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ChapterTwelve
Implementing
Strategy inCompanies
That Compete
in a SingleIndustry
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Implementing StrategyThrough Organizational Design
Organizational Design: the process of selecting the rightcombination of organizational structure, control systems,and culture to pursue a business model successfully.
Organizational StructureAssigns employees to specific value creation tasks and roles
To coordinate and integrate the efforts of all employees
Strategic Control SystemsA set of incentives to motivate employees
To provides feedback on performance so corrective actioncan be taken
Organizational CultureThe collection of values, norms, beliefs, and attitudes shared
within an organizations
To control interactions within and outside the organization
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Implementing StrategyThrough Organizational Design
Figure 12.1
Organizational structure, control, and culture shape peoplesbehaviors, values, and attitudes and determine how they willimplement an organizations business model and strategies.
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Building Blocks ofOrganizational Structure
Grouping tasks, functions, and divisions
How best to group tasks into functions andfunctions into business units or divisions tocreate distinctive competencies and pursue a
particular strategyN Allocating authority and responsibility
How to allocate authority and responsibility tothese functions and divisions
Integration and integrating mechanismsHow to increase the level of coordination orintegration between functions and divisions asa structure evolves and becomes morecomplex
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Grouping Tasks, Functionsand Divisions
Organizational structure follows the range andvariety of tasks that an organization pursues.
Companies group people and tasks intofunctions, 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 inefficienciessurrounding these handoffs.
Choice of structure is made on ability to implementcompanys business model and strategies successfully:
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Allocating Authorityand Responsibility
Organizational Structure
Decision Making: Centralized versusDecentralized
Delegating and empowering employees
Centralized decisions
To economize on bureaucratic costs and effectivelycoordinate the activities, company must develop aclear and unambiguous hierarchy of authority
Principle of the Minimum Chain of Command:Choose hierarchy with the fewest levels ofauthority necessary to use organizational
resources efficiently and effectively
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Tall and Flat Structures
Figure 12.2
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Integration andIntegrating Mechanisms
Direct contact
Liaison roles
Teams
Integration and integrating mechanisms are used toincrease communication and coordination amongfunctions and divisions
The greater the complexity of an
organizations structure, the greater theneed for formal coordination among
people, functions, and divisions.
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Strategic Control Systems
Characteristics of an effective control system:
Flexible
Provides accurate information
Timely
The formal target-setting, measurement, andfeedback systems to evaluate whether a companyis implementing its strategy successfully
Measures should be tied to the goals ofdeveloping distinctive competencies inefficiency, quality, innovativeness, and
responsiveness to customers.
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Steps in Designingan Effective Control System
Figure 12.3
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Levels of Organizational Control
Figure 12.4Controls at each level should providethe basis on which managers at lowerlevels design their controls systems.
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Personal Control Managers question and probe to better understand
subordinates. The result is more possibilities for learning to occur
and competencies to develop. Output Control Set appropriate performance goals for each
division, department, and employee, then measureactual performance relative to these goals.
Behavior Control Establish standardization, predictability, and
accuracy by creating a system of rules to directactions and/or behaviors of divisions, functions, orindividuals.
Types ofStrategic Control Systems
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Using Information Technology
Behavior control
IT standardizes behavior through the use ofa consistent, cross-functional software
platform. Output control
IT allows all employees or functions to usethe same software platform to provide
information on their activities. Integrating mechanism
IT provides people at all levels and acrossall functions with more information.
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Organization Culture
Culture and Stategic Leadership
Traits of Strong and Adaptive Corporate
Culture
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Building Distinctive Competencies atthe Functional Level
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 operatingprocedures.
Easier to apply output control.
Developing Culture Managers must implement functional strategy and develop
incentive systems to allow each function to succeed.
Most companies group people and tasks around afunctional structure on the basis of their commonexpertise or because they use the same resources.
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Functional Structure
Figure 12.5
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Functional Structureand Bureaucratic Costs
Communication 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.
Whenever different functions work together, bureaucraticcosts arise because of communication and measurement
problems arising from the handoffs across the functions.
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Implementing Strategyin a Single Industry
Effective strategy implementation andorganization 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 meansmoving to a more complex structure that:
Economizes on bureaucratic costs Increase revenue from product differentiation
Lowers overall cost structure by obtaining economies ofscope or scale
Implementation begins at the functional level
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Implementing Cost Leadershipand 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 abilityto 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.
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How Organizational DesignIncreases Profitability
Figure 12.6
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Product Structure:Implementing a Wide Product Line
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 needsof one specific product group.
Measure the performance of each product
group separately from the others Closely link rewards to performance of
product group
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Nokias Product Structure
Figure 12.7
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Market Structure: IncreasingResponsiveness to CustomerGroups
Increasing responsiveness to customer
groups: Identify the needs of each customer group.
Group people and functions by customer or marketsegments.
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 focuses on the ability to meet the needsof distinct and important sets of customers or differentcustomer groups.
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Market Structure
Figure 12.8
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Geographic Structure:Expanding Nationally
Expanding nationally geographic structure More responsive to needs of regional customers
Can achieve a lower cost structure and economiesof scale
Provides more coordination and control than afunctional structure through the regionalhierarchies
Geographic regions may become the basis for groupingorganizational activities when companies expandnationally through internal expansion, horizontalintegration, or mergers.
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Geographic Structure
Figure 12.9
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Matrix and Product-TeamStructures
Matrix structure Value chain activities are grouped by
function andby 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 permanentcross-functional teams
In fast-changing, high-tech environments, competitivesuccess depends on fast mobilization of company skillsand resources to ensure that product development andimplementation meet customer needs.
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Matrix Structure
Figure 12.10
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Product-Team Structure
Figure 12.11
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Focusing on aNarrow Product Line
Focusing on a narrow product line:
Focusers tend to have higher production costs 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
focused company concentrates on developing anarrow range of products aimed at one or two marketsegments as defined by type of customer or location.
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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 ofbusiness processes to achieve dramaticimprovements
Focuses on processes (which cut across functions),not on functions
Restructuring and Reengineering