1 organizational theory organizational strategy is a specific pattern of decisions and actions that...

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Organizational Theory

Organizational strategy is a specific patternof decisions and actions that managerstake to use core competencies to achievea competitive advantage and outperformcompetitors.

Core competencies are skills and abilities invalue creation activities that allow a company to outperform its rivals.

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Organizational TheoryTable 8-1 Low-Cost and Differentiation Advantages Resulting from Functional-Level Strategy

Value-creating Source of low-cost Source of differentiationfunction advantage advantage

Manufacturing • Development of skills in • Increase in product flexible manufacturing technology quality and reliability

Human resource • Reduction of turnover • Hiring of highly skilled management and absenteeism personnel

• Development of innovative training programs

Materials • Use of just-in-time inventory • Use of company reputation management system/ computerized warehousing and long-term relationships

with suppliers and customers • Development of long-term to provide high-quality inputs relationships with suppliers and and efficient distribution and customers disposal of outputs

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Organizational TheoryTable 8-1 Low-Cost and Differentiation Advantages Resulting from Functional-Level Strategy (continued)

Value-creating Source of low-cost Source of differentiationfunction advantage advantage

Sales and marketing • Increased demand and lower • Targeting of customer groups production costs • Tailoring products to

customers• Promoting brand names

Research and • Improved efficiency of • Creation of new products development manufacturing technology • Improvement of existing

products

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FIGURE 8-3 Structural Characteristics Associated with the Development of Core Competencies in Production, Sales, and Research Development

.

Manufacturing Sales R & D

Mechanisticstructure

Organicstructure


Tallorganization

Flatorganization


Centralizeddecision making

Decentralizeddecisionmaking


StandardizationMutualadjustment

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Once an organization has chosen its domain, it can use either of the following:

Low-cost business-level strategy—

produces low-priced goods and servicesfor all customer groups.

Differentiation business-level strategy—

produces high-priced, quality productsaimed at particular market segments.

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One type of business-level strategy is thefocus strategy.

Focus strategy involves specialization in one segment of the market and focusingall of the organization’s resources onthat segment.

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FIGURE 8-5Characteristics of Organizational Structure Associated with Business-Level Differentiation and Low-Cost Strategies

Matrix

structure

Product team

structure

Product, market,

or geographic

structure

Functional

structure

Differentiation Strategy Low-Cost Strategy

Complex structure Simple structure

Decentralized decision making Centralized decision making

High differentiation Low differentiation

High integration Low integration

Organic structure Mechanistic structure

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FIGURE 8-6Corporate-Level Strategies for Entertaining New Domains

Input

Domains

Related Domains

OutputDomains

Unrelated Domains

Related diversification

Backwardverticalintegration

Unrelated diversification

Forwardverticalintegration

Core Domain

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Organizations pursuing a strategy of unrelated diversification are likely to use a conglomerate structure.

Conglomerate structure—a structure in which each business is placed in a self-contained division and there is no contact between divisions.

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FIGURE 8-8

Conglomerate Structure

A

Division

B

Division

C

Division

D

Division

E

Division

F

Division

G

Division

H

Division

I

Division

Corporate

Headquarters

Staff

CEO

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Multidomestic Strategy

Pressures for Local Pressures for GlobalResponsiveness Integration

HIGH LOW

• Manufacturing, R&D, marketing abroad• Achieve a differentiation advantage• Bureaucratic costs are lowest

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International Strategy


LOW LOW

• Manufacturing abroad• R&D and marketing at home• Bureaucratic costs are low

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Global Strategy


LOW HIGH

• Manufacturing at a few low-cost locations• R&D and marketing at home• Bureaucratic costs are high

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Transnational Strategy


HIGH HIGH

• Manufacturing, R&D, marketing abroad, BUT• Emphasis on global learning / cost reduction• Bureaucratic costs are highest

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Vertical differentiation choicesLevels in the hierarchy

Low Need for Coordination High

Multidomestic International Global TransnationalStrategy Strategy Strategy Strategy

Relatively Relatively Relatively Relativelyflat tall tall flat

Low Bureaucratic Costs High

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Vertical differentiation choicesCentralization of authority



Decentralized Centralized / Centralized SimultaneousDecentralized Centralized &

Decentralized


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Organization Theory

Horizontal differentiationType of Structure



Global Global Global Global matrixgeographic product group product groupstructure structure structure


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Global geographic structure —

a structure in which foreign divisions arecreated in every country or region in whichan organization operates to replicateall its domestic value creation activities.

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FIGURE 8-9

Global Geographic Structure

Corporate

Headquarters

(located in Sweden)

Functional activities

South

American

Division

Japanese

Division

French

Division

British

Division

United

States

Division

Canadian

Division

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Global product group structure —

a structure in which product group headquarters coordinates the activitiesof the domestic and foreign divisions within each product group.

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FIGURE 8-10

Global Product Group Structure

Worldwide Chemicals

Product Group

Headquarters

Worldwide Consumer

Goods Product

Headquarters

Corporate Headquarters

(located in the United States)

Worldwide Automotive

Product Group

Headquarters

Canadian

Division

British

Division

United States

Division

French

Division

Japanese

Division

Product groups

Domestic and foreign divisions

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Global matrix structure —

a structure that coordinates organizationalactivities and resources along two dimensions:

• Product groups and

• World areas

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FIGURE 8-11

Global Matrix Structure

CanadianDivision

Individual business division

Automobile product group

Chemicals product group

Consumer goodsproduct group

North American Area

United StatesDivision

Mexican Division

European Area

British Division

French Division

Pacific Area

JapaneseDivision

TaiwanDivision

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““GM Unveils Overhaul of Europe GM Unveils Overhaul of Europe Operations”Operations”

General Motors unveiled much-anticipated General Motors unveiled much-anticipated overhaul of European operations designed to overhaul of European operations designed to streamline Co by bringing units Adam Opel, streamline Co by bringing units Adam Opel, Vauxhall Motors, and Saab under single mngt Vauxhall Motors, and Saab under single mngt structurestructure Intended to speed up decision making and increase Intended to speed up decision making and increase

efficiencyefficiency Centralizing finance, design and engineering, buying, Centralizing finance, design and engineering, buying,

manufacturing, sales and marketingmanufacturing, sales and marketing ““Asking all of our European ees to recalibrate Asking all of our European ees to recalibrate

themselves to a mindset of working for General themselves to a mindset of working for General Motors overall, instead of an individual brand or Motors overall, instead of an individual brand or country operation”country operation”

Source: Source: Wall Street JournalWall Street Journal, 6/18/04, 6/18/04 See also “Reversing 80 Years of History…”See also “Reversing 80 Years of History…”

““International Isn’t Just IBM’s International Isn’t Just IBM’s First Name”First Name”

Lotus Symphony is package of PC software Lotus Symphony is package of PC software applicationsapplications

Work on new version started in July 2007Work on new version started in July 2007 Teams in Beijing (lead); Austin, TX; Raleigh, NC; Teams in Beijing (lead); Austin, TX; Raleigh, NC;

Boeblingen, Germany contributingBoeblingen, Germany contributing One of major challenges is difficulty of communicating One of major challenges is difficulty of communicating

via e-mail or videoconferencing when programmers via e-mail or videoconferencing when programmers have never met one anotherhave never met one another

Trust is big problemTrust is big problem IBM trying to bridge gap w/ software that borrows IBM trying to bridge gap w/ software that borrows

heavily from social networkingheavily from social networking New program called Beehive is essentially corporate New program called Beehive is essentially corporate

version of Facebookversion of Facebook Ees create profiles and post photos, lists of interests, Ees create profiles and post photos, lists of interests,

etc.etc. Source: Source: Business WeekBusiness Week, 1/28/08, 1/28/08

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1 organizational theory organizational strategy is a specific pattern of decisions and actions that...

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