Organizational Design & Strategy in a Changing Global
Environment
StrategyStrategy :- 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
VALUE CREATION CYCLE1 . Ability to obtain scarce resources
allows an organization to create
2 . An organizationa l strategy
stinctive competences give an organization a competitive
advantage , which faci
which increases its
and invest resources to develop
4. A competitive advantage
which enable the organization to create
3 . Core competence
Sources of Core Competences Specialized Resources : Functional
resources :- the skills possessed by an organizations functional
personnel Eg:-Microsofts software design group is its biggest
function resource. P&Gs 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 organizations 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 decentralization Control
systems used to coordinate and motivate people
Global expansion and core competences
Expanding globally into overseas markets can be an important
facilitator of the development of an organizations core
competences.1 . Transfer of core competences abroad 2 .
Establishment of a global network
4 . Use of global learning to enhance core competences
3 . Gaining access to global skills and resources
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 orgzs 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
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 RUs, 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 cos like GM and adapted it for home country. By this Japan
obtained competitive advantage over US cos who
Dangers associated with outsourcing competencies to
abroadCompany 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, cos 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 organizations 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 Strategy
Business-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 cos work upon and they have functional experts in
news, documentary and identify future viewing trends so that they
can commission programs
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 whos
responsibility is to take the valuecreation 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 Strategy
Functional level strategyA plan of action to strengthen an
orgzns
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 should1.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.
Any function that can lower the cost at which a
Strategies that Lower Costs Or Differentiate Products
pdt is produced or that can differentiate a pdt adds value to
the pdt and the orgzn.Value Creating Function Manufacturing HR mgmt
Source of low cost Source of advantage differentiation advge Dvpmt
of skills in Increase in pdt qlty & flexible manufg reliability
techgy Reduction of turnover Hiring of highly & absenteeism
skilled personnel Dvpmt of innovative training pgms
Value Creating Fun Materials mgmt
Source of low cost advantage Use of JIT inventory stm/
computerized warehousing Dvpmt of long term relationships with
suppliers & customers
Source of differentiation advge
Sales & markrting
Research & development
Use of compan reputation & long term relationships with
suppliers & customers to provide high qlty ips & efficient
distribution & disposal Increased demand & Targeting of
customer of ops lower pdtn costs groups Tailoring pdts to customers
Improved efficiency of Promoting brandpdts Creation of new
Improvement of names manufg techgy existing pdts
The strength of a functions core competence
Functional Level Strategy And Structure
depends not only on the functions 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
orgznsdesign should permit each fun to develop a structure that
suits its human and
Structural characteristics associated with the development of
core competences in Production, Sales & R&DManufacturing
Sales R&D Mechanistic Structure` Manufacturing Tall organizatio
n Manufacturing Centralized decision making Manufacturing
Standardizatio n Sales R &D Mutual adjustment Sales R&D
Decentralized decision making Sales R&D Flat organizatio n
Organic Structure
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
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 peoples 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
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 orgzns
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. Orgzns culture emerge gradually and are a pdt of
many factors: an orgzns 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 funs
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 funs
core competence.
Business Level Strategy & CultureOrganizational 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 organizations 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.
C o rp o ra te - Le ve lS tra te g y
Vertical Integeration
A strategy in which an organization takes over and owns its
suppliers or its distributors
Input Domain
Related Domain
Backward vertical Integration
Related diversification
Core Domain
Forward Vertical integration
Unrelated diversification
Output Domains
Unrelated Domains
Input Domains eg:- sugar plantations, bottle makers)
(e.g:-
Related Domains Snack foods, Candy maker )
Core Domain Soft Drinks
Output domains Unrelated domains g companies that distributes
soft(e.g:- Department stores, financial networks, cable drinks;
fast food restraunts)
Related Diversification
U n re la te d D iv e rsifica tio nThe
The entry into a new domain that is related in some way to an
organizations domain
Corporate - level Strategy and Structure The appropriate
organizational structure mustbe chosen at the corporate level in
order to realize the value associated with vertical integration and
related and unrelated diversification.
entry into a new domain that is not related in any way to an
organization's core domain.
Corporate-level Strategy and Structure CEO
Conglomerate structure:- a structure in which each business is
placed in a self-contained division and there is no contact between
divisions.
Corporate Headquarters Staff
A B C D E F G H I Division Division Division Division Division
Division Division Division Division
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 anotherprocesses that
require a great amount of coordination and integration.
Corporate-level Strategy and CultureCultural 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 organizations existing domains
and to exploit the organizations 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.
p l m e n ti g S tra te g y A cro ss C o u n tri e n
IMLEMENTING STRATEGY ACROSS COUNTRIESGlobal strategy play a
crucial role in strengthening a companys control over its
environment. Four principal strategies that companies can use as
they begin to market their products and establish production
facilities abroad. a multidomestic strategy an international
strategy a global strategy 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 companys 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
A company decentralizes control to subsidiaries and divisions in
each country in which it operates to produce and customize products
to local markets. 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. 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
EnvironmentVertical Differentiation Choices` Levels in the
hierarchy Centralization of authority Low Need for Coordination
High Relatively flat Simultaneously centralized and decentralized
Global matrix or matrix in the mind Relatively flat Decentralized
Relatively tall Core competences centralize, others decentralized
Global product group structure Relatively tall Centralized
Horizontal Differentiation
Global geographic structure
Global product group structure
Integration Need for integrating mechanisms such as task forces
and integrating roles Need for electronic integration and
management networks Low Medium Medium High
Medium`
High
High
Very High
Need for integration Low by international organizational
culture
Medium`
High
Very High
Low
Bureaucratic Costs
High
GLOBAL GEOGRAPHIC STRUCTURECorporate Headquarters ( Located in
Sweden )
Canadian Division
United States Division
British Division
French Division
Japanese Division
South American Division
Functional Activities
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 strategyCorporate Headquarters (
located in the U.S) Worldwide Chemicals Product Group Headquarters
Worldwide Consumer Goods Product Headquarters Worldwide Automotive
Product Group Headquarters
Canadian Division
British Division
United States Division
French Division
Japanese Division
Product Groups Domestic & Foreign Division
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.
Thank You
