Chapter 11 - Organizational Design
(geographic areas, decentralized decision making) Enables MNE to set up different divisions based on geographic regions, which operate more or lass as standalone SBUs to maximize local responsiveness. Decision making is decentralized
Multi-domestic = multidivisional structure
The key building blocks of organizational structure are:
Specialization Formalization Centralization Heiarchies
The key components of organizational design are:
Structure culture, and control.
balance of centralized and decentralized decision making, additional layer of hierarchy to coordinate both geographic areas and product divisions
Transnational = global matrix structure
A functional structure is recommended when a firm has ...
a fairly narrow focus in terms of product/service offerings combined with a small geographic footprint.
What is inertia?
a firm's resistance to change the status quo, and can set the stage for the firm's subsequent failure.
what is open innovation?
a framework that proposes permeable firm boundaries to allow a firm to benefit not only from internal ideas and inventions, but also from ideas and innovation from external sources.
What do organic organizations have?
a low degree of specialization and formalization, a flat organizational structure, and decentralized decision-making. (McDonald's fits this well. Each step of every job such as deep-frying fries is documented in minute detail.)
what is a network structure?
allows the firm to connect centers of excellence, whatever their global location.
what describes a firm's ability to address trade-offs not only at one point but also over time
ambidexterity
Firms that pursue either related or unrelated diversification = what structure?
an M-form structure
Firms that pursue a differentiation strategy at the business level frequently have what structure?
an organic structure
what is a matrix structure?
an organizational structure that combines the functional structure with the M-form
what is exploitation?
applying current knowledge to enhance firm performance in the short term
elements such as the design and layout of physical space, symbols, vocabulary, what stories are told, what events are celebrated and highlighted, and how they are celebrated.
artifacts
What is formalization?
captures the extent to which employee behavior is steered by explicit and codified rules and procedures. characterized by detailed written rules and policies of what to do in specific situations. These are often codified in employee handbooks.
What is a mechanistic organization?
characterized by a high degree of specialization and formalization and by a tall hierarchy that relies on centralized decision making.
Related diversification = what structure?
competitive multidivisional m-form structure
Unrelated diversification = what structure?
competitive multidivisional m-form structure
What is strategic implementation?
concerns the organization, coordination, and integration of how work gets done. Effective strategy implementation is critical to gaining and sustaining competitive advantage
what is a multidivisional structure?
consists of several distinct strategic business units (SBUs), each with its own profit-and-loss responsibility (P&L).
An organization's culture can turn from a core competency into a __________________ if a firm relies too long on the competency without honing, refining, and upgrading at the firm and the environment change. Over time, the original core competency is no longer a good fit and turns from an asset into a liability. At this point, the culture needs to change.
core rigidity
The firm benefits from communities of practices, which store important organizational learning and expertise. The avoid undue complexity, network structures need to be supported by ....
corporate-wide procedures and policies to streamline communication, collaboration, and the allocation of resources.
The goal of a cost leadership strategy = ?
create advantage by reducing the firm's cost below that of competitors while offering acceptable value.
External sources = ?
customers, suppliers, universities, start-up companies, other competitors
decisions are made and problems solved by empowered lower-level employees who are closer to the source of issues.
decentralization
Different strategic management process match with different degrees of centralization: Planned emergence is found in ...
decentralized organizations
What is organizational structure?
defines how jobs and tasks are divided and integrated, delineates the reporting relationships up and down the hierarchy, defines formal communication channels, and prescribes how individuals and teams coordinate their work efforts.
what is organizational culture?
describes the collectively shared values and norms of an organization's members.
What is specialization?
describes the degree to which a task is divided into separate jobs - that is, the division of labor.
what is hierarchical structure?
determines the formal, position-based reporting lines and thus stipulates who reports to whom.
T or F: either strategy formulation or strategic implementation are necessary to gain and sustain a competitive advantage.
false; Both strategy formulation and strategic implementation are necessary to gain and sustain a competitive advantage.
What describes a flat structure?
few levels of hiearchy
Firms that follow a single-business or dominant-business strategy at the corporate level gain at least 70% of their revenues from their primary activity; they generally employ what structure?
functional structure
Single business = what structure
functional structure
dominant business = what structure
functional structure
groups employees into distinct functional areas based on domain expertise. These areas often correspond to distinct stages in the value chain (R&D, engineering, marketing, manufacturing, etc.)
functional structure
Different strategic management process match with different degrees of centralization: Top down strategic planning takes place in...
highly centralized organizations
What must a firm do to ensure a core rigidity doesn't emerge?
hone, refine, and upgrade to ensure a core rigidity doesn't emerge.
What describes a tall structure?
if many levels of hierarchy exist between the frontline employee and the CEO
seek to define and direct employee behavior through a set of explicit, codified rules and standard operating procedures. Firms use these when the goal is to define the ways and means to reach a strategic goal and to ensure a predictable outcome. Management designs these mechanisms so they are considered BEFORE employees make any business decisions
input controls
What is a strategic control-and-reward system?
internal governance mechanisms put in place to align the incentives of principals and agents. These formal systems allow managers to specify goals, measure progress, and provide performance feedback.
Effective when factors internal to the firm determine the relationship between effort and expected performance Discourages collaboration among different SBU Best applied when a firm focuses on a single line of business or pursues unrelated diversification
output controls
seek to guide employee behavior by defining expected results, but leave the means to those results open to individual employees, groups, or SBUs Firms frequently tie employee compensation and rewards to predetermined goals, such as specific sales target or return on invested capital.
output controls
What is centralization?
refers to the degree to which decision making is concentrated at the top of the organization. decision making often correlates with slow response time and reduced customer satisfaction.
what is exploration?
searching for new knowledge that may enhance a firm's future performance
used by small firms with low organizational complexity. Founders make all important strategic decisions and run day-to-day operations Small accounting and law firms, family-owned businesses Flat hierarchies and decentralized Low degree of formalization and specialization
simple structure
Different corporate strategies require different organizational structures. There are four different types of corporate diversification..
single business, dominant business, related diversification, and unrelated diversification
What are the key components of organizational design and its goals?
structure, culture, and control. The goal is to design an organization that allows strategic leaders to effectively translate their chosen strategy a realized one.
what is organizational design?
the process of creating, implementing, monitoring, and modifying the structure, processes, and procedures of an organization.
what is the goal of a blue ocean strategy?
to build and ambidextrous organization, one that enables managers to balance and harness different activities in trade-off situations.
T or F: Because most large firms are diversified to some extent across different product lines and geographies, the M-form is a widely adopted organizational structure
true
T or F: Formalization, therefore, is not necessarily negative; often it is necessary to achieve consistent and predictable results.
true
T or F: Successful firms often plant the seed of subsequent failure; they optimize their organizational structure to the current situation. That tightly coupled system can break apart when internal or external pressures occur.
true
T or F: To implement a formulated business strategy successfully, structure must accommodate strategy, not the other way around.
true
define what is considered important - goals that each organizational member should strive to achieve
values
What innovation is this? Products developed internally Costly and time consuming
Closed innovation
what is founder imprinting?
Company founders that have defined and shaped a culture, which can persist for many decades after their departure
Disadvantages of Matrix Structures:
Difficult to implement Creates significant organizational complexity Increase administrative costs Reporting structures are often not clear Employees can have trouble reconciling goals presented by more than one supervisors
Organic structure tend to be correlated with the following:
Fluid and flexible information flow among employees in both horizontal and vertical directions Faster decision making Higher employee motivation, retention, satisfaction, creativity Higher rates of entrepreneurial behaviors and innovation Allows firms to foster R&D or marketing as a core competency
(product divisions , centralized decision making) Focus is on driving down costs due to consolidation of activities across different geographic areas
Global-standardization = multidivisional structure
Several factors lead to a shift in knowledge landscape from closed innovation to open innovation in recent years. They include:
Increasing supply and mobility of skilled workers Exponential growth of venture capital Increasing availability of external options Increasing capability of external suppliers globally
Advantageous when the company faces low pressure for both local responsiveness and cost reductions. Allows the company to leverage its core competency most effectively.
International = functional structure
Culture can help a firm's competitive advantage if it does what three things:
It makes a positive contribution to economic value creation. It passes the VRIO principles: (Valuable, rare, difficult to imitate, the firm must be organized to capture value) It can adapt as the business evolves.
Although a functional structure is the preferred method for implementing business strategy, different variations and contexts require careful modification in each case: cost-leadership strategy?
Managers must create a structure that contains the elements of a mechanistic structure - one that is centralized, with well-defined lines of authority up and down hierarchy. Allows the cost leader to nurture and constantly upgrade necessary core competencies in manufacturing and logistics
Although a functional structure is the preferred method for implementing business strategy, different variations and contexts require careful modification in each case: differentiation strategy?
Managers rely on a functional structure that resembles an organize organization - decentralized to foster continuous innovation and creativity, as well as flexibility and mutual adjustment across areas Allows managers to nurture and constantly upgrade core competencies in R&D, innovation, and marketing. Structure should be set up to allow the firm to reap economies of scope by leveraging its brand name across different products or its technology across different devices
Although a functional structure is the preferred method for implementing business strategy, different variations and contexts require careful modification in each case: blue ocean strategy?
Requires reconciliation of the trade-offs between differentiation and low cost. Firm must be both efficient and flexible Must balance centralization to control costs, and decentralization to foster creativity and innovation. Managers must attempt to combine advantages of functional structure variations used for cost leadership and differentiation while mitigating their disadvantages.
define appropriate employee attitudes and behaviors in their day-to-day work and interactions
norms
what is the goal of a differentiation strategy?
offer products at a higher perceived value while controlling costs
Ideas and innovation also arise from external sources Customers, suppliers, universities, etc. Leverages licensing agreements, strategic alliances, joint ventures, and acquisitions
open innovation
Social control mechanism Values and norms provide control by helping employees address unpredictable and irregular situations and problems. In contrast, rules and procedures can address only circumstances that can be predicted
organizational culture
Several factors led to a shift in the knowledge landscape from closed innovation to open innovation. They include:
▪ The increasing supply and mobility of skilled workers. ▪ The exponential growth of venture capital. ▪ The increasing availability of external options (such as spinning out new ventures) to commercialize ideas that were previously shelved or insource promising ideas and inventions. ▪ The increasing capability of external suppliers globally.
