MGMT 422 EXAM I

Problems in Functional structure

As products/services increase, geographic diversity grows, or new market segments are faced, the ability to coordinate activities in a functional structure is compromised

4 stages of organizational life cycle

Birth, growth, decline, death/renewal

Concerned with how a firm creates/maintains a competitive advantage

Business Strategy

Focuses on improving the competitive position of an organization's products or services within the specific industry or market segment it serves

Business strategy

Woodward's Theory: Small Batch Technology (Challenge & Design Outcomes)

Challenge: It is not possible to program conversion activities in advance, production relies on individual skills and people working together Design: Decentralized decision-making, mutual adjustment, narrow spans of control (organic and flat structure)

Woodward's Theory: Continuous Process Technology (Challenge & Design Outcomes)

Challenge: Making sure the system works, organization must monitor operations and correct unforeseen events Design: Tall hierarchies, many supervisors needed to control on the front lines, mutual adjustment to handle crises (tall and organic structure)

Woodward's Theory: Mass Production Technology (Challenge & Design Outcomes)

Challenge: Production relies on machines and programmability, workers need to be supervised, especially if low skill Design: Very standardized, formal rules and procedures, direct supervision (mechanistic and relatively tall structure)

What is a value proposition?

Clear statement that 1. explains how product solves customers' problems or improves situation 2. specifies how you will deliver specific benefits 3. tells ideal customers why they should buy from you

When two or more firms compete within the same market, one possesses a competitive advantage over its rivals when it earns a persistently higher rate of profit

Competitive Advantage

When a firm creates less economic value than its rivals

Competitive Disadvantage

When a firm creates the same economic value as its rivals

Competitive Parity

When a firm creates more economic value than its rivals

Competitive advantage

What 2 components comprise business strategy?

Competitive and Cooperative

Vertical Differentiation

Concerned where decisions are made AND where power is concentrated

Production is almost totally automated and mechanized Continuous production - like oil refining Employees only handle exceptions - like machine breakdowns

Continuous process technology

The ability to design, produce, and market a comparable product more efficiently than competitors can

Cost advantage (low cost strategy)

What are the two types of competitive advantage?

Cost and Differentiation

6 Phases of Greiner's model of organizational growth (look at slides for more info)

Crisis of... - Leadership - Autonomy - Control - Red tape - Internal growth - Identity

The purposeful action of partnering with strategic customers, partners or employees to ideate, problem solve, improve performance, or create a new product, service or business

Customer co-creation

Organism Metaphor

Deep roots in biology & natural selection, certain organizations are more "adapted" to specific environments

Planning

"Begin with the end in mind" Think about - people you need - supporting job roles - how many people need to be managed by others - changes to structure, culture, and strategy

Product Division Structure

- A product or similar products are grouped into a separate division - A centralized set of support functions services the needs of a number o different product lines - Product Division Manager is responsible for all productive activities of the division Good fit for firms that make a wide variety of products

Tall Hierarchies: communication problems

- Communication takes too long - Distortion increases as # levels increases - Managers manipulate information passed up and down

Problems in Functional structure: strategic

- Communication, Coordination, and control problems are created by a bad fit between functional structure and organization's activities

Mechanistic Structure

- Designed to produce predictable and accountable behavior - Hierarchy is the principle integrating mechanism - Decision making is centralized - Tasks and roles coordinated through standardization

Innovation Innovation Definition Technology Definition How are the two related?

- Development of new products or production systems so organizations can better respond to their customers' needs - Skills, tools, and experience used to design, product, and distribute goods or services - New products, services and systems result from employing new and different technologies

Scaling What is it? Outsourcing... why? What not to outsource?

- Doing lots more at the same time of what you are doing now, requires successfully using the 4 P's (requires either adding more customers and/or selling more of your product or service to existing customers) - You can scale faster and cheaper, you can focus on critical processes and parts of your business - Quality and financial controls, control of your customer

Improvements What does this mean? How do you do it? Why are improvements necessary?

- Doing what you do faster, better, or cheaper - Try new things in small experiments and LEARN - Stay ahead of competition (bear in the woods)

Acquisition What is this all about? Caution....why?

- Finding another business to purchase - Acquisitions require fundamentally different expertise than scaling an existing business

When is higher technology complexity not always appropriate?

- High cost differentiation strategies: anything custom, unique, artisan - R&D: inherently uncertain and unpredictable

Problems in Functional structure: measurement

- Measurement is a powerful control mechanism - BUT, as organizations grow and evolve, complexity of functions and products increases - It becomes difficult to measure the contribution of individual functional groups to productivity

Problems in Functional structure: communication

- Slow vertical communication - subunit orientations lead to communication problems (less horizontal communication)

Product team structure

- cross between product division and m-form - specialists from support functions are combined into product or client development teams - members owe allegiance to the team, not their function - VPs retain coordination control at the top but the team manager makes their own decisions

Matrix structure

- groups employees by PRODUCT and FUNCTION - very flat, little hierarchy, decentralized - functional experts form short-term product teams - Not technically a divisional structure, but similar to product team structure in some ways - have two bosses

Processes

- help protect against human error - reduce variance in work or product - avoid employees remembering everything

Tall Hierarchies: bureaucratic costs

- managers cost money ... about $350k per annum in total compensation - tall organizations are bloated and inefficient

Advantages: product team structure

- more decentralized than functional team or product division, allowing for quick decisions - self-contained teams increase integration because they are responsible for operation - product team manager leads team - high levels of integration and mutual adjustment

Disadvantages of matrix structure

- slow decision making, lack of accountability, barrier to responsiveness and agility - two bosses and loosely specified roles can produce role conflict and ambiguity - lack of clearly defined hierarchy

Tall Hierarchies: motivation problems

- the relative difference in authority and responsibility of each manager decreases as number of levels increases - "pass the buck" mentality

What are the 4 ways to grow a business?

1. Improvements 2. Innovation 3. Scaling 4. Strategic Acquisitions

How to flatten the hierarchy? (4)

1. Increase horizontal differentiation 2. Using teams 3. Decentralization 4. Standardization

What are the 5 big reasons to organize?

1. Increase specialization & division of labor 2. Use large-scale, economies scope and scale 3. Manage the external environment 4. Economize on transaction 5. Exert power and control

How do organizations address problems with hierarchy?

1. Minimum chain of command 2. Span of control 3. Flattening the hierarchy

Stages of firm growth (4 stages)

1. One-person operation 2. Player-coach 3. Intermediate supervision 4. Formal organization

Solving problems in Functional structure

1. Sticking with it - You could make to increase control by increasing integration between functions 2. Changing to a more complex structure - Divisional structure - Matrix structure

Multidivisional structure (M-form)

1. Structured around self-contained divisions 2. Divisions can have all different structures 3. Another corporate level is added: corporate HQ

Four basic design challenges

1. amount of vertical and horizontal differentiation 2. balance between differentiation and integration 3. balance between centralization and decentralization 4. balance between standardization and mutual adjustment

Managers must understand the relationship between technology and organization design including 1. and 2.

1. level of technical complexity 2. amount of task interdependence

Planning size inflection points

10, 25, 50, 100+

Hierarchy Problems: growth

1000 employees - 4 levels 7000 employees - 7 levels 9000 employees - 9 levels Although more levels seems sensible, increasing numbers brings problems

What is a product structure?

A divisional structure in which products are grouped into separate divisions

What is a divisional structure?

A structure where functions are grouped according to specific demands of the environment or a strategy - the goal is to create smaller, more manageable subunits - 3 types: product, geographic, market

Differentiation: subunits - divisions

A subunit consisting of a collection of functions or departments that share responsibility for good or service, geography, or market

3 Parts of competitive dynamics

Advantage, Parity, Disadvantage

Hierarchy: personal control

Advantages: allows managers to observe employee behavior - ensure proper conduct Information is shared earlier, possibly preventing problems down the line When managers personally supervise, both subordinates and managers learn skills

Parkinsons Law

All hierarchies tend toward bloating - Managers want subordinates, not rivals - Managers make work for each other "work expands to fill the time available"

Where is technology

All levels of the organization & every stage of the value chain

Specialization and division of labor

Allows people to specialize in different tasks and pool labor to make products/services - more skilled individuals, working together create more value, helps facilitate innovation and quality

Exert power and control

An organization can exert great power over employees to conform to its goals, can negative effects on individuals

What is an organization?

An organization groups people and resources to provide goods and services to satisfy a need

Problems in Functional structure: location

An organization may need to be located in different geographic locales in order to service customer needs (can pose a problem if centralized control)

The ability to provide unique and superior value to the buyer in respect of product quality, special features, or after-sales service

Differentiation advantage (differentiation strategy)

What are the 5 drivers of cost advantage?

Economies of scale Economies of learning Production techniques Product design Input costs

Machine Metaphor

Efficient like "clockwork", fit the machine (like cogs), Characterized by Bureaucracies and Taylorism

Manage the external environment

Environmental pressures come from many sources (political, economic, social factors, stakeholders) Can cause uncertainty about resource acquisition and market conditions

Examples of business models

Facebook, ecommerce, shopkeeper, brick-and-clicks, razor-and-blades, subscription

Hierarchy Problems: getting the right balance

Flat: not enough managers to adequately control Tall: too many managers for too few employees (3) 1. communication 2. motivation 3. cost

Advantages of Functional structure

Focus on functional expertise, efficiency, or quality for a single or closely related set of products, produced in a stable environment

Differentiation: the good, the bad, and the ugly

Good: horizontal differentiation promotes specialization and increased productivity Bad: differentiation may lead to subunit orientation Ugly: can impede communication and make coordination difficult

Functional structure

Grouping people on the basis of common expertise, experience or because they use the same resources/location foundation of horizontal differentiation

Pace

Growing too fast can create serious quality, people, and financial problems for a business - plan it as much as possible

What are activities that involve delivering products or services more efficiently, expanding the package of products and services offered to existing clients, entering new customer segments, or making it easier for customers to buy your products or services?

Growth boosters

Hierarchy Problems: size and height

Height is a function of number of levels relative to number of employees (flat or tall) too flat OR too tall creates problems

What technologies allow for standardization and predictability?

Highly programmed

Benefits of growth

Increase in sales, profits, liquidity Legitimacy Larger firms statistically less likely to fail

What are the two sources of change within competitive advantage?

Internal: Changing customer demand, changing prices, technological change External: Strategic innovation

The agency problem

It is often difficult for the principal (shareholders, manager) to supervise or have knowledge of what the agent (manager, employee) is doing The goals of each party often conflicts, both parties are self-interested

Why technology?

It is used to create value and increase effectiveness at every level of an organization

Challenge 2: How do you achieve growth? (7 ideas)

Joint venture Acquisition Licensing Sell off old winners New markets New product development Outside financing

What are the four metaphors of an organization?

Machine, Organism, Culture, Psychic Prison

Structural Contingency Theory

Management approach in which the design of an organization's structure is tailored to the level of uncertainty the organization faces stable environments - mechanistic dynamic environments - organic

How do you know when span of control is too large?

Managers lose control over employees and are unable to supervise them adequately

Managerial weakness in small firms

Many small firms are marginal or unprofitable businesses Lack of professional management

Large quantities of standardized products produced Machines are programmed to do the work (with humans assisting) Very standardized and controlled production

Mass produced (large batch)

How are a business model and business plan different

Model - Core concept ton which you build your business plan Plan - demonstrates viability and has operational/financial aspects

Barriers to growth (6)

Money Organizational structure Culture and Networks Strategic Planning Skills development Leadership issues of growth

Why do organizations generally try to move toward technical complexity when growing?

More technical efficient and more cost efficient

What is cost leadership?

One of the following strategies, Selling at the lowest price in the market Selling at industry average price but enjoying above average profits through low cost production

What is organization?

Organization happens when people work together to accomplish some desired end state or goal

What are Porter's 4 generic competitive strategies?

Overall cost leadership Differentiation Cost focus Differentaiton focus

Hierarchy: emergence

Owners/initial employees start off with multiple roles, BUT as organization grows... - difficult to observe and control many employees - coordinating activities is difficult

Culture Metaphor

People who share cultures (and meanings) + organizations are mini-cultures w their own subcultures

Differentiation: subunits - functions

People/Roles are grouped because they have the same type of skills, perform similar or related tasks, share resources

What are hess's 4 P's?

Planning, processes, prioritization, pace

Pro/Con of M-form structure

Pro - increased control - internal labor market Con - managing corporate-divisional relationships - competition for resources, lack of cooperation between divisions - transfer pricing - bureaucratic costs

What are three kinds of product structure?

Product division Multidivisional structure Product Team

What are 9 sources of differentiation advantage?

Product features and product performance Complementary services Intensity of marketing Technology embodied in design and manufacture Quality of purchased inputs Procedures that impact the customer experience Skill and experience of employees Location Degree of vertical integration

Organic Structure

Promotes flexibility and quick adaptation Decentralized with loosely defined roles Highly integrated with high levels of mutual adjustment

2 external sources of change

Resource homogeneity Some firms are faster and more effective in exploiting change

Differentiation: Roles

Roles are the building block of an org Roles define task behaviors Roles define content of a position

Economies of scale and scope

Scale: Advantages accrued through volume production or sales Scope: Advantages accrued by producing multiple products/services and sharing resources and expertise

3 different technologies according to Joan Woodward's theory

Small batch Mass production Continuous process

Produces customized products or small quantities Personal skills are more important than machines used

Small batch technology

Example of internal source of change

Some firms have greater creative and innovative capability

Standardization vs Mutual Adjustment

Standardization: conformity to specific models or examples, defined by roles and norms, standard operating procedure [formalization] Mutual Adjustment: the compromise that emerges when decision making and coordination are evolutionary and people use their own judgment to address a problem [socialization]

Who challenged the technological imperative?

Steven Barley

Risks of growth

Stresses culture, employees, processes Exposes organization to competition May destroy value/undermine fundamental strengths

Differentiation: 5 major functions (SPAMM)

Support Production Adaptive Maintenance Managerial

Competitive advantages that last a long time

Sustained competitive advantages

Competitive disadvantages that last a long time

Sustained competitive disadvantages

Horizontal vs Vertical Differentiation relationships

Task and Authority (add more)

Horizontal Differentiation

Tasks are divided into distinct homogeneous groups: 1. by product 2. by function 3. by geography 4. by production stage

What did Steven Barley find?

The same technology can lead to different structures in different organizations

Subunit orientation

The tendency to view a role in the organization strictly through the lens of a subunit

How would you define technology?

The tools used to transform inputs into outputs

Problems in Functional structure: customer

The wider the range of goods and services, the wider the range of customers and needs Little opportunity to specialize in the needs of specific customer segments

Hierarchy: control and coordination

To coordinate and motivate, 1. increase number of managers to directly supervise employees 2. increase number of levels in hierarchy, both 1&2 address agency problem

A business strategy that accepts that competitive advantages are often short lived. It focuses on innovation strategies that continually build new advantages.

Transient competitive advantage

T/F: A firm's ability to implement either cost or differentiation strategy will be the result of its resources and capabilities

True

T/F: Firms with different levels of tech complexity have different types of structure

True

Prioritization

Two ways to think about this... 1. Strategic prioritization 2. Personal prioritization (where are the bottlenecks)

Gazelle company

Very high growth rate company - usually 20%+ per annum

Benefits of creating a Business Model Canvas

Visual, easy iterations, short & succinct, provides an opportunity to debate assumptions, allows team to forecast cash flow

Psychic Prison Metaphor

Workers may be imprisoned, confined, or controlled by or within organizations

Economize on transaction costs

a super-mathematical, equation-heavy, economic theory... (other parties are self-interested and will try to screw you)

Market Divisional Structure

aligns functional skills and activities with needs of different customer groups - each divisions has a different marking focus to specific market segments - the job of each group is to develop products to suit the needs of its specific customers - division share centralized support functions

Geographic divisional structure

geographic structure allows some functions to be centralized at corporate HQ, and others to be decentralized by region

The degree to which the procedures for converting inputs to outputs can be specified in advance

Technology programmability

Competitive advantages that last a short time

Temporary competitive advantages

Competitive disadvantages that last a short time

Temporary competitive disadvantages

What term did Joan woodward give the idea of technology determines structure

The Technological Imperative