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Strategy, Organization Design, Strategy, Organization Design, and Effectivenessand Effectiveness

CHAPTER 2CHAPTER 2

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The Role Of Strategic Direction In The Role Of Strategic Direction In Organization DesignOrganization Design

An Organization is created to achieve some purpose Top executives decide on the end purpose of the

organization VISION and the direction it will take to accomplish it MISSION.

It is this PURPOSE and DIRECTION that shapes how the organization is DESIGNED and MANAGED.

The primary responsibility (?)is to determine an organization goals, strategy, and design, therein adapting it to a changing environment.

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Middle management does the same for major departments within the guidelines provided by top management.

The direction setting process begins with an assessment of the opportunities and threats in the external environment, including the amount of change , uncertainty, and resource availability.

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Top management also assesses internal strengths and weaknesses to define the company’s distinctive competence compared with other firms.

The next step is to define the overall mission and official goals based on the correct fit between the external opportunities and internal strengths-(weaknesses and threats?)

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Organization design reflects the way goals and strategies are implemented (?) . Organization Design affects the administration and execution of a strategic plan(?). Organization direction is implemented through decisions about structural form, including whether the organization will be designed for learning or efficiency.

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Other factors like information and control systems, the type of production technology human resource policies culture linkages to other organizations has to be taken into consideration.

Finally the figure shows that management evaluates the effectiveness of organizational efforts-(realization of GOALS).

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ORGANIZATIONAL PURPOSRE

Organizations are created and continued to accomplish goals (something).

Many types of goals exist in an organization, officially stated goals and departmental operative goals (major distinction).

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MISSIONMISSION

The overall goal for an organization is often called the MISSON , (the organization reason for existence).

The mission describes the organization’s vision , its shared values and beliefs.

The mission is sometimes called the OFFICIAL GOALS.

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The mission statement is often written in a policy manual or the annual report.

The PRIMARY purpose of a mission statement is to serve as COMMUNICATION tool (customers, investors, suppliers, and competitors what the organization stands for and what it is trying to achieve).

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OPERATIVE GOALS

Designates the ends sought through the actual operating procedures of the organization and explains what the organization is trying to do. It describes SPECIFIC MEASURABLE OUTCOMES, and are often concerned with the short run.

Operative goals typically pertain to primary tasks an org. must perform (subsystems).

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These goals concern overall performance, boundary spanning, maintenance, adaptation, and production activities.

Specific goals for each primary task, provide direction for the day-to-day decisions and activities within departments.

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Overall Performance. Profitability reflects the overall performance of the organization.

Profitability is a LAG INDICATOR.

Performance may be expressed in terms of net income, earnings per share, or return on investment. Other overall performance goals are growth and output volume.

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Resources. Resource goals pertain to the acquisition of needed material and financial resources from the environment.

Market. Market goals relate to market share or market standing desired by the organization (niche strategy).

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Employee Development. Pertain to the training, promotion, safety, and growth of employees. It includes both managers and workers. Return on talent is becoming an important measure in today organization evaluation.

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Innovation and change. Innovation goals pertain to internal flexibility and readiness to adapt to unexpected changes in the environment. Innovation goals are often defined with respect to development of new services, products, or production processes.

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Productivity. Productivity goals concern the amount of output achieved from available resources. Are stated in terms of “ cost for unit of production”, ”units produced per employee”, or “resources cost per employee”.

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Successful organizations use a carefully balanced set of operative goals. (BALANCED SCORE CARDS).

Although profitability is important, some of today’s best companies recognize that a single-minded focus on bottom-line profits is not the best way to achieve high performance.

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THE IMPORTANCE OF GOALS

Both official and operative goals are important for the organization (why?), but they serve very different purposes.

Official goals and mission statements describe a value system for the organization; operative goals represent the primary tasks of the organization. (HOW CAN WE ALIGN BOTH ?).

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A FRAMEWORK FOR SELECTING STRATEGY AND DESIGN

To support and accomplish the direction determined by organization mission and operative goals, managers have to select a specific strategy and design options that will help the organization achieve its purpose and goals within its competitive environment.

Two models for formulating strategies are the PORTER model of competitive strategies and MILES and SNOW’S strategy typology.

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PORTER’S COMETITIVE STRATEGIES

Introduced a framework describing three competitive strategies: LOW COST LEADERSHIP, DIFFERENTIATION, and FOCUS.

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Differentiation: In a differentiation strategy, organizations attempt to distinguish their products or services from others in the industry. They may use distinctive product features, exceptional services, or new technology to achieve a product that is unique.

IT usually target customers who are not particularly concerned with price so it can be quite profitable.

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A differentiation strategy can reduce rivalry with competitors and fight off the threat of substitute products because customers are loyal to the company’s brand.

However, it requires a number of costly activities, such as product research and design and extensive advertising. They need also strong marketing abilities and creative employees who are given the time and resources to seek innovation.

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LOW COST leadership: Tries to increase market share by emphasizing low total cost compared to competitors.

The organization aggressively seeks efficient facilities, pursues cost reductions, and uses tight controls to produce products more efficiently than its competitors. (Types of control? – Innovation in processes or products?).

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This strategy is concerned primarily with stability rather than taking risks or seeking new opportunities for innovation and growth.

A low cost position means the company can undercut competitors’ prices and still offer comparable quality and earn a reasonable profit.

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MILES & SNOW’S STRATEGY TYPOLOGY

It is based on the idea that managers seek to formulate strategies that will be congruent with the external environment.

The four strategies that can be developed are the PROSPECTOR, THE DEFENDER, THE ANALYZER, and THE REACTOR.

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PROSPCTOR: Is to innovate, take risks, seek out new opportunities, and grow.

This strategy is suited to a dynamic, growing environment, where creativity is more important than efficiency.

DEFENDER: Is almost the opposite of the prospector. Rather than taking risks and seeking out new opportunities, the defender strategy is concerned with stability or even retrenchment.

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This strategy seeks to hold onto current customers, but it neither innovates nor seeks to grow.

IT is concerned primarily with internal efficiency and control to produce reliable, high-quality products for steady customers.

This strategy can be successful when the organization exists in a declining industry or a stable environment.

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In a reactor strategy, top management has not defined a long-range plan or given the organization an explicit mission or goal, so the organization takes whatever actions seem to meet immediate needs.

Although the reactor strategy can sometimes be successful it can also lead to failed companies. ( if you are not exceptional you will loose eventually).

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Analyzer : Tries to maintain a stable business while innovating on the periphery.

It seems to lie midway between the prospector and the defender. Some products will be targeted toward stable environments in which an efficiency strategy designed to keep current customers is used.

Others will be targeted toward new, more dynamic environments, where growth is possible.

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The analyzer attempts to balance efficient production for current product lines with the creative development of new product lines. (what are the hidden problems facing an organization following analyzer strategy?).

REACTOR: IT is not a strategy at all. Rather reactors respond to environmental threats and opportunities in an ad hoc fashion.

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HOW STRATEGIES AFFECT ORGANIZATION DESIGN:

Choice of strategy affects internal organization characteristics.

With a low cost leadership strategy, managers take an efficiency approach to organization design, whereas a differentiation strategy calls for a learning approach.

A low cost strategy, is associated with a strong, centralized authority and tight control, standard operating procedures, and emphasis is on efficient

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procurement and distribution systems. Employees generally perform routine tasks under

close supervision and control and are not empowered to make decisions or take action on their own

A differentiation strategy, on the other hand requires that employees be constantly experimenting and learning.

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Structure is fluid and flexible, with strong horizontal coordination. Empowered employees work directly with customers and are rewarded for creativity and risk taking.

The organization values research, creativity, and innovation over efficiency and standard procedures.

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OTHER FACTORS AFFECTING OTHER FACTORS AFFECTING ORGANIZATION DESIGNORGANIZATION DESIGN

Strategy is one important factor that affects organization design.

Ultimately, however, organization design is a result of numerous contingencies.

The emphasis given to efficiency and control over learning and flexibility is determined by the contingencies of strategy, environment, size and life cycle, technology, and organization culture.

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In a stable environment, the organization can have a traditional structure that emphasizes tight control, efficiency, specialization, standard procedures, and decentralized decision making.

However, a rapidly changing environment may call for a more flexible structure, with strong horizontal coordination and collaboration through teams or other mechanisms.

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Design must also fit the work flow technology of the organization. For mass production technology, the organization functions best by emphasizing efficiency, formalization, specialization, central decision making, and tight control.

A final contingency that affects organizational design is corporate culture, a culture that values teamwork, collaboration, creativity, and open communication among all employees and managers would not function well a tight vertical structure with tight rules.

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ONE RESPONSIBILITY OF MANAGERS IS TO DESIGN ORGANIZATIONS THAT FIT THE CONTINGENCY FACTORS OF STRATEGY, ENVIRONMENT, SIZE, AND LIFE CYCLE, TECHNOLOGY, AND CULTURE

FINDING THE RIGHT FIT LEADS TO ORGANIZATIONAL EFFECTIVENESS.

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CONTINGENCY EFFECTIVENESS APPROACHES

Contingency approaches to measuring effectiveness focus on different parts of the organization.

The GOAL approach, is concerned with the output side and whether the organization achieves its goals in terms of desired level of output.

The RESOURCE BASED approach, assesses effectiveness by observing the beginning of the process and evaluating whether the organization effectively obtains resources necessary for high performance.

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The INTERNAL PROCESS approach looks at internal activities and assesses effectiveness by indicators of internal health and efficiency.