Organizational Organizational & Design Strategy & Design Strategy

in a Changing Global in a Changing GlobalEnvironmentEnvironment

Strategy Strategy :- the specific pattern of decisions and actions

that mangers take to sue core competences to achieve a competitive advantage and outperform competitors.

An orgz develops a strategy to increase the value it can create for stakeholders.

Through strategy, orgz try to develop core competences to gain competitive advantage

Core Competences :- the skills and abilities in value creation activities that allow a company to achieve superior efficiency, quality, innovation, or customer responsiveness.

Eg: McDonald's : CC of fast food for new line of breakfast food, GILLETTE : CC to sell razor blades in selling men products.

VALUE CREATION CYCLE. 1 Ability to

obtain scarceresources

allows an organization

to create

. 2 Anorganizationa

l strategy

and invest resources to

develop

which enable the

organization to create

. 3 Corecompetence

. 4 A competitive

advantage

which increases its

, - - , , .Ample resources a well thought out strategy and distinctive competences give an organization a competitive advantage which facilitates the acquisition of still more resources

Sources of Core Competences

Specialized Resources :- Functional resources :- the skills possessed by an organization’s

functional personnel Eg:-Microsoft’s software design group is its biggest function

resource. P&G’s new product development skill is its biggest function

resource.Organizational Resources :- the attributes that give an

organization a competitive advantage such as the skills of the top-management team or possession of valuable and scarce resources.

Eg:- Reputation of Toyota & Microsoft are difficult to imitate.

Coordination Ability :- an organization’s ability to coordinate its functional and organizational resources to create maximal value. (achieved through the control provided by organization's overall structure and culture)

Centralization and decentralizationControl systems used to coordinate and motivate people

Eg:- Microsoft designs its structure and culture around small teams in order to coordinate activities that facilitates rapid development and new product launch.

Global expansion and core competences

Expanding globally into overseas markets can be an important facilitator of the development of an

organization’s core competences.

. 1 Transfer of core competencesabroad

. 2 Establishment of a global network

. 3 Gaining access to global skills

and resources

. 4 Use of global learning to

enhance corecompetences

Global expansion and core competences

Transferring Core Competences Abroad- value creation @ global level begins when an orgz transfers a CC in one or more of its functions to an overseas market to produce cheaper or improved products that will give the orgz a low-cost or differentiation advantage over its competitors in that market.

Eg:- Microsoft took its CC of advance software production tech to produce tailored software for customers abroad.

Establishing a Global Network- while going global, the firm locates its value-creation activities in countries where eco, political and cultural conditions are likes to enhance its low-cost or differentiation advantage.

It establishes a global network- sets of task and reporting relationships among managers, functions, and divisions that link an orgz’s value-creation activities globally.

Low factor costs- to lower costs, value-creation functions are located in countries having low factor costs; cost of raw materials, unskilled or skilled labor, land & tax.

Eg:-Nintendo – HQ in one country, assembly operations in another country, design operation in yet another country, buying inputs and raw materials from another country.

Global expansion and core competencesGaining Access to Global Resources and Skills:- an

organization with a global network has access to resources and skills throughout the world. Because each country has unique eco, political and cultural conditions, different countries have different resources and skills that give them a competitive advantages.

Eg:- Japan has skills in ‘lean’ production and T.Q.Manufacturing, Kodak, IBM, Ford has established divisions in Japan to learn these skills.

Eg:- Toys “R”U’s, has network of stores throughout Europe using its CC distribution & retailing . They took German and Swiss new & high-quality toys and sold to US thus enhancing its differentiation advantage, creating more value.

Global expansion and core competencesUsing Global Learning to Enhance Core

Competences:- organizations set up their global activities to gain access to knowledge that will allow them to improve their CC. The global exposure gives new ways to improve and its brought back to the domestic base to enhance the CC and then transfer its enhanced competencies back to its overseas operations to increase its competitive advantage.

Eg:- After WWII, Toyota, Panasonic and other Japanese co, studied US based production and marketing methods and took it back to base. They improved on it, compared it with top co’s like GM and adapted it for home country. By this Japan obtained competitive advantage over US co’s who made no attempt to improve present techniques.

Dangers associated with outsourcing competencies to abroad

Company risks losing control of its technology, partner may improve it and end up as a competitor.

If outsourced, that functional activity will no longer be having resource invested to improve it, so it is giving away a potential source of competitive advantage in future.

So, co’s must be careful in which skill and competencies they should nurture and protect and which they should allow other companies to perform to reduce their costs.

Four Levels of StrategyStrategy is formulated at four organizational

levels:-Functional-level strategy:- a plan of action

to strengthen an organization’s functional and organizational resources, as well as its coordination abilities, in order to create core competences.Scan and manage the functional environment to ensure that the org knows what is going both inside and outside its domain.

Understand techniques and products of rivals.

Eg:- Coke invests heavily to devise innovative approaches to marketing

Four Levels of StrategyBusiness-level strategy:- a plan to combine

functional core competences in order to position the organization so that it has a competitive advantage in its domain.It is the responsibility of the top management team, whose job is to decide how to position the org to compete for resources in its environment.

Eg:- CBS, NBC and ABC, compete with Fox, CNN, and Tuner Broadcasting to attract viewers. programming is the main variable these co’s work upon and they have functional experts in news, documentary and identify future viewing trends so that they can commission programs that will give them a competitive edge.

Four Levels of StrategyCorporate-level strategy:- a plan to use and

develop core competences so that the organization can not only protect and enlarge its existing domain but can also expand into new domains. CLS is the responsibility of top management team who’s responsibility is to take the value-creation skills present in the divisions and in corporate HQ and combine them to improve the competitive position of each division and of the organization as a whole. They combine resources and create more value than individual departments.

Eg:- Mercedes-Benz used its competences in R&D and product development to enter the household products and aerospace industry.

Four Levels of StrategyGlobal expansion strategy:- a plan that

involves choosing the best strategy to expand into overseas markets to obtain scarce resources and develop core competences.

Functional Level Functional LevelStrategyStrategy

Functional level strategy

A plan of action to strengthen an orgzn’s functional & orgznl resources, as well as its coordination abilities, in order to create core competencies.

The strategic goal of each fun is to create a core competence that gives the orgzn a competitive advantage.

An orgzn creates its value by applying its funl skills and knowledge to inputs and transforming them to outputs of finished goods and services.

To gain competitive advantage, an orgzn should

1.Perform functional activities at a cost lower than that of its rivals, or

2.3.Perform funl activities in a way that clearly

differentiates its goods and services from those of its rivals-by giving its pdts unique qualities that customers greatly desire.

Strategies that Lower Costs Or Differentiate ProductsAny function that can lower the cost at which a

pdt is produced or that can differentiate a pdt adds value to the pdt and the orgzn.

Value Creating Function

Source of low cost advantage

Source of differentiation advge

Manufacturing Dvpmt of skills in flexible manufg techgy

Increase in pdt qlty & reliability

HR mgmt Reduction of turnover & absenteeism

Hiring of highly skilled personnelDvpmt of innovative training pgms

Value Creating Fun Source of low cost advantage

Source of differentiation advge

Materials mgmt Use of JIT inventory stm/ computerized warehousingDvpmt of long term relationships with suppliers & customers

Use of compan reputation & long term relationships with suppliers & customers to provide high qlty ips & efficient distribution & disposal of ops Sales & markrting Increased demand &

lower pdtn costs

Targeting of customer groupsTailoring pdts to customersPromoting brand names

Research & development

Improved efficiency of manufg techgy

Creation of new pdtsImprovement of existing pdts

Functional Level Strategy And StructureThe strength of a function’s core competence

depends not only on the function’s resources but also its ability to coordinate the use of resources.

In effective orgzns, the pdtn, sales and the R&D deptmts develop an orientation specific to its functional tasks and develops its own ways of responding to its particular funl envimt.

According to contingency theory, an orgzn’sdesign should permit each fun to develop a structure that suits its human and technical resources.

Mechanistic

Structure`

Tallorganization

Centralized decision

making

Standardization

OrganicStructure

Flatorganizatio

n

Decentralized decision

making

Mutualadjustment

Manufacturing Sales &R D

Manufacturing Sales &R D

Manufacturing Sales &R D

Manufacturing Sales &R D

Structural characteristics associated with the development of core competences in Production, Sales & R&D

Successful research and development reflects the ability of R&D experts to apply their skills & knowledge in innovative ways and to combine their activities with technical resources to produce new pdts.

The structure most conductive to the development of funlabilities in R&D is a flat, decentralized structure in which mutual adjustments among teams is the main means of coordinating human & technical resources.

The manufg fun has used a tall hierarchy in which decision making is centralized & the speed of the pdtn line controls the pace of work.

Stdzn is achieved through the use of extensive rules and procedures, & the result of these design choices is a mechanistic structure.

Japanese companies has always had a more organic structure than US. It is flatter, more decentralized and relies more on mutual adjustments.

The sales fun uses a flat, decentralized structure to coordinate its activities bcos incentive pay stms rather than direct supervision by mgrs are primary control mechanism in sales settings.

Sales people are paid on the basis of how much they sell, and the infon abt customer needs the changing custr reqmts is relayed to the sales people’s superiors through a stdzed reporting stm.

Bcos sales people work alone, mutual adjustments are unimportant

Thus the structure of sales fun is likely to be mechanistic compared to that used by the R&D fun, but not as mechanistic as that used by manufg

Functional Level Strategy And cultureOrgzn culture is a set of shared values that

orgznl members use when they interact with one another and with other stakeholders.

Importance of orgznl cultureA competitor can easily imitate another orgzn’s

structure, b t it is very difficult for a competitor to imitate the culture, for culture is embedded in the day to day interactions of funl personnel.

Orgzn’s culture emerge gradually and are a pdt of many factors: an orgzn’s property right stm, its structure, its ethics, and the characteristics of its top mgmt team.

Functional Level Strategy1.As members or mgrs of a fun, identify the functional

resources or coordination abilities that give your fun a core competence. Having identified the sources of your fun’s core competence, establish a plan to improve or strengthen them and create a set of goals to measure your progress.

2.Study your competitors and the methods and the practices they use to control their funl activities. Pick your most effective competitor, study its methods and use them as a benchmark for what you wish t achieve in your fun.

3.Analyze the way your funl structure and culture affect funl resources and abilities. Experiment to see whether changing a component of structure or culture can enhance your fun’s core competence.

4.

Business Level Strategy & Culture

Organizational Culture plays determinant role in use of functional and organizational resources effectively.

Challenge is to develop values, norms, rules which allow organization to use functional resources at the best advantage.

Low-cost organizations Develop functions that reflect organization’s value for

economy.Eg:- Nucor, a leading low-cost steel manufacturer. The

ceo Ken Iverson operated the company in a frugal way. Top managers followed the same path and spend less on luxury.

Differentiator Organizations:-Product development or marketing is at the centre

stage. Innovation, quality, excellence and uniqueness are the

cultural values that are given importance.

- C orporate LevelStrategy

Vertical Integeration

A strategy in which an organization takes over and owns its

suppliers or its distributors

Core Domain

Relateddiversification

Backwardvertical

Integration

ForwardVertical

integrationUnrelated

diversification

OutputDomains

UnrelatedDomains

InputDomain

RelatedDomain

Input Domains( :- , ) eg sugar plantations bottle makers

Related Domains( . :- , )e g Snack foods Candy maker

Unrelated domains( . :- , , )e g Department stores financial networks cable companies

Output domains( . :- ; )e g botting and trucking companies that distributes soft drinks fast food restraunts

Core Domain Soft Drinks

Related DiversificationRelated Diversification The entry into a new domain that is related in

some way to an organization’s domain

U n re la te d D iv e rsifica tio n U n re la te d D iv e rsifica tio n The entry into a new domain that is not

related in any way to an organization's core.domain - Corporate level Strategy and- Corporate level Strategy and

StructureStructure The appropriate organizational structure must

be chosen at the corporate level in order to realize the value associated with vertical

integration and related and unrelated.diversification

Corporate-level Strategy and StructureConglomerate structure:- a structure in which each

business is placed in a self-contained division and there is no contact between divisions.

CEO

CorporateHeadquarters

Staff

ADivision

BDivision

CDivision

DDivision

EDivision

FDivision

GDivision

HDivision

IDivision

Corporate-level Strategy and StructureStructures for Related Diversification:- an

organization pursuing a strategy of related diversification tries to obtain value by sharing resources or by transferring functional skills from one division to another—processes that require a great amount of coordination and integration.

Corporate-level Strategy and Culture

Cultural values and the common norms, rules and goals that reflect those values can greatly facilitate the management of a corporate strategy.

An organization has to create a culture that reinforces and builds on the strategy it purses and the structure it adopts.

Inter organizational strategies increase value by allowing the organization to avoid the bureaucratic costs often associated with managing a new organization.

Managerial implications of Corporate-Level StrategyTo protect the organization’s existing domains

and to exploit the organization’s core competences to create value for stakeholders.

To distinguish between a value-creation opportunity and a value-losing opportunity, cost benefit analysis.

No matter which corporate strategy managers pursue, as the organization grows, a mangers must be careful to match organizations’ structure and climate to the strategy.

Im plem enting Strategy A cross C ountries

IMLEMENTING STRATEGY ACROSS COUNTRIES Global strategy play a crucial role in strengthening a company’s control over its

environment. Four principal strategies that companies can use as they begin to market

their products and establish production facilities abroad.Ø a multidomestic strategyØ an international strategyØ a global strategyØ a transnational strategy

The choice of structure and control systems for managing a global business is a function of three factors:

The decision how to distribute and allocate responsibility and authority b/w managers at home and abroad so that effective control over a company’s global operations is maintained.

The selection of the organizational structure that groups divisions both at home and in a way that allows the best use of resources and serves the needs of foreign customers most effectively.

The selection of the right kinds of integration and control mechanisms and organizational culture to make the overall global structure function effectively.

IMPLEMENTING A MULTIDOMESTIC STRATEGY

Ø A company decentralizes control to subsidiaries and divisions in each country in which it operates to produce and customize products to local markets.

Ø Generally operates with a global geographic structure ,where the company duplicates all value –creation activities and establishes an overseas division in every country or world area in which it operates.

eg. Car companies such as DaimlerChrysler , GM and Ford used global area structures to manage their overseas operations.

Ø A company that makes and sells the same products in many different countries often groups its overseas divisions into world regions to simplify the coordination of products across countries.

Strategy-Structure Relationships in the International Environment Vertical

DifferentiationChoices`

Levels in the hierarchy

Centralization ofauthority

Relatively flat

Decentralized

Relatively tall

Core competences , centralizeothers decentralized

Relatively tall Relatively flat

Centralized Simultaneously centralized and decentralized

HorizontalDifferentiation

Global geographic

structure

Global product group structure

Global product group structure

Global matrix or“ ”matrix in the mind

Integration

Need for integrating mechanisms such as

task forces and integrating roles

Low Medium Medium High

Medium` Need for electronic

integration and management networks

High High Very High

Need for integration by international

organizational culture

Low Medium` High Very High

Low High

Low High Need for Coordination

Bureaucratic Costs

GLOBAL GEOGRAPHIC STRUCTURE

CorporateHeadquarters( Located in

)Sweden

CanadianDivision

UnitedStates

Division

BritishDivision

FrenchDivision

JapaneseDivision

SouthAmericanDivision

FunctionalActivities

Implementing international strategyInternational strategy, based on R&D and

marketing being centralized at home and all the other value-creation functions to be decentralized to national unit.

For coordinating the flow of different products across different countries, many companies use a global product group structure and create product group headquarters.

Implementing international strategy Corporate

Headquarters( located in the

. )U S

WorldwideChemicals

Product GroupHeadquarters

WorldwideConsumer

Goods ProductHeadquarters

WorldwideAutomotive

Product GroupHeadquarters

CanadianDivision

BritishDivision

UnitedStates

Division

FrenchDivision

JapaneseDivision

Product Groups

& Domestic ForeignDivision

Implementing global strategyGlobal strategy, oriented toward cost

reduction, with all the principle value-creation functions centralized at the lowest cost global location.

The companies locates its manufacturing and other value- chain activities at the global location for increasing efficiency and quality.

Eg: philips

Implementing transnational strategyA transnational strategy, focused so that it can

achieve both local responsiveness and cost reduction.

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