduces administrative overhead costs. Weaknesses: 1. Managers do not have hand-on control over many activities and employees. 10 Gedownload door Sarah Loukili ([email protected])  lOMoARcPSD|41123280 Catharina Nguyen 2. Requires a great deal of time to manage relationships and potential conflict with contract partners. 3. There is a risk of organizational failure if a partner fails to deliver or goes out of business. 4. Employee loyalty and corporate culture might be weak because employee feel they can be replaced by contract services. Hybrid structure: combines characteristics of various approached tailored to specific strategic needs. Application of structural design à structural alignment. Symptoms of structural deficiency - Decision-making is delayed or lacking in quality: Decision makers are overloaded by numerous problems. Information may not reach the correct people. - The organization does not respond innovatively to a changing environment Departments are not coordinated horizontally - Employee performance declines and goals are not being met Structure could not provide clear goals, responsibilities and mechanism for coordination. - Too much conflict is evident. Volberda, Chapter 8: Strategic Acquisition and Restructuring Mergers, acquisitions and takeover: what are the differences? Merger: strategy through which two firms agree to integrate their operation on a relatively coequal basis. Acquisition: strategy through which one firm buys a controlling or a 100% interest in another firm with the intent of making the acquired firm a subsidiary business within its portofolio. Takeover: unfriendly acquisition. Reasons for acquisitions: Increased market power: the end goal is to become market leader. - Horizontal acquisitions: of a competing company in the same industry. This increase firm’s market power by exploiting cost-based and revenue-based synergies. Higher performance when there are similar characteristics, this supports the integrating. - Vertical acquisitions: acquisition of a supplier or distributor of one or more of the acquiring firm’s goods/services. Newly-formed firm controls additional parts of the value chain - Related acquisition: acquiring a firm in a highly related industry, firms seek to create value through synergy. Overcoming entry barriers: mostly for economies of scale, differentiated products - Cross-border acquisitions: acquisitions made between companies with headquarters in different countries. This is not risk free. Cost of new product development and increased speed to market: firms can use to gain access to new products or current products that are new to the firm. This gives a more predictable return, instead of developing a new product yourself. Lower risk compared to developing new products Increased diversification: more related, more successful. Reshaping the firm’s competitive scope Learning and developing new capabilities 11 Gedownload door Sarah Loukili ([email protected])  lOMoARcPSD|41123280 Catharina Nguyen Problems in achieving acquisition success Reasons – problems - Increased market power – Integration difficulties - Overcoming entry barriers – Inadequate evaluation of target Due diligence: process through which a potential acquirer evaluates a target firm for acquisition. - Cost of new development and increased speed to the market – Large or extraordinary debts Junk bonds: a financing option through which risky acquisitions are financed with money (debt) that provides a large potential return to lenders (bondholders). This increases the likelihood of bankruptcy. - Lower risk compared to developing new products – Inability to achieve synergy Synergy is created by effiency derived from economies of scale and economies of scope by sharing resources. Only competitive advantage when transaction creates private synergy. Private synergy: when combining and integrating the acquiring and acquired firms’ assets yields capabilities and core competencies that couldoik - Increased diversification – Too much diversification It could cause managers to focus too much on short-term outcome. Tendency for acquisitions to become substitute for innovation. - Reshaping the firm’s competitive scope – Managers overly focused on acquisitions 1. Searching for viable acquisitions candidates 2.Completing effective due-diligence processes 3.Preparing for negotiation 4.Managing the integration process after completing the acuiqsition - Learning and developing new capabilities – Too large Bureaucratic controls: formalized controls often lead to relatively rifid and standardized managerial behaviour. Effective acquisitions à learn table 8.1, page 298 Restructuring: strategy through which a firm changes its set of business or its financial structure. Usually for acquisitions that aren’t reaching expectation, firms sometimes use these strategies because of changes they have detected in their external environment. Downsizing: a reduction in the number of a firm’s employees and sometimes in the number of its operating units, but it may or may not change the composition of businesses in the company’s portfolio. Usually part of an acquisition that fail to create value anticipated when transaction was completed. Mostly when acquiring firm paid too high of a premium for the target firm. Downscoping: refers to selling, spin-off or some other means of eliminating businesses that are unrelated to a firm’s core businesses. So that firms can refocus on their core business. Leveraged buyouts (LBO): a restructuring strategy whereby a party buys all of a firm’s assets in order to take the firm private. Usually to correct managerial mistakes or the firm’s managers were making decisions that primarily served their own interest rather than those of shareholders. Restructuring outcomes à figure 8.2, page 302 12 Gedownload door Sarah Loukili ([email protected])