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Chapter 11 Attaining Integration
for Advantage
Chapter Topics
• The concept of organization design practices• Why organization design practices are crucial in
helping the firm achieve integration• Why many companies are moving to a ’networked’
organization• The evolving ‘virtual organization’ design• The broad types of reward systems used by many
organizations• How corporate culture can contribute to competitive
advantage• The dangers of relying too long on established
organizational practices and corporate culture
Disney World and Advantage
• Socialization
• Job training
• Performance
measurement
• Rewards
Cisco Systems and Advantage
• Near total reliance on suppliers and manufacturing
partners
• Fast product design capability
• Retention of people from acquisitions
Flexibility and Stability
• Loose Coupling
An organization design and structure that fosters a balance between the need to centralize and decentralize activities
• Network Organization
Organizational format in which firms try to balance their reliance on performing internal value-creating activities with the need to stay responsive and open to the environment
Ex. 11-1. Different Configurationsof Broad Organization Designs
Emphasis on vertical integration in product, area, functional structures; fosters high stability
Emphasis on extreme specialization; tight focus on one or two key activities
Emphasis on high responsiveness and partnering; balances stability with flexibility
Traditional Organizations
Network Organizations
Virtual Organizations
Moving to a Network
• Semi-permeable Boundaries
Flexible separations between organizational subunits across which communication, knowledge, and information flow more readily.
• Core Processes & Technologies
The key levers or drivers that form the basis of a firm’s distinctive competence and critical value-adding activities.
Ex. 11-2. Characteristics of theNetwork Organization
Semipermeable Boundaries• Looser organizational walls• Faster information flow among subunits
Alliances and Partnerships• Divide up the industry value chain• Specialize among partners
Focus on Core Processes/Technologies• Specialization along a core activity• Redefining ways to create value in core activity
Moving to Virtual
• Virtual Organization
An organizational format that coordinates and links up people and activities from different locations to communicate and act together, often on real-time basis.
• Lateral Communications
Coordinating work and communications among people who are on the same reporting level within the organization.
Ex. 11-3. Key Characteristics of Virtual Organizations
• High specialization of knowledge
• Rapid assembly/disassembly of project teams
• Ability to interconnect quickly with other firms
Organizations and Design
• Organization Design Practices
Support mechanisms that facilitate the implementation of a strategy within the framework of a given structure.
• Socialization
The process by which shared values and ways of behaving are instilled in new managers and employees.
Key Organizational Design Practices -Reward Systems
Reward and Performance Evaluation Systems• Hierarchy-based systems• Performance-based systems• Impact on corporate
performance
Performance RewardCriteria
• The performance payoff must be a major, not minor, piece of the total compensation package.
• The incentive plan should extend to all managers and workers not just top management.
• The reward system must be administered with scrupulous care and fairness.
• The incentives must be tightly linked to achieving only those performance targets spelled out in the strategic plan.
• The performance targets each individual is expected to achieve should involve outcomes that the individual can personally effect.
• Keep the time between the performance review and payment of the reward short.
• Make liberal use of non-monetary rewards; don’t rely solely on monetary rewards.
• Absolutely avoid skirting the system to find ways to reward non-performers.
Reward Systems -Characteristics of Hierarchy-Based System
• Close superior-subordinate relationships
• Extensive use of subjective and objective criteria to measure performance
• Superiors will guide the career and actions of subordinates
• Emphasis on group and team efforts and results
• Emphasis on long-term thinking and actions that help the organization
• Supports differentiation strategies at the business unit level
• Supports related diversification and global strategies at the corporate and business levels
Ex. 11-6. Reward Systems – Characteristics of Performance-Based System
• Superior-subordinate relationships not typically close
• Emphasis on tangible, concrete measures of output or performance
• Focus on individual, not group, measures of performance
• Bonuses are a big portion of total compensation
• Enhances individual initiative, entrepreneurial thinking, and personal efforts to excel
• Supports low-cost leadership strategies at the business level
• Supports unrelated diversification and multi-domestic strategies at the corporate and business levels
Organizational Design Practices -Values and Culture
• Shared Values
The basic norms and ideals that guide people’s behaviors in the firm and form the underpinning of a firm’s corporate culture.
• Corporate Culture
The system of unwritten rules that guide how people perform and interrelate with one another.
Ex. 11-7. Ideal Key Characteristics
of Shared Values• Simple to understand• Crystallized at top• Consistent over time
Ex. 11-7. Examples of Shared Values
McDonald’s QSVC
Southwest Fun, warm, friendly Airlines
Wal-Mart Friendly service and low prices
Motorola Quality is key
Ex. 11-8. Ways to Transmit Shared Values
Myths and Legends• Develop internal folklore• Heighten awareness of key
cherished values
Socialization• Learn “proper” behaviors
and ways of doing things• Extensive mentoring and
coaching
Keeping the Organization Vital
• Creative Tension
A process in which senior management systematically attempts to encourage people to think about new strategies and directions, which prevents the firm from becoming complacent.
Ex. 11-9. Implementation Methodsto Encourage Ethical Behavior
• Corporate credo that defines ethical values• Thorough instillation and training of values• High-level support for ethical values• Ethically relevant control systems