Strategic Management - Chapter 11

Organic Organizations: The Building Blocks of Organizational Structure (Formalization)

-Clear understanding of organization's core competencies and strategic intent -Domain expertise is different areas -Generalized knowledge of how to accomplish strategic goals valued

Mechanistic: The Building Blocks of Organizational Structure (Business Strategy)

-Cost-leadership strategy Example: McDonald's

Mechanistic: The Building Blocks of Organizational Structure (Centralization)

-Decision power centralized at top -Vertical (top-down) communication

Organic Organizations: The Building Blocks of Organizational Structure (Business Strategy)

-Differentiation strategy Example: W.L. Gore, Zappos

Organic Organizations: The Building Blocks of Organizational Structure (Centralization)

-Distributed decision making -Vertical (top-down and bottom-up) as well as horizontal communication

Organic Organizations: The Building Blocks of Organizational Structure (Hierarchy)

-Flat structures -High span of control -Horizontal as well as two-way vertical communication -Mutual adjustment

Mechanistic: The Building Blocks of Organizational Structure (Specialization)

-High degree of specialization -Rigid division of labor -Employees focus or narrowly defined tasks

Mechanistic: The Building Blocks of Organizational Structure (Formalization)

-Intimate familiarity with rules, policies, and processes necessary -Deep expertise in narrowly defined domain required -Task-specific knowledge valued

Organic Organizations: The Building Blocks of Organizational Structure (Specialization)

-Low degree of specialization -Flexible division or labor -Employees focus on "bigger picture"

Mechanistic: The Building Blocks of Organizational Structure (Hierarchy)

-Tall structures -Low span of control -Clear lines of authority -Command and control

Matching Business Level Strategy and Structure (1)

Cost leadership: Functional -Mechanistic organization -Centralized -Command and control -Core competencies in efficient manufacturing and logistics -Process innovation to drive down cost -Focus on economies of scale

An organizational structure

Determines how firms orchestrate employees' work efforts and distribute resources. It defines how firms divide and integrate tasks, delineates the reporting relationships up na down the hierarchy, defines formal communication channels, and prescribes how employees coordinate work efforts.

Matching Business Level Strategy and Structure (2)

Differentiation: Functional -Organic organization -Decentralized -Flexibility and mutual adjustment -Core competencies in R&D, innovation, and marketing -Focus on economies of scope

Centralization

Element or organizational structure that refers to the degree to which decision-making is concentrated at the top of the organization

Matching Corporate-Level Strategy and Structure (1)

Functional Structure: Single business Dominant business

Matching Global Strategy and Structure (3)

Global standardization: Multidivisional -Product divisions -Centralized decision making

Matching Corporate-Level Strategy and Structure (2)

Related diversification: Cooperative multidivisional (M-form) -Centralized decision making -High level of integration at corporate headquarters -Co-Opetition among SBUs *Competition for resources *Cooperation in competency sharing

Mechanistic organization

Organizational form characterized by a high degree of specialization and formalization, and tall hierarchy that relies all centralized decision-making

Organic organization

Organizational form characterized by a low degree of specialization and formalization, a flat organizational structure, and decentralized decision-making.

Simple structure

Organizational structure in which the founders team to make all the important strategic decisions as well as run the day-to-day operations.

Matrix structure

Organizational structure that combines the functional structure with the M -form.

Multi divisional structure (M-form)

Organizational structure that consist of several distinct strategic business units (SBU), each with its own profit and loss (P&L) responsibility.

Functional structure

Organizational structure the groups employees into distinct functional areas based on domain expertise.

Changing Organizational Structures and Increasing Complexity as Firms Grow

Simple Structure Functional Structure Multidivisional Structure and Matrix Structure

Organizational design

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

The four building blocks of

an organizational structure are specialization, formalization, centralization, and hierarchy.

The key components of organizational designs

are structure, culture, and control.

Output controls guide employee

behavior by defining expected results, but leave the means to those results open to individual employees, groups, or SBUs.

Organizational inertia

can lead to the failure of established firms when a tightly coupled system of strategy and structure experience internal or external shifts.

The strategy-structure relationship is dynamic,

changing in a predictable pattern-from simple to functional structure, then to multidivisional (M-form) and matrix structure- as firms grow in size and complexity.

Organic organizations are

characterized by a low degree of specialization and formalization, a flat organizational structure, and decentralized decision making.

Strategic control and reward system are

internal governance mechanisms put in place to align the incentives of principals (shareholders) and agents (employees).

The matrix structure

is a mixture of two organizational forms: the M-form and the functional structure.

Corporate culture finds

it expression in artifacts, which are observable expression of an organization's culture.

Besides the balances-scorecard framework

managers can use organization culture, input, controls, and output controls as part of the firm's strategic control and reward systems.

Strategic control and reward systems allow

managers to specify goals, measure progress, and provide performance feedback.

To gain and sustain competitive advantage,

not only must structure follow strategy, but also the chosen organizational from must match the firm's business strategy.

The goal is to design an organization

that allows managers to eat effectively translate their chosen strategy into a realized one.

Organizational culture describes

the collectively shared values and norms of its members.

In a simple structure,

the founder tends to make all the important strategic decisions as well as run the day-to-day operations.

Values define

what is considered important, and norms defined appropriate employee attitudes and behaviors.

Zappos's 10 Core Values

1. Deliver WOW through service. 2. Embrace and drive change. 3. Create fun and a little weirdness. 4. Be adventurous, creative, and open-minded. 5. Pursue growth and learning 6. Build open and honest relationships with communication. 7. Build a positive team and family spirit. 8. Do more with less. 9. Be passionate and determined. 10. Be humble.

Organizational Inertia and the Failure of Established Firms when External or Internal Environments Shifts

1. Mastery of , and Fit with, Current Environment 2. Success, Usually Measured by Financial Metrics 3. Measures to Accommodate and Manage Size 4. Organizational Inertia

Organizational structure

A key building block of organizational design that determines how the work efforts of individuals and teams are orchestrated and how resources are distributed.

Strategic control and reward systems

A key building block of organizational design; internal-governance mechanisms put in place to align the incentives of principles (shareholders) and agents (employees).

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.

Specialization

An element of organizational structure that describes the degree to which a task is divided into separate jobs (I've., the division of labor).

Hierarchy

An element of organizational structure that determines the formal, position based reporting lies and through us stipulates who reports to whom

Formalization

In element of organizational structure that captures the extent to which employee behavior is controlled but explicit and codified rules and procedures.

Matching Business Level Strategy and Structure (3)

Integration: Functional -Ambidextrous organization -Balancing centralization with decentralization -Multiple core competencies along the value chain require: R&D, manufacturing, logistics, marketing, etc. -Process and product innovations -Focus on economies of scale and scope

Organizational Inertia and the Failure of Established Firms when External or Internal Environments Shifts

Internal Shifts: -Accelerated growth -Change in business model -Entry into new markets - Change in TMT -Mergers and acquisitions External Shifts: -PESTEL Factors Political Environmental Social Technology Economic Legal

Matching Global Strategy and Structure (1)

International: Functional

Organizational design

Is the process of creating, implementing, my dancing, and modifying the structure and process and procedures of an organization.

Matching Global Strategy and Structure (2)

Localization (Multidomestic): Multidivisional -Geographic areas -Decentralized decision making

Input controls

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

Output controls

Mechanisms in a strategic control every ward system that seek to got employee behavior bad by name expected results (outputs), but leave the means to those results open to individual employees, groups, or SBUs.

Organizational culture

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

Span of control

The number of employees who directly report to a manager

Strategy implementation

The part of the strategic management process that concerns the organization, coordination, and integration of how work gets done. It is key to gaining and sustaining competitive advantage

Matching Global Strategy and Structure (4)

Transnational: Global matrix -Balance of centralized and decentralized decision making -Additional layer of hierarchy to coordinate both: *Geographic areas *Product divisions

Matching Corporate-Level Strategy and Structure (3)

Unrelated diversification: Competitive multidivisional (M-form) -Decentralized decision making -Low level of integration at corporate headquarters -Competition among SBUs for resources

Mechanistic organizations are

described by a high degree of specialization and formalization, and a tall hierarchy that relies on centralized decision making.

Input control define and direct

employees behavior through explicit and codified rules and standard operating procedures.

A functional structure groups

employees into distinct functional areas based on domain expertise. Its different variations are matched with different business strategies: cost-leadership, differentiation, and integration.

The comparative effectiveness mechanistic versus organic organizational

forms depends on the context.

The multidivisional (M-form) structure consists of

several distinct SBUs, each with its own profit-and-loss responsibility. Each SBU operates more or less independently from one another, led by a CEO responsible for the business strategy of the unit and its day-to-day operations.