Chapter 12 Implementing Strategy in Companies That Compete in a by HC120914015418

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  Implementing Strategy in
Companies That Compete in a
       Single Industry

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                 Overview
• Strategy implementation
  – How a company should create, use, and
    combine organizational structure, control
    systems, and culture to pursue strategies that
    lead to a competitive advantage and superior
    performance
• Critical trade-offs: differentiation and
  integration; specialization and coordination

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Implementing Strategy




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       Organizational Culture
• Culture and strategic leadership
• Traits of strong and adaptive corporate
  cultures
  – Bias for action
  – Nature of the organization’s mission (sticking
    with what the organization does best)
  – How to operate the organization (motivating
    employees to do their best)
• Culture is nurtured by building blocks . .
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      Building Blocks for Culture–
                focus attention

•   Strategy
•   Overarching goals
•   Leadership/Management Style
•   Structure
•   Management systems
•   Staff
•   Skills

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     Building Blocks of Culture
                         continued

• Influence/role of leadership, staff, and skills
  should not be overlooked.
   – Leadership – senior management, e.g. Chair
   – Staff – types of managers and rank and file
   – Skills – what technology is dominant in an
     organization influences the kind of staff it has and
     eventually its culture.
• The building blocks must blend; or these seven
  will evolve and adjust to each other.
• Culture is an outcome of the interaction of these
  building blocks
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     Organizational Life-Cycle
• An organization’s structure goes through a “life-
  cycle”
  – The structure of the organization increases in
    complexity as the business expands in size, e.g.
    sales volume, and scope, e.g. number of products,
    geographic regions, etc.
  – The complexity is a response to control related issues
    that arise as a result of expansion
• Increasing complexity requires maturity on the
  part of organization and its members.

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     “Organizational life cycle”
• Entrepreneurial - the owners share
  responsibilities and does everything
• Functional - they hire a manager for accounting,
  marketing, etc.
• Multi-product or geographic – a manager for a
  specific geographic region, product line, etc.
• Profit center – each region or product line
  becomes responsible for bottom line
• Matrix/Product-team

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              Next Slides
• Materials from Chapter 12 should be self-
  explanatory
• Lets discuss the Opening Case in small
  groups by describing how Dell’s structure
  evolved.




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   Implementing Strategy Through
 Organizational Structure, Control, and
                Culture
• Organizational structure
  – Specifies how tasks and roles are linked to
    achieve organizational objectives: increase
    efficiency, quality, innovation, and
    responsiveness to customers
  – To coordinate and integrate the efforts of all
    employees
  – Assigns employees to specific value creation
    tasks and roles within structure

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   Implementing Strategy Through
 Organizational Structure, Control, and
            Culture (cont’d)
• Control system
  – Provides feedback on performance so corrective
    action can be taken
  – A set of incentives to motivate employees towards
    desired goals, e.g. increase efficiency, quality,
    innovation, and responsiveness to customers
• Organizational culture
  – The collection of values, norms, beliefs, and attitudes
    shared within an organizations and that control
    interactions within and outside the organization

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        Building Blocks of
     Organizational Structure
• Grouping tasks, functions, and divisions
  – Organizational structure follows the range and
    variety of tasks that an organization pursues
  – Ideally companies should group tasks into
    functions and then functions into divisions
     • Note: differentiation and specialization
  – Often companies consider people occupying
    jobs and performing tasks as they group
  – Bureaucratic costs
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        Building Blocks of
     Organizational Structure
             (cont’d)
• Allocating authority and responsibility
  – Hierarchy of authority
     • chain of command
  – Span of control
     • number of subordinates/units to supervise
  – Tall and flat organizations



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Tall and Flat Structures




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         Building Blocks of
      Organizational Structure
              (cont’d)
– Drawbacks of taller organizations
  •   Less flexibility and slower response time
  •   Communication problems
  •   Distortion of commands
  •   Expense




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   Allocating Authority and
    Responsibility (cont’d)
– Decentralization?
  • Delegating responsibility reduces information
    overload, enables managers to focus on strategy
  • Empowering lower-level managers increases
    motivation and accountability
  • Empowering employees requires fewer managers
  • Reduces head office size



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    Allocating Authority and
     Responsibility (cont’d)
– Centralization . . .
   • allow easier coordination of activities
   • means that decisions fit broad organizational
     objectives
   • Increases head office size in large organizations
– If environment or industry is stable, tall
  organizations sometimes make sense




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        Building Blocks of
     Organizational Structure
             (cont’d)
• Integration and integrating mechanisms
  – Direct contact among managers across
    functions or divisions
  – Liaison roles
    • Gives one manager in each function or division the
      responsibility for coordinating with the other
  – Teams

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    Strategic Control Systems
• Four basic building blocks, each with its
  own set of measures
  – Control and efficiency
  – Control and quality
  – Control and innovation
  – Control and responsiveness to customers
• Cascade measures to lowest possible unit


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Steps in Designing an Effective
        Control System




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Levels of Organizational Control




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    Types of Strategic Control
             System
• Personal control
  – Face-to-face interaction
• Output control
  – Performance goals for each division, department, and
    employee
• Behavior control
  – Rules and procedures to direction actions or
    behaviors of divisions, functions, and individuals
     • Operating budget
     • Standardization

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 Using Information Technology
• Behavior control
  – IT standardizes behavior through the use of a
    consistent, cross-functional software platform
• Output control
  – IT allows all employees or functions to use the
    same software platform to provide information
    on their activities
• Integrating mechanism
  – IT provides people at all levels and across all
    functions with more information
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   Strategic Reward Systems
• Based on strategy, managers must decide
  which behaviors to reward.
• A control system measures indicators of
  those behaviors and links the reward
  structure to these indicators.
• The difficulty is finding the appropriate
  indicators.


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    Building Distinctive
Competencies at the Functional
           Level
• Grouping by function: functional structure
  – Grouping people on the basis of their
    expertise or because they use the same
    resources
  – Advantages
     •   People can learn from one another
     •   People can monitor each other
     •   Managers have greater control
     •   With different functional hierarchies, the company
         can avoid becoming too tall
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Functional Structure




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          The Functional Level
• The role of strategic control
   – Managers and employees can monitor and improve a
     common set of operating procedures
   – Easier to apply output control
• Developing culture
   – Managers must implement functional strategy and
     develop incentive systems to allow each function to
     succeed
   – Manufacturing: TQM
   – R&D: innovation to bring products quickly to market
   – Sales: output and behavior controls
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     Functional Structure and
       Bureaucratic Costs
• Communications problems – across
  functions usually
• Measurement problems – there are
  functions that lend themselves to
  quantification, others less so
• Customer problems
• Location problems
• Strategic problems – can be ignored
• The outsourcing option
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   Implementing Strategy in a
        Single Industry
• Implementation begins at the functional
  level, however, managers must coordinate
  and integrate across functions and
  business units
• Effective strategy implementation at the
  business level
  – Increases differentiation, adds value for
    customers, allows for a premium price
  – Reduces bureaucratic costs
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   Implementing Strategy in a
     Single Industry (cont’d)
• Implementing a cost-leadership approach

  – Reducing costs across all functions
  – Continuously monitoring for effective
    operation
• Implementing a differentiation approach
  – Design structure around the source of
    distinctive competency, differentiated product,
    and customer groups
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   Implementing Strategy in a
     Single Industry (cont’d)
• Implementing a broad product line—
  product structure
  – Group the overall product line into product
    groups
  – Centralize support value chain functions to
    lower costs
  – Divide support functions into product-oriented
    teams of functional specialists who focus on
    the needs of one specific product group
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Kodak’s Product Structure




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   Implementing Strategy in a
     Single Industry (cont’d)
• Increasing responsiveness to customer
  groups—market structure
  – Group people and functions by customer or
    market segments
  – Different managers are responsible for
    developing products for each group of
    customers



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Market Structure




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   Implementing Strategy in a
     Single Industry (cont’d)
• Expanding nationally—geographic
  structure
  – To be responsive to needs of regional
    customers
  – To reduce transportation costs




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Geographic Structure




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   Implementing Strategy in a
     Single Industry (cont’d)
• Competing in fast-changing, high-tech
  environments—product-team and matrix
  structures
  – Matrix structure
     • Value chain activities are grouped by function and
       by product or project
     • Flat and decentralized
     • Promotes innovation and speed
     • Norms and values based on innovation and
       product excellence
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Matrix Structure




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   Implementing Strategy in a
     Single Industry (cont’d)
• Competing in fast-changing, high-tech
  environments—product-team and
  matrix structures (cont’d)
  – Product-team structure
    • Tasks divided along product or project lines
    • Functional specialists are part of
      permanent cross-functional teams


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Product-Team Structure




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   Implementing Strategy in a
     Single Industry (cont’d)
• Focusing on a narrow product line
  – Tends to have higher production costs
    because output is lower, reducing opportunity
    for scale economies
  – Has to develop some form of distinctive
    competency
  – Functional structure is appropriate



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            Restructuring and
             Reengineering
• Restructuring involves
  – Streamlining hierarchy of authority and reducing
    number of levels
  – Downsizing the workforce to reduce costs
• Reasons
  – Change in the business environment
  – Excess capacity
  – Organization grew too tall and inflexible; bureaucratic
    costs
  – To improve competitive advantage and stay on top
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        Restructuring and
      Reengineering (cont’d)
• Reengineering
  – Fundamental rethinking and radical redesign
    of business processes to achieve dramatic
    improvements
  – Focuses not on functions, but on processes
    (which cut across functions)




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