Chapters 9-12

Action Steps to Realize the value of TQM and Six Sigma Initiatives

-Committing to total quality and continuous improvement -Fostering quality-supportive behaviors -empowering all employees to improve quality -using online systems to speed the adoption of best practices -emphasizing the necessity for improved performance

Competitive Form of the multidivisional Structure for Implementing an Unrelated Strategy

-Corporate headquarters has small staff -finance and auditing are most prominent functions in headquarters office to manage cash flow and assure accuracy of performance data coming from divisions -legal affairs function becomes important when the firm acquires or divests assets -divisions are independent and separate for financial evaluation purposes -divisions retain strategic control, but cash is managed by the corporate office -divisions compete for corporate resources

Related Linked Strategy (1/2)

-Firms that share fewer resources and assets among their businesses, concentrating on transfer of knowledge and competencies among the SBUs -SBU Form" multidivisional organization structure with 3 levels to support implementation diversification strategy 1. Corporate headquarters 2. Strategic Business Units 3. SBU division

Organizational Controls

-Guide use of strategy, indicate how to compare results with expected results, suggest corrective actions to take when the difference is unacceptable -provide clear insights regarding behaviors that enhance firm performance -are important aspect of structure (necessary to exploit CAs) -help managers recognize when its time to adjust structure -firms use strategic, financial, and behavioral controls to support their strategies -the relative use of these types of controls varies by type of strategy -must properly balance the use of them

Organizing Strategy & Structure

-Need to match strategy and structure Grow->structural change -Strategy has a more important influence on structure, but once in place, structure influences strategy, also future ones -once implemented inertia makes it difficult to change unless forced & perhaps too late -May customize structure to meet unique needs

Matches between Cooperative Strategies and Strategic Network Structures

-Network strategy: Partners form several alliances in order to improve the performance of the alliance network itself through cooperative endeavors -strategic network: group of firms that form (around core) to create value to participating in multiple cooperative arrangements

Causes of Cultural Change

-New or revolutionary technologies -diversification into new businesses -rapid growth of the firm -merger or acquisition of another firm -shifting internal conditions -new challenges in the market place

Organizational Design Trends

-Organizations are becoming flatter, with fewer levels of management -organizations are increasing decentralization -Organizations are increasing delegation and empowerment -organizations are becoming more horizontal and adaptive -organizations are using more alternative work schedules

Sources for Ethical standards

-School of ethical universalism -school of ethical relativism -integrated social contracts theory

Variations in Ethical Standards

-The use of underage labor -payment of bribes and kickbacks -relativism can result in multiple sets of standards -use of local morality to guide ethical standards

Changing the Culture of an Organization

-Top executive and upper management behaviors -Ceremonial events to honor exemplary employees -Physical symbols that represent the new culture

Integrated social contracts theory

-according to this theory, adherence to universal or "first-order" ethical norms should always take precedence over local or "second-order" norms -in instances involving universally applicable ethical norms (like paying bribes), there can be no compromise on what is ethically permissible and what is not -middle-ground balance between universalism and relativism -posits that collective views of multiple societies form universal (first order) ethical principles that all persons have a contractual duty to observe in all situtations -within the contract, cultures or groups can specify locally ethical (second-order) actions

Business ethics

-application of general ethical principles to the actions and decisions of businesses and the conduct of their personnel -are not materially different from ethical principles in general because business actions have to be judged in the context of society's standards of right and wrong Ethics concerns principles of right and wrong conduct

Hybrid Form of the Combination Structure for Implementing a Transnational Strategy

-assets and operations may be centralized/decentralized -functions may be integrated or not -relationships may be formal or informal -coordination mechanisms may leverage efficiency/flexibility -mandates to subsidiaries may be global/specialized-contribution/localized-implementation -there are competing objectives

Competitive Form/unrelated diversification

-competitive form defined: organizational structure in which the firm's divisions are completely independent -divisions do not share common corporate strengths -integration devices not developed to coordinate activities cross divisions -efficient capital markets in unrelated strategies require organizational arrangements that emphasize divisional competition rather than cooperation -specific performance expectations and accountability for independent divisions stimulate internal competition for future resources -headquarters maintains a distant relationship to avoid intervention in divisional affairs -strategic controls are used to monitor performance relative to targeted returns -headquarters remains responsible for cash flow allocation, performance appraisal, resource allocation, and the legal aspects related to acquisitions

Decentralized Organizational Structures: Basic tenets

-decision-making authority should be put in hands of people closest to, and most familiar with, the situation. -those with decision-making authority should be trained to exercise good judgement -a company that draws on the combined intellectual capital of all its employees can outperform a command-and-control company

Centralized Organizational Structures: Basic tenets

-decisions on most matters of importance should be in hands of top-level managers who have the experience, expertise, and judgement to decide what is the best course of action -lower-level personnel have neither the knowledge, time, or inclination to properly manage tasks they are performing -strong control from top is more effective means for coordinating company actions

Related Linked Strategy (2/2)

-divisions within each SBU are related in terms of shared products and/or markets -divisions of one SBU have little in common with divisions of other SBU -divisions within each SBU share product or market competencies to develop economies of scope (shared competencies) -integrations used in cooperative form are equally effective for SBU form -each SBU is a profit center -financial controls are more vital for evaluating performance

Multidivisional (M-form) structure

-each division represents a separate business or profit enter in which corporate officers delegate responsibilities for day-to-day operations and business-unit strategies to division managers -distinct, self-contained business with its own functional hierarchy -enables corporate officers to more accurately monitor the performance of each business -simplifies problem of control (more accurately monitor performance of each business) -facilitates comparisons between divisions -improves resources allocation process -stimulates managers of poorly performing divisions to look for ways of improving performance -especially applicable to firms that growth through diversification

Functional Structures Advantages

-economies of scale make efficient use of human resources -functional experts are good at solving technical problems -training within functions promotes skill development -career paths are available within each function Functional chimneys or silos: -communication and performance decrease across functions -too many problems are referred upward for solution

Total Quality Management (TQM)

-entails creating a total quality culture, involving managers and employees at all levels, bent on continuously improving the performance of every task and value chain activity -is a long-term race without a finish in which success comes slowly in small steps forward (kaizen)

Common types of structures

-functional structures group together people using similar skills -divisional structures group together people by products, customers of locations -matrix structures combine functional and divisional structures -team structures use many permanent and temporary teams

Divisional structures

-group together people who work on a similar product, same region, or serve same customers Potential Advantages: -expertise focused on special products, customers, regions -better accountability for product or service delivery -easier to grow or shrink in size as conditions change -disadvantages: duplication of resources and efforts

Ethical relativism

-holds that differing beliefs, customs, and behavioral norms across countries and cultures give rise to multiple sets of standards of what is ethically right or wronrg Effect on business ethics -whether business-related actions are right or wrong depends on local ethical standards under this theory, there can be no one-size-fits-all set of authentic ethical norms against which to gauge the conduct of company personnel codes of conduct based on ethical relativism can be ethically problematic for multinational companies by creating a maze of conflicting ethical standards

Network structure

-is a configuration composed of a number of independent organizations engaged in some common undertaking, with one firm typically taking on a more central role

Corporate Social Responsibility (CSR)

-is a firm's duty to operate in an honorable manner provide good working conditions for employees encourage workforce diversity be a good steward of the environment actively work to better the quality of life in the local communities where it operates and in society at large.

The Relationship Between Strategy and Structure

-modifying current strategy or selecting a new one; calls for changes to organizational structure -reciprocal relationship - change to one causes change in the other -No one structure is superior to others for all firms -strategy-structure fit can lead to a competitive advantage and above average returns -structure must match strategy -structural choices should be based on control, coordination, and motivation issues -several structure forms can be used to implement strategies

Organizational Structure & Controls

-organizational structure and controls provide framework within which strategies are used -different structures and controls are required to effectively implement different strategies -must match structure and controls to strategy and its implementation -fit between strategy and structure affects above average returns and performance -better fit=better performance

Related Constrained Strategy

-organizational structure using horizontal integration to bring about interdivisional cooperation (share core competencies & activities across its businesses -divisions formed around products, markets or both -all of the divisions share one or more corporate strengths -interdivisional sharing depends on cooperation -links resulting from effective integration mechanisms support sharing of both tangible and intangible resources -centralization is one integrating mechanism that can be used to link activities among divisions, allowing firms to exploit common strengths and share competencies -Success influenced by how well information is processed among divisions -success can be influenced by managerial commitment levels and the response to some lost managerial autonomy -matrix organization may evolve -organizational structure in which a dual structure combines both functional specialization and business product or project specialization

Substantive culture-changing actions

-replace key executives who are resisting or obstructing needed organizational and cultural changes -promote individuals who support cultural shifts and can serve as role models for the cultural behavior -appoint outsiders with the desired cultural attributes to high-profile positions -screening all candidates for positions carefully, hiring only those who appear to fit in with the new culture -mandate that all personnel attend culture-training -design compensation incentives that boost the pay of teams and individuals who support culture change -revise policies and procedures to drive cultural change

When Strategies fail the ethical Litmus Test

-sizable civil fines and stockholder lawsuits -devastating image and public relations hits -sharp stock price drops as investors lose confidence -criminal indictments and convictions

Organizational Structure

-specified work to be done and how to do it -Effective use of firm's strategies facilitated when structure is properly aligned -structure should allow for both 1. Structural stability: capacity firm requires to consistently and predictably manage its daily work routines 2. structural flexibility: Opportunity to explore competitive advantages firm will need to be successful in future (exploit current competitive advantages while developing new advantages that can be used in future) -Structure is a critical component of effective strategy implementation

SBU Form of the Multidivisional Structure for Implementing a Related Linked Strategy

-structural integration among divisions within SBUs, but independence across SBUs -strategic planning may be most prominent function in headquarters for managing strategic planning approval process of SBUs for the president -Each SBU may have its own budget for staff to foster integration -corporate headquarters staff serve as consultants to SBUs and divisions, rather than having direct input to product strategy, as in the cooperative form

Cooperative form of the Multidivisional Structure for Implementing a related constrained Strategy (P&Gamble)

-structural integration devices create tight links among all divisions -corporate office emphasizes centralized strategic planning, HR, and marketing to foster cooperation between divisions -R&D likely centralized -Rewards are subjective and tend to emphasize overall corporate performance in addition to divisional perform. -culture emphasizes cooperative sharing

Structure

-structure & the controls lead to performance -performance declines with mismatch between structure & strategy -CEOs argue that changes may increase effectiveness or efficiency

Ethical universalism

-this school holds that most fundamental conceptions of right and wrong are universal and apply to members of all societies, all companies, and all business people -holds that common understanding across multiple cultures and countries about what constitutes right and wrong give rise to universal ethical standards that apply to all societies, firms, BP Effect on business ethics: -whether a business related action is right or wrong is judged by universal standards

Integrated social contracts theory: definition

-universal ethical principles based on the collective views of multiple societies form a "social contract" that all individuals and organizations have a duty to observe in all situations -within the boundaries of this social contract, local cultures or groups can specify what additional actions may or may not be ethically permissible

Unethical strategies and business behaviors

1. Faulty oversight and self dealing 2. Pressure for short-term performance 3. a weak or corrupt ethical environment

Embedding cultural norms in the organization and perpetuating the culture

1. Screen applicants and hire those who will mesh well with culture 2. Incorporate discussions of firm's culture and its behavioral norms into orientation programs for new employees and training courses for managers and employees 3. Have senior executives frequently reiterate the importance and role of the firm's values and ethical principles at the firm's events and in internal communications to employees 4. Expect managers at all levels to be cultural role models and exhibit advocated cultural norms in their own behavior 5. Make the display of cultural norms a factor in evaluating each person's job performance, granting compensation increases, and deciding who to promote 6. Stress that line managers all the way down to first-level supervisors give ongoing attention to explaining the desired cultural traits and behaviors in their areas and clarifying why they are important 7. Encourage company personnel to exert strong peer pressure on co-workers to conform to expected cultural nroms 8. Hold periodic ceremonies to honor people who excel in displaying the company values and ethical principles

Chief advantages/disadvantages of Decentralized Organizational Structures

Advantages: -encourages company employees to exercise initiative and act responsibly -promotes greater motivation and involvement in business on part of more company personnel -spurs new ideas and creative thinking -allows for fast response to market change -entails fewer layers of management Disadvantages: -may result in higher-level managers being unaware of actions taken by empowered personnel under their supervision -can lead to inconsistent or conflicting approaches by different managers and employees -can impair cross-unit collaboration

Chief advantages/disadvantages of Centralized Organizational Structures

Advantages: -fixes accountability through tight control from top -eliminates potential for conflicting goals and actions on part of lower-level managers -facilitates quick decision making and strong leadership in crisis situations Disadvantages: -lengthens response times by those closest to market conditions because they must seek approval for their actions -does not encourage responsibility among lower-level managers and rank-and-file employees -discourages lower-level managers and rank-and-file employees from exercising any initiative

The Triple Bottom Line: Excelling on Three measures of Company Performance

Application of CSR: Legal component: -the law represents society's codification of right and wrong and must therefore be followed Ethical component -argues that organizations have an obligation to do what is right, just and fair and to avoid harm Citizenship component -argues that organizations should contribute resources to improve the quality of life in the communities in which they work

Vertical Organizations

Bureaucracy -formal authority -rules/orders -fairness Mechanistic Designs -bureaucratic -centralized -vertical structure

Organizational Design Trends: Decision-making

Centralization -top management keeps strong decision-making control Decentralization: -decision-making is distributed throughout the organization ultimate goal of decentralized decision system is to put authority in hands of those persons closest to and most knowledgeable about the situation

3 variations of the Multidivisional Structure

Cooperative form strategic business unit (SBU) form competitive form

What you can learn from Organizational Charts

Division of work -positions and titles show work responsibilities Supervisory relationships -lines between positions show who reports to whom in chain of command Span of control -the number of persons reporting to a supervisor Community channels -lines between positions show routes for formal communication flows levels of management -the number of management layers from top to bottom

Matching Organizational Structure to the Strategy

Ensuring that structure follows strategy by: -deciding which value chain activities to perform internally and which to outsource -aligning firm's organizational structure with its strategy -determining how much authority to delegate -facilitating collaboration with external partners and strategic allies

Worldwide Product Divisional Structure for Implementing a Global Strategy

Global Corporate Headquarters -Worldwide Products Division -Worldwide Products Division -Worldwide Products Division ... -HQ centralization to coordinate information flow among worldwide divisions -Corporate HQ uses many intercoordination devices to facilitate global economies of scale and scope -Corporate HQ also allocates financial resources in a cooperative way -high formalization, global integration

Financial Controls

Largely objective criteria used to measure firm's performance against previously established quantitative standards -usually accounting or market-based measures (ROI, ROA, EVA) -involves comparison of current performance with past performance and with industry averages and competitors' performance -focus on short-term financial outcomes -emphasized by firms pursuing low cost strategy at business level, unrelated diversification at corporate level, and using a global international strategy

Staying on top of how things are going

Management by Walking around (MBWA) -a technique used by effective leaders to stay informed about how well the strategy execution process is progressing -involves spending time with people at company facilities, asking questions, listening to their opinions and concerns, and gathering firsthand information about how well aspects of the strategy execution process are going

Worldwide Geographic Area Structure for Implementing a Multidomestic Strategy

Multinational Headquarters -US -Asia -Europe Latin America etc... -decentralization of operations -emphasis on differentiation by local demand to fit area of country culture -corporate headquarters coordinates financial resources among independent subsidiaries -the organization is like a decentralized federation

Cost leadership and the functional structure

Need a structure that allows them to achieve efficiencies & produce their products in large quantities at low costs -simple reporting relationships -few decision-making and authority layers -centralized corporate staff -strong operational focus on process improvements -low-cost culture -centralized staff decision-making authority -job specification -highly formalized rules and procedures

Differentiation and functional structure

Need to produce products that customers see as different in non-standardized ways (create unique value): need flexibility to exploit opportunities -complex and flexible reporting relationships -cross-functional product development teams -strong-focus on marketing and product R&D -External environment/new opportunity focus (continual & often ambiguous info gathering) -development-oriented culture -decentralized decision making -broad job descriptions -informal rules and procedures

Functional Structure for Implementing a Cost Leadership Strategy

Notes: Operations is main function Process engineering emphasized over new product R&D somewhat large centralized staff coordinates functions formalized procedures allow for emergence of low-cost culture overall structure is mechanistic, job-roles are highly structured e.g. Walmart

Horizontal and Adaptive Organizations

Organic Designs -adaptable -decentralized -horizontal structure

Deciding which value chain activities to perform internally and which to outsource

Outsourcing execution-related benefits -helps in outperforming rivals in strategy-critical activities and in turning a competence into a distinctive competence -decreases bureaucracies, flattens structure, speeds decision making, and shortens response time to changing market conditions -adds to a firm's capabilities and contributes to better strategy execution through partnerships with suppliers and channel partners

Matching Structure to Strategy

Pick a basic organizational design that matches structure to strategy Supplement design with appropriate coordinating mechanisms Institute collaborative networking and communication arrangements

3 major types of organizational structures

Simple -owner-manager makes all major decisions, monitors all activities -informal relationships, few rules, limited task specialization -matched with focus strategies and business-level strategies -as firm grows more complex, need to ass layers and controls -single product in single geographic market Functional Multidivisional (M-form)

A statistical approach to achieving continuous improvement

Six Sigma quality control programs: -utilize statistical methods to improve quality by reducing defects and variability in business processes Six Sigma principles -all work is a progress -all processes have variability -all processes create data that explain variability

Organizational Design

Span of control -how many people report to a manager Narrow -manager supervises few people Wide -manager supervises larger number of people -flatter organizations have wide span of control

Organizational Structural characteristics defined

Specialization -concerned with the type and number of jobs required to complete work Centralization -degree to which decision-making authority is retained at higher managerial levels Formalization -degree to which formal rules and procedures govern work

Organizational Structure

Specifies the firm's -formal reporting relationships -procedures -controls -authority & decision making process -the work to be completed by everyone in an organization Organizational routines: serves as processes that are used to complete the work required by an organization

Functional Structure for Implementing a Differentiation Strategy

Under Armour -marketing is main function for keeping track of new product ideas -new product R&D is emphasized -most functions are decentralized, but R&D and marketing may have centralized staffs that work closely with each other -formalization is limited so that new product ideas can emerge easily and change is more readily accomplished -overall structure is organic, job roles are less structured

The Five Components of a Corporate Social Responsibility Strategy

a company's CSR strategy is defined by the specific combination of socially beneficial activities the company opts to support with its contributions of time, money, and other resources.

Ambidextrous organizations

are adept at employing continuous improvements in operating processes while allowing R&D to operate under a set of rules that allows for exploration and the development of breakthrough innovations.

Matrix Structures

combine functional and divisional structures -uses permanent cross functional teams to try to gain the advantages of both the functional and divisional approaches -teams operate across functions to support specific products, projects, programs Advantages: -performance accountability rests with program, product, or project managers -better communication exists across functions -teams solve problems at their levels by sharing expertise and information -top managers spend more time on strategy

Instilling a corporate culture conducive to good strategy execution

corporate culture -the meshing of shared values, core beliefs, business principles, and company traditions that imbues a firm's operating style, behavioral norms, ingrained attitudes, and work atmosphere/practices -is important because it influences the firm's actions and approaches to conducting business

Application of Integrated Social Contracts Theory to Multinational Business

effects on ethical standards -adherence to universal ethical norms takes precedence over local norms -a local custom is not ethical if it violates universal ethical norms -applications of codes of ethics should first follow universal standards with allowance for local ethical diversity and influence

Functional Structures

group people with similar skills and performing similar tasks -departmentalization: grouping people and jobs into work unit work units have similar skills and tasks (finance marketing, production, HR etc.) -work best in smaller or stable organizations -CEO and limited corporate staff make all decisions, functional managers in dominant organizational areas -allows functional specialization resulting in active knowledge sharing in each functional area -can negatively affect communication and coordination among those representing different organizational functions -when changing from simple to functional structure, need to avoid focus on value-destroying bureaucratic procedures

Strategic Controls

largely subjective criteria intended to verify that firm is using appropriate strategies for conditions in external environment and company's competitive advantages -concerned with fit between what firm might to (opps) vs what is can do (core competencies) -used to evaluate degree to which firm focuses on requirements to implement its strategies -help firm understand what it takes to be successful (especially when change is needed) -Tolls used to examine value chain (verify that critical activities & functions are being emphasized & properly executed) -Tools to efficiently transfer core competencies across business units -emphasized by firms pursuing differentiation at business level, related diversification at corporate level, and using a multidomestic international strategy

Aligning firm's organizational structure with its Strategy

organizational structure -comprises the formal and informal arrangement of tasks, responsibilities, lines of authority, and reporting relationships for firm Structure is aligned with strategy when: -its design contributes to creation of value for customers -its parts are aligned with one another and also matched to requirements of the strategy -it lowers operating costs through lower bureaucratic costs and operational efficiencies

Behavioral Controls

the regulation of activities and behaviors within organizations -used to adjust or bring about conformity to specifications or objectives -can be achieved through use of culture, structure, rewards, and policies/procedures -includes controlling ethical behavior