MGT 496, Chapter 11

When is an international strategy advantageous?

When the company faces low pressure for both local responsiveness and cost reductions.

When do firms use Input Controls?

When the goal is to define the ways and means to reach a strategic goal and to ensure a predictable outcome.

What is extrinsic motivation?

Motivation that is driven by external factors such as rewards and higher compensation, or punishments like demotions and layoffs (the carrot-and-stick approach).

In tall hierarchies, the span of control is _____ (narrow or wide)?

Narrow

What does centralization often correlate with?

Slow response time and reduced customer satisfaction.

What is the Span of Control?

The number of employees who directly report to a manager.

When are Output Controls especially effective?

When factors internal to the firm determine the relationship between effort and expected performance, and when a firm focuses on a single line of business or pursues unrelated diversification.

In flat hierarchies, the span of control is _____ (narrow or wide)?

Wide

What is Groupthink?

situation in which opinions coalesce around a leader without individuals critically evaluating and challenging that leader's opinions and assumptions. As the values and norms held by the employees become more similar, the firm's corporate culture becomes stronger; this can have a serious negative side-effect of Groupthink, leading to flawed decision making and potentially disastrous consequences.

What kind of a strategy does a MNE pursue?

A cost-leadership strategy (since the product offered is more or less an undifferentiated commodity).

With what span of control are managers most effective?

An intermediate span of control... not to narrow or wide.

A firm with few levels of hierarchies between a frontline employee and a CEO has a ____ hierarchy.

Flat

What is a Results-Only-Work-Environment (ROWE)?

Output controls that attempt to tap intrinsic (rather than extrinsic) employee motivation.

What strategic management process is found in more decentralized organizations?

Planned emergence.

What strategic management process matches with highly centralized organizations?

Top-down strategic planning.

In organizational culture, what defines what is considered important?

Values

What is the most important element of organizational culture?

Values. Values are the most important yet the least visible.

Why can it be difficult to imitate cultures of successful firms?

•Causal ambiguity •Social complexity.

When does an organizational culture need to change?

If a firm relies too long on the competency without honing, refining, and upgrading as the firm and the environment change, the organizational culture can turn from a core competency to a core rigidity, from an asset to a liability.

What organizational structure is a match for an MNE following a global-standardization strategy?

The Multidivisional Organizational Structure.

What structure would enable the MNE to set up different divisions based on geographic regions (i.e., by continent)?

The Multidivisional Organizational Structure. The different geographic divisions operate more or less like standalone SBUs to maximize local responsiveness. Decision making is decentralized.

What is the goal for managers who want to pursue a blue-ocean strategy?

To build an ambidextrous organization.

What particular path/pattern do successful firms often follow to inertia?

1. Mastery of, and fit with, the current environment 2. Success, usually measured by financial measurements 3. Structures, measures, and systems to accommodate and manage size. 4. A resulting organizational inertia that tends to minimize opportunities and challenges created by shifts in the internal and external environment.

Name three Strategic Control-and-Reward Systems

1. Organizational culture (norms, informal and tacit, act as a social control mechanism, and values and norms can help employees address unpredictable and irregular situations, as opposed to rules and procedures, which address predictable behaviors.) 2. Input Controls 3. Output Controls

What structure to firms tend to use to pursue a transnational strategy in which the firm combines the benefits of a multidomestic strategy (high local responsiveness) with those of a global-standardization strategy (lowest-cost position attainable)?

A global matrix structure. The global matrix structure allows the firm to feed local learning back to different SBUs and thus diffuse it throughout the organization.

What is an organizational structure?

A key to determining how the work efforts of individuals and teams are orchestrated and how resources are distributed. In particular, an organizational structure defines how jobs and tasks are divided and integrated, delineates the reporting relationship up and down the hierarchy, defines form communication channels, and prescribes how individuals and teams coordinate their work efforts.

Given the advances in computer-mediated collaboration tools, some firms have replaced the more rigid matrix structure with?

A network structure. The network structure allows the firm to connect centers of excellence, whatever their global location. Thus, it benefits from communities of practice, which store learning and expertise. To avoid undue complexity, these network structures need to be supported by corporate-wide procedures and policies to streamline communication, collaboration, and the allocation of resources.

What is socialization?

A process whereby employees internalize an organization's values and norms through immersion in its day-to-day operations.

What is an organic organization?

An organization characterized by a low degree of specialization and formalization, a flat organizational structure, and decentralized decision-making. They tend to be correlated with a fluid and flexible information flow among employees in both horizontal and vertical directions; faster decision-making; and higher employee motivation, retention, satisfaction, and creativity. They also exhibit a higher rate of entrepreneurial behaviors and innovation. They allow firms to foster R&D and/or marketing as a core competency. Firm's that pursue a differentiation strategy frequently have organic structures.

What is formalization?

An organizational element that captures the extent to which employee behavior is steered by explicit and codified rules and procedures... that detail what to do in specific situations (i.e., in employee handbooks). Formalization is often necessary to achieve consistent and predictable results.

What is a Hierarchy?

An organizational element that determines the formal, position-based reporting lines and thus stipulates who reports to whom.

What is Centralization?

An organizational element that refers to the degree to which decision-making is concentrated at the top of the organization.

What is a Holacracy?

An organizational structure in which decision-making authority is distributed through loose collections or circles of self-organizing teams.

What is a Simple Organizational Structure?

An organizational structure in which the founders tend to make all the important strategic decisions as well as run the day-to-day operations. It is a flat hierarchy that is operated in a decentralized fashion, and they exhibit a low degree of formalization and specialization. Typically neither professional managers or sophisticated systems are in place, which often leads to overload for the founder and/or CEO when the firms experience growth

What is a Matrix Structure?

An organizational structure that combines the functional structure with the M-form.

What is a Multidivisional Structure?

An organizational structure that consists of several distinct strategic business units (SBUs), each with its own profit-and-loss (P&L) responsibility.

What is a Functional Structure?

An organizational structure that groups employees into distinct functional areas based on domain and expertise (i.e., R&D, engineering, manufacturing, marketing and sales, HR, finance, and accounting). It is centrally coordinated and allows for efficient top-down and bottom-up communication between the CEO and functional departments, and this relies on a flat structure.

When does culture become more observable?

As we move outward to norms and artifacts.

What is a disadvantage to output controls?

At the corporate level, outcome controls discourage collaboration among different SBUs.

How must firms overcome the lack of cross-departmental collaboration in a functional structure?

By setting up cross-functional teams (with each team member reporting to two different supervisors).

How do founders set the initial strategy, structure, and culture of an organization?

By transforming their vision into reality.

What is an Artifact?

Elements such as the design and layout of physical space; symbols (i.e., type of clothing worn by employees); vocabulary; what stories are told; what events are celebrated and highlighted; and how they are celebrated (i.e., formal dinner vs. BBQ).

What is the number one reason boards of directors fire CEOs?

Inability to implement strategy effectively

What are Strategic Control-and-Reward Systems?

Internal-governance mechanisms put in place to align the incentives of principals (shareholders) and agents (employees). These systems allow managers to specify goals, measure progress, and provide performance feedback.

What are Input Controls?

Mechanisms in a strategic control-and-reward system that seek to define and direct employee behavior through a set of explicit, codified rules and standard operating procedures that are considered prior to the value-creating activities (i.e., budgets and standard operating procedures).

What are Output Controls?

Mechanisms in a strategic control-and-reward system that seek to guide employee behavior by defining expected results (outputs), but leave the means to those results open to individual employees, groups, or SBUs (i.e., compensation and rewards tied to predetermined goals).

In organizational culture, what defines appropriate employee attitudes and behaviors?

Norms

While a high degree of the division of labor increases productivity, it can also have unintended side effects such as?

Reduced employee job satisfaction due to repetition of tasks.

What type of organizational structure is generally used by small firms with low organizational complexity?

Simple Structure (i.e., smaller advertising, consulting, accounting, and law firms and family-owned businesses).

What are the two types of hierarchies?

Tall and flat.

What organizational structure is a match for and MNE following the multidomestic strategy?

The Multidivisional Organizational Structure

What is Organizational Culture?

The collectively shared values and norms of an organization's members; a key building block of organizational design.

What must occur for an organizational culture to be the basis of a firm's competitive advantage?

The firm's unique culture must help it in some way to increase its economic value creation (it must either help in increasing the perceived value of the product/service and/or lower its cost of production/deliver. And it must be valuable, rare, difficult to imitate, and organized to capture value.

What determines a manager's Span of Control?

The number of levels of hierarchy.

What is the idea behind a Matrix Structure?

To combine the benefits of the M-Form (Domain expertise, economies of scale, efficient processing of information) with those of the functional structure (responsiveness and decentralized focus).

What is the goal of organizational design?

To design an organization that allows managers to effectively translate their chosen strategy into a realized one.

What is a multinational enterprise (MNE) attempting when it pursues a multidomestic strategy?

To maximize local responsiveness in the face of low pressures for cost reductions.

What is a MNE attempting when it pursues a global-standardization strategy?

To reap significant economies of scale, as well as location economies by pursing a global division of labor based on wherever best-of-class capabilities reside at the lowest cost.

When is a functional structure recommended?

When a firm has a fairly narrow focus in terms of product/service offerings (i.e. low level of diversification) combined with a small geographic footprint. As such, it matches well with cost leadership, differentiation, and blue-ocean strategies.

When is intrinsic motivation the highest?

When an employee has •Autonomy (About what to do) •Mastery (How to do it) •Purpose (Why to do it)

What notable management practices do companies use to resolve the trade-offs necessary in blue-ocean strategies?

•Flexible and lean manufacturing systems •TQM •JIT Inventory Management •Six Sigma •Use of teams in the production process •Decentralized decision-making at the level of the individual customer.

What are the disadvantages of the matrix structure?

•It is usually difficult to implement; implementing two layers of organizational structure creates organizational complexity and increases administrative costs. •Reporting structures in a matrix are often not clear; employees can have trouble reconciling goals presented by their two (or more) supervisors. •Less-clear reporting structures can undermine accountability by creating multiple principal-agent relationships; this can make performance appraisals more difficult. •Adding an additional layer of hierarchy can also slow decision making and increase bureaucratic costs.

How must one effectively implement a functional strategy in a cost-leadership business strategy?

•Managers must create a functional structure that contains the organizational elements of a mechanistic structure, one that is centralized with well-defined lines of authority up and down the hierarchy; •nurture and constantly upgrade necessary core competencies in manufacturing and logistics; •create incentives to foster innovation in order to drive down cost; and •target the largest market segment possible and focus on leveraging economies of scale to further drive down costs.

How must one effectively implement a functional structure in a differentiation business strategy?

•Managers rely on a functional structure that resembles an organic organization; decision making tends to be decentralized to foster and incentivize continuous innovation and creativity, as well as flexibility and mutual adjustment across areas; •nurture and constantly upgrade core competencies in R&D, innovation, and marketing; and •the functional structure should be set up to allow the firm to reap economies of scope from its core competencies, such as by leveraging its brand name across different products or its technology across different devices.

How does a strong organizational culture influence employee behavior?

•Motivates and energizes employees by appealing to their higher ideals. •When employees are intrinsically motivated like this, the firm can rely on fewer levels of hierarchy, thus, close monitoring and supervision are not needed as much. •Motivating through inspiring values allows the firms to tap employees' emotions so they use both their heads and their hearts when making business decisions. •They align employees' behaviors more fully with the organization's strategic goals and making better-coordinated efforts and more effective cooperation. •They strengthen employee commitment, engagement, and effort. •They allow the organization to develop and refine its core competencies.

What are the disadvantages of the M-Form?

•Moving from the functional structure to the M-Form results in adding another layer of corporate hierarchy (corporate headquarters) and all the know problems of bureaucracy, red-tape, and duplication of efforts. •It slows decision-making because the CEO of the SBU must get approval from corporate headquarters when making major decisions that might affect a second SBU or the corporation as a whole. •SBUs frequently end up competing with each other for capital and managerial resources because they are evaluated as stand-alone profit-and-loss centers, while at the same time they also need to cooperate to share competencies, so Co-opetition is inevitable and necessary but can be detrimental with corporate politics and turf wars.

What is the development pattern of how organizational structures tend to change in time as firms grow in size and complexity?

•Starting with a simple structure •Then moving to a functional structure •Finally implementing a multidivisional or matrix structure. Zappos went a step further and implemented the holacracy.

What is the predictable pattern firm's interdependent and dynamic relationship between structure and strategy follow as they grow in size and complexity?

1. Increasing sales 2. Obtaining larger geographic reach 3. Diversifying through vertical integration and into related and unrelated businesses.

What is Ambidexterity?

A firm's ability to address trade-offs not only at one point but also over time. It encourages managers to balance exploitation with exploration.

What is Inertia?

A firm's resistance to change the status quo, which can set the stage for the firm's subsequent failure.

What is the best organizational structure match for an international strategy?

A functional organizational structure.

Which organizational structure allows a company to leverage its core competency most effectively?

A functional organizational structure.

What is Founder Imprinting?

A process by which the founder defines and shapes an organization's culture, which can persist for decades after his or her departure?

What is an Ambidextrous Organization?

An organization able to balance and harness different activities in trade-off situations.

What is an Mechanistic Organization?

An organization characterized by a high degree of specialization and formalization and by a tall hierarchy that relies on centralized decision-making. They allow for standardizations and economies of scale, and often are used when the firm pursues a cost-leadership strategy at the business level.

What is specialization?

An organizational element that describes the degree to which a task is divided into separate jobs (i.e., the division of labor). Larger firms tend to have a higher degree of specialization; smaller firms have a low degree

What is Exploitation?

Applying current knowledge to enhance firm performance in the short term.

Specialization requires a trade-off between?

Breadth and depth of knowledge.

Why are Input Controls called Input Controls?

Because management designs these mechanisms so they are considered before employees make any business decisions; thus, they are an input into the value-creation activities.

Why does strategy implementation often fail?

Because managers are unable to make the necessary changes due to the effects on resource allocation and power distribution within an organization. Strategy is as much about deciding what to do as it is about deciding what not to do.

Why do managers often only consider strategies that do not change existing organizational structures?

Because they do not want to confront the inertia that exists in established organizations.

How do firms using the M-Form structure to support an unrelated diversification strategy handle decision-making?

By decentralizing it. Doing so allows general managers to respond to specific circumstances and leads to a low level of integration at corporate headquarters.

How does a company leverage its home-based core competency?

By moving in to foreign markets.

What is the focus of the multidivisional organizational structure?

Driving down costs due to consolidation of activities across different geographic areas.

What is the primary means of culture change?

For the Board of Directors to bring in new leadership at the top, which is then charged to make changes in strategy and structure.

What type of organizational structure do single-business or dominant-business strategy firms who, at the corporate level, gain at least 70% of their revenues from the primary activity employ?

Functional Structure

This type of organizational structure allows for a higher degree of specialization, deeper domain expertise, greater division of labor (which is linked to higher productivity).

Functional Structure.

How does corporate culture find its expression?

In Artifacts

How do executives shape corporate culture?

In their decisions on how to structure the organization and its activities, allocate its resoueces, and develop its system of rewards.

What are the disadvantages of formalization?

It can slow decision-making, reduce creativity and innovation, and hinder customer service.

What type of organizational structure to firms that pursue a related or unrelated diversification strategy employ?

M-form

What is intrinsic motivation?

Motivation driven by the employee's interest in and the meaning of the work itself.

When do strong cultures emerge?

When a company's core values are widely shared among the firm's employees and when the norms have been internalized.

In a successful business strategy, does structure accommodate strategy or does strategy accommodate structure?

Structure must accommodate strategy (structure follows strategy) but in most cases, a firm's strategy often follows its structure. The chose organizational form must match the firm's business strategy.

What are the key components of organizational design?

Structure, culture, and control

A firm with many levels of hierarchies between a frontline employee and a CEO has a ____ hierarchy.

Tall

What is Organizational Design?

The process of creating, implementing, monitoring, and modifying the structure, processes, and procedures of an organization.

How do firms using the M-Form organizational structure to support related diversification tend to handle decision-making?

They concentrate it at the top of the organization. Doing so allows a high level of integration and helps corporate headquarters leverage and transfer across different SBUs the core competencies that form the basis for a related diversification.

How do employees learn about an organization's culture?

Through socialization.

How must one effectively implement a functional structure in a blue-ocean strategy?

•Firm must be both efficient and flexible. •Balance centralization to control costs with decentralization to foster creativity and innovation. •Managers must attempt to combine the advantages of the functional structure variations used for cost leadership and differentiation by mitigating their disadvantages. •Develop several distinct core competencies to drive up perceived value and lower cost. •Pursue both product and process innovations attempt to reap economies of scale and scope.

What are the disadvantages of the functional structure?

•It frequently lacks effective communication across departments. •It cannot effectively address a higher-level of diversification which often stems from further growth.

What are the key building blocks of an organization structure?

•Specialization •Formalization •Centralization •Hierarchy