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