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CHAPTER 12

Implementing Strategy in Companies That Compete in a Single Industry


0SYNOPSIS OF CHAPTER
Chapter 12 examines how managers can best implement their strategies in single-industry firms in order to achieve a competitive advantage and superior performance. First, the main elements of strategy implementation structure, control systems, and cultureare analyzed in detail, focusing on the way they work together to create an organizing framework. Then the chapter turns to the topic of using structure, control, and culture at the functional level to build distinctive competencies. After that, the chapter addresses the challenges of implementing the generic business strategies of cost leadership or differentiation in a single industry. The final section covers restructuring and reengineering, two strategies that single-business firms can use to improve corporate performance. The next chapter takes up where this one leaves off and examines strategy implementation across industries and across countriesthat is, implementing corporate and global strategy in firms that compete in more than one industry.

0TEACHING OBJECTIVES0
10. 20. 30. 40. Introduce the main elements of strategy implementationstructure, control systems, and cultureand their relationships to each other. Demonstrate how structure, control, and culture can build distinctive competencies at the functional level. Describe the use of structure, control, and culture in implementing a single-business firms generic business strategy. Discuss the use of restructuring and reengineering in improving the performance of a single-business firm.

0OPENING CASE: STRATEGY IMPLEMENTATION AT DELL COMPUTER


Dell Computer grew rapidly from its founding as one-person, dorm-room operation in 1984. As the company has grown, Dells structure, control systems, and culture has changed to keep the firm on track to reaching its strategic goals. Michael Dell hired managers with computer industry experience from firms such as IBM and Compaq. Together, they formed a functional structure with a taller hierarchy, in which Michael Dell delegated authority to his functional managers. Dells organizational culture emphasized hard work and customer service, leading to high profits and satisfied buyers. However, as Dell continued to grow, its functional structure could not support higher levels of coordination and specialization. So Dell moved to a customer structure, with divisions focused on the unique needs of each customer segment. As Dell grew even more, it developed even more specialized teams for different segments, and it increasingly turned to the Internet for coordination, allowing the firm to decentralize and become flatter. Teaching Note: Dell has been forced to change its structure, control systems, and strategy several times as it has grown and the industry has matured. This situation is one that has been played out, over and over again, in many different companies. You can give other examples to students, such as the way in which GM moved to a divisional structure after acquiring competitors such as Cadillac, Pontiac, and Buick. Another discussion point is

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Chapter 12: Implementing Strategy in Companies That Compete in a Single Industry

the interrelatedness of structure, control systems, and culture, which is shown in Dells centralization and subsequent decentralization, its taller then flatter structure, and so on.

LECTURE OUTLINE
I0. Overview A. A well thought-out strategy can lead to success only if it is properly implemented, thus the study of implementation is critical to an understanding of strategy. B0. This chapter introduces concepts related to implementation, with a focus on functional- and businesslevel strategy implementation. Strategy implementation refers to the ways a firm creates, uses, and combines organizational structure, control systems, and culture to pursue strategies that lead to a competitive advantage and superior performance. Implementing Strategy Through Organizational Structure, Control, and Culture A0. The first component of strategy implementation is organizational structure, which assigns employees to specific tasks and specifies how those tasks link together to realize a competitive advantage. The purpose of organizational structure is to coordinate and integrate the efforts of all employees at the corporate, business, and functional levels, and across functions and business units, so that they work together to help the firm achieve its strategies successfully. B. 000Another component of implementation is a strategic control system, which provides the incentives that motivate employees to help the firm achieve its strategies. Control systems also provide performance feedback to managers so that corrective action can be taken if needed. C0. Organizational culture is another important component of strategy implementation, and it consists of the values, norms, beliefs, and attitudes that are shared by people in an organization. Culture guides the way that employees interact with each other and with stakeholders outside the organization, and thus will have an important impact on the implementation of an organizations strategies. Show Transparency 71 Figure 12.1: Implementing Strategy III0. Building Blocks of Organizational Structure A0. One issue that managers must address as they design an organizational structure that will aid in accomplishing the firms strategic goals is the grouping of items. Tasks must be grouped into functions and functions grouped into divisions or businesses. B0. The tasks an organization must perform are based on its strategy, and therefore an organizations structure tends to match its strategy. C0. Tasks must be grouped into functions, which are a collection of people who work together and perform the same types of work or hold similar positions. Functions are designed to minimize 0bureaucratic coststhe costs of operating an organizational structure. 0Functions then are grouped into divisions. D0. One important characteristic of organizational structure is the way in which it allocates authority and responsibility. 10. The hierarchy of authority refers to the organizations chain of command, extending from the CEO down to the lowest-level employees. 20. Every manager at every level supervises some number of employees, which is called the span of control. 30. Managers decide how many levels to have in the organizational chain of command. Organizations with many levels are called tall, because of the long and vertical appearance of their organization charts. Organizations with few levels are called flat. Show Transparency 72 Figure 12.2: Tall and Flat Structures 40. As companies grow taller, problems may arise. a. Communication problems are prevalent in tall organizations, because the long delays that occur as messages move up and down numerous levels can lead to confusion.
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Chapter 12: Implementing Strategy in Companies That Compete in a Single Industry b.

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Another reason for communication problems is that the large number of levels leads to differing perceptions of the meaning of the messages. c. Another problem is that a tall organization has more managers, and managers are very expensive. To avoid these problems, managers should follow the principle of the minimum chain of command, that is, they should use the minimum number of hierarchical levels required for implementing a strategy successfully. Too many levels in the hierarchy cause a variety of problems. Decentralization of decision-making authority is one tactic for overcoming the disadvantages associated with a tall organizational structure. Decentralization delegates authority to lowerlevel employees.0 a. Decentralization reduces information overload because managers spend time making only those decisions that must be made at their organizational level. b. Decentralization gives lower level employees autonomy, increasing flexibility, motivation, and accountability. c. Decentralization reduces the need for expensive, high-level managers, because lower level employees can make their own decisions with little supervision.

STRATEGY IN ACTION 12.1: UNION PACIFIC DECENTRALIZES TO INCREASE CUSTOMER RESPONSIVENESS


Union Pacific used a very centralized organizational structure in an effort to reduce costs. However, the central scheduling and planning led to long delays, missed freight, and irate customers. The company changed to a decentralized structure in which managers have the authority to make operational decisions, leading to increased responsiveness to customers. Teaching Note: This case shows some of the difficulties organizations experience as they attempt to find the optimal level of centralization/decentralization. You can point out to students that both centralization and decentralization have disadvantages, and that companies must continually strike the right balance somewhere between the two. For class discussion, you can ask students whether they would prefer to work in a highly centralized or a highly decentralized company. This discussion should highlight for students the advantages and disadvantages of both. 70. On the other hand, centralization also offers some advantages. Therefore, organizations must balance the advantages and disadvantages of differing levels of centralization as they design their organizational structure.0 a0. Centralization implies a coordinated strategy and quicker decision making when needed. b0. Centralization ensures that decisions reflect the organizations overall strategy. c0. Centralization fosters strong leadership because authority is centered on one person or group. In large, complex organizations, coordination through the hierarchy of command isnt enough, and organizations turn to other integrating mechanisms. Companies can choose from various integrating mechanisms to increase coordination and communication. These mechanisms fall on a continuum from single to complex. In general, the more complex the organization, the more need for complex forms of integration. 10. 0Direct contact is a simple integrating mechanism that asks managers in different functions to work together to solve mutual problems. However, when managers in different functions disagree, it is hard to achieve coordination because they all have equal authority. 20. When the volume of contacts between two departments increases, one person in each department is given the responsibility of coordinating activities between the two. This is called interdepartmental liaison roles. They meet to solve problems and then feed the outcomes of their discussion back to their respective departments. 30. When two or more functions share many common, on-going problems, a permanent integrating mechanism is needed, such as a team. A team consists of members who are managers of the various functions, and they meet to make decisions jointly.

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Chapter 12: Implementing Strategy in Companies That Compete in a Single Industry

IV0. Strategic Control Systems A0. After managers establish an organizations strategy and structure, then they turn their attention to ensuring that the strategy and structure are, in fact, achieving the desired results. 0Strategic control systems provide the means by which a company monitors, evaluates, and changes the performance of its various functions and divisions. B0. Strategic control is not just about current performance; it also means keeping an organization on track and future focused. C0. Strategic control is important because it helps managers achieve superior efficiency, quality, innovation, and responsiveness to customers. D0. Strategic control systems consist of target-setting, monitoring, and feedback mechanisms; and the process contains four steps. Show Transparency 73 Figure 12.3: Steps in Designing an Effective Control System 10. Step 1 is to establish the standards against which performance is to be evaluated. Standards express the way the company chooses to evaluate its performance; they are generally derived from its strategy. 20. Step 2 requires managers to create the measuring and monitoring systems that indicate whether or not the targets are being achieved. This can be a complex task because many activities are difficult to evaluate. 30. In Step 3, managers compare actual performance against the established targets. If performance is lower than expected, it is often difficult to explain why. 40. Step 4 is about initiating corrective action when it is decided that the standards and targets are not being achieved. Appropriate corrections depend upon an appropriate diagnosis. Control systems are used to measure performance at all levels in the organizationcorporate, divisional, functional, and individual levels. Care must be taken to ensure that the controls used at different levels are compatible. Show Transparency 74 Figure 12.4: Levels of Organizational Control F0. There are several types of strategic controls. 10. One type is the balanced scorecard approach, which was discussed in Chapter 11. 20. Another type of control is personal control, in which superiors or peers interact face-to-face with an employee, influencing the employees behavior. 30. A third type of control is 0output control, which is used when a company forecasts performance goals and then monitors goal achievement. Output control is used at all levels of the organization. a. At the divisional level, challenging goals are set for efficiency, quality, innovation, and responsiveness to customers. b. At the functional level, goals are set for functional managers to develop skills leading to competitive advantage in support of divisional goals. c. Employees are given individual goals that support the achievement of divisional and functional goals. d. Output controls must be used carefully, because they can encourage conflict between units, as well as provide an incentive for dishonesty. 40. A fourth type of control is behavior control, which establishes rules and procedures to guide individual action. Rules specify how things are to be done and thus standardize behavior so that the result is predictable. a0. Operating budgets are one type of behavior control. They specify the amount of resources available to achieve goals. Managers decide how to allocate the funds across the various activities. Performance is then measured by looking at profits relative to resources.

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0Standardization is also a very important means of behavior control. (1)0 Inputs can be standardized by screening them so that only high-quality inputs enter the company. (2)0 Conversion activities are standardized so that tasks are done in the same way time and time again. This improves predictability. (3)0 Organizational outputs are standardized by specifying performance characteristics of the final product. Only goods and services that meet these criteria are allowed to leave the organization. c0. Managers must periodically review behavior controls to ensure they are still effective. Companies tend to accumulate rules over time, reducing flexibility and ultimately reducing effectiveness. G0. Information technology (IT) is playing an increasing role in strategy implementation at many firms. 10. ITs ability to provide better and faster information aids managers as they use control systems. 20. IT can provide standardization, which can be used to control behavior or to perform output control. 30. IT is an integration mechanism, because of information sharing.

STRATEGY IN ACTION 12.2: CONTROL AT CYPRESS SEMICONDUCTOR


Cypress CEO T. J. Rodgers wanted to maintain a flat and decentralized organizational structure with a minimum of management layers in order to increase flexibility in the rapidly changing semiconductor industry. At the same time, he needed to control his employees to ensure that they perform in a manner that is consistent with the goals of the company. Rodgers implemented a computer-based information system through which he can manage every employees progress towards meeting his/her goals. Rodgers claims that he can review the goals of all 1,500 employees in about four hours, and he does so each week. Teaching Note: This case shows how IT can be used to give better information to managers, and thus can aid in establishing effective control systems. Share with students additional examples of IT used as a control mechanism, or ask students to share other examples with which they are familiar. Examples might include: software houses monitoring employees code production, computerized timekeeping systems such as are used by delivery or law firms, and so on. H0. Linking reward systems to control systems facilitates control. 10. Managers must decide what behaviors to reward and then link one of the control systems to the reward system.0 20. The design of the organizations incentive system is crucial because it motivates and reinforces desired behaviors. It helps overcome the agency problem and align the interests of shareholders, managers, and employees at other levels in the organization. 30. Typically, companies use some combination of base pay, bonuses, and stock options. V0. Organizational Culture A0. Another factor in successful strategy implementation is organizational culture, the values and norms shared by people and groups in an organization. Organizational values are beliefs about what kinds of goals members of an organization should pursue and about the appropriate standards of behavior organizational members should use. B0. Based on their values, organizations develop organizational norms, that is, expectations that prescribe appropriate behavior. C0. Managers use organizational culture as a strategic control when they develop and nurture values that support employees in achieving the organizations objectives. Because different organizations have different goals, they also have different cultures. D0. Employees learn organizational culture through a process called socialization. 0 10. Culture is transmitted to organizational members through the stories, myths, and language people use in an organizational setting. 20. Once an employee is socialized into an organizations culture, they will behave appropriately without much conscious thought. Thus, culture is a very powerful form of control. E0. The values of an organizations culture are strongly influenced by the values of its founder and top managers. People are often attracted to a company because they share its founders values, and many

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Chapter 12: Implementing Strategy in Companies That Compete in a Single Industry organizations select only such people for employment. Hence the cultures of different organizations tend to become more distinct and different over time.

STRATEGY IN ACTION 12.3: HOW RAY KROC ESTABLISHED MCDONALDS CULTURE


In the fast food industry, quality control and standardization are very important. But as McDonalds grew, founder Ray Kroc made extensive use of output control and behavior control to standardize both outputs and employee behaviors at the firms thousands of franchises. He established a comprehensive system of rules and procedures, and then trained managers in their use. Kroc used the franchising system itself as a form of control because, when the managers are the owners, the agency problems are solved, and they are more motivated to control quality. In addition, McDonalds values are taught to employees and norms are strictly enforced by supervisors. McDonalds includes even customers in its culture by offering family-friendly products and services. Teaching Note: This case explains how McDonalds culture is taught to workers and managers, how it was influenced by the founders values, and how it has become part of American culture, so that virtually every customer could explain the McDonalds values. For classroom discussion, ask about ways in which McDonalds transmits its culture, in addition to the ways mentioned in the case. Ask students: How does the restaurant design reflect the culture? the uniforms? the prices? the products themselves? Organizational structure also affects organizational culture. The way an organization designs its structure affects the cultural norms and values that develop within the organization. G0. Adaptive cultures are those that are innovative and encourage initiative-taking by middle- and lowerlevel managers. Inert cultures are those that are more cautious and conservative, and do not value initiative and innovation as highly. 10. Organizations with adaptive cultures adapt more readily to environmental changes. 20. Adaptive cultures share several traits. a0. Adaptive cultures have a bias toward action, which emphasizes autonomy and entrepreneurship and encourages people to take risks and adopt a hands-on approach. b0. Adaptive cultures promote the organizations mission and protect the source of its competitive advantage. Companies should stick to what they do best and stay close to their customers. This is called stick to the knitting. c0. Adaptive cultures help organizations improve the way they operate. They help to motivate employees, increase coordination and integration, and reward employees for good performance. VI0. Building Distinctive Competencies at the Functional Level A0. There are three important components of implementing strategy at the functional level. 10. Organizational structure is an important component of implementing strategy at the functional level. a. As the organization grows, the range of value chain activities to be performed expands. It becomes clear that each person can only effectively perform one value chain activity. b. A functional organizational structure groups people together if they perform similar tasks or if they use the same skills or equipment. Show Transparency 75 Figure 12.5: Functional Structure c0. The functional structure has several advantages for organizational structure.0 (1)0 When people who perform similar tasks are grouped together, they can learn from one another and become more expert and specialized. (2)0 They can also monitor one another and prevent shirking by other team members. (3)0 Because there are many different functional hierarchies (one in production, one in finance, and so on), there is more control in the structure. Strategic control has an important role in managing an organization with a functional structure.0 F0.

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Strategic control helps managers to set ambitious goals and then encourages employees to meet those goals. b. Strategic control enables organizational learning, as employees and their superiors work closely together. c. Output control is easy with a functional structure because each function can clearly see its contribution to the performance of the organization. d. Strategic control facilitates implementation of a fair, objective system of rewards. Functional structures make it easy to build a cohesive culture, which also supports effective control.

STRATEGY IN ACTION 12.4: GATEWAYS NEW RULES BACKFIRE


Gateway, the personal computer maker, began to experience increasing customer dissatisfaction and falling sales in 2001. The problem was traced to a new set of policies for the firms customer service personnel, in an effort to reduce after-sales service expenses. One problematic rule stated that, if the customer installed any software in addition to what was on the machine at the time of sale, the warranty would be invalidated. The other problem area was a new policy that rewarded customer service representatives more the less time they spent on each call. The result of these two changes were that customers often had very unsatisfying service, and the reps felt that they now could not deliver the excellent service that Gateways culture encouraged. Managers abolished the rules, but it may have been too late. Today, Gateway is struggling to hold onto a market share that is less than 10 percent, compared to industry leader Dell with more than 25 percent. Teaching Note: This case illustrates the problems that may arise as a result of inappropriate control systems. Although the idea behind the policiesto reduce service costswas sound, the implementation was catastrophic. Use this case as an example of how just one strategic mistake may have enduring, disastrous consequences. Give other examples in class, or ask students if they know of any other examples. For example, the near-disaster that resulted when Coca-Cola switched to New Coke, or the pay-for-speed policy that led Dominos (pizza delivery) into several lawsuits related to fatal car crashes. Even large companies usually retain some elements of a functional structure because of its benefits, but a functional structure does entail some bureaucratic costs. 10. Functions can become increasingly remote from one another because they each develop a unique perspective over time, leading to communication problems. 20. As the number of its products grows, a company struggles to measure the contribution of one product to overall profitability. 30. Growth in products also causes interaction with more varied types of customers. Firms have a difficult time coping with the expanded product range that results. 40. A functional structure is too centralized for controlling production or sales in many different regions, because managers cannot be sensitive to the needs of their diverse customers. 50. Finally, as managers spend more and more time and resources coping with the above problems, long-term strategic considerations may be ignored. C0. If a firm is growing too complex to use an exclusively functional structure, one way that the firm may respond is to switch to the use of outsourcing in one or more functions. 10. A firm should not outsource in an area in which it has an important distinctive competency. 20. However, use of outsourcing can free up managerial and other resources to focus on the truly important functions. VII0. Implementing Strategy in a Single Industry A0. To pursue its business-level strategy successfully, managers must find the right combination of structure, control, and culture that links and combines the competencies in a companys value chain functions. B0. Effective strategy implementation allows the company to be more successful in pursuing a cost leader or differentiation strategy. Show Transparency 76 Figure 12.6: How Organizational Design Increases Profitability B0.

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Chapter 12: Implementing Strategy in Companies That Compete in a Single Industry C0. Strategy implementation aids firms in pursuing a cost leader strategy, because it can help them reduce expenses in all functions through improved coordination and control. 10. Managers must choose the combination of structure, control, and culture that will lead to the lowest costs. 20. Managers must continuously monitor their structure, control, and culture to ensure that costs are continuously driven down. D0. Strategy implementation aids firms that are pursuing a differentiation strategy, because it helps the company to add value and uniqueness to its products. 10. A differentiation strategy requires a broad product line, leading to high bureaucratic costs. Thus an effective coordination mechanism is especially important. 20. To successfully pursue a differentiation strategy, a companys functions must work cooperatively together. Behavior controls and culture are more effective than output controls in a cooperative situation, because its hard to measure the relative contribution of different groups when they are cooperating. 30. Thus, differentiators tend to have a very different culture than cost leaders. Differentiators tend to have a collegial or professional culture, based on expertise and cooperation. E0. As companies try to both increase differentiation and reduce costs simultaneously, strategy implementation becomes much more complex. This leads to new forms of structure and control systems. 10. To cope with the complexity of producing many products for many market segments, companies can adopt a product structure. a. To implement a product structure, a company must first group its products into categories targeted at specific groups of customers and managed by one set of managers. b. Support activities from the value chain are centralized to keep costs low. However, subgroups within each function specialize in meeting the needs of a particular product group. c. The organization then develops a control system that examines each product group separately. This creates an ability to rapidly spot problem areas, and also a way to give rewards for high performance. d. However, rewards still are closely tied to organizational, and not group, performance, to ensure that managers work together across units as needed.

STRATEGY IN ACTION 12.5: KODAKS PRODUCT STRUCTURE


In the 1970s, Kodak, the leading maker of photographic film in the world, began to face intensifying competitive pressure from cost leaders such as Fuji. CEO Daniel Carp wanted to bring about new and improved products at a relatively low cost, and he decided that a product structure would best support that strategy. The new strategy organizes on product lines, such as digital imaging or health care applications. Product managers are responsible for cost cutting within groups, and they share centralized support functions. The new structure encourages cost reduction, but it also facilitates sharing of knowledge throughout the organization. Teaching Note: Kodak provides an exemplary case for studying the implementation of a product structure. The chosen structure is appropriate for the firms strategy, and the implementation has been very effective. For classroom discussion, have students offer example of other firms that might benefit from the use of a product structure. Ask them, What do these firms have in common? Show Transparency 77 Kodaks Product Structure 20. Companies that are focused on meeting the needs of many different groups of customers can use the market structure. Show Transparency 78 Figure 12.7: Market Structure

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To group people into units based on the customers they serve, it is first important to clearly understand the needs of each customer group. b. Employees then become close to each customer segment, while support functions are centralized. Geographic structures are appropriate for firms that are attempting to expand their geographic reach. Show Transparency 79 Figure 12.8: Geographic Structure a. b. Geographic regions become the basis for grouping organizational activities. Activities at the level of the region are controlled by regional managers, but there is still control by top managers at the center, as well as centralized support from the specialist functions. Companies competing in a fast-changing, high-tech environment can use either the matrix or the product-team structure. a0. Fast-paced environments make the costs associated with lack of communication and coordination even greater. b0. Often the firm must organize around the needs of the R&D function. However, managers must work to ensure that the new high-tech products meet customer needs and are affordable. c0. A structure that addresses these concerns is the matrix structure, in which value chain activities are grouped in two different ways at the same time. Show Transparency 80 Figure 12.9: Matrix Structure (1)0 Activities are grouped by function, to obtain the advantages of a functional structure. (2)0 Activities are also grouped by product, to obtain those advantages. This results in a complex design of reporting relationships. (3)0 The matrix structure is very flat because above the functional bosses and the project bosses there is only the CEO. Mid- and lower-level managers and employees report to two bossesboth the functional boss and the project boss. The bosses are responsible for maintaining coordination between the functions and projects. (4)0 A matrix structure has the advantage of strong cross-functional integration, which improves the organizations speed and flexibility in dealing with change. (5)0 In the matrix structure, hierarchical control is minimal, and employees are expected to coordinate their own activities to get the work done. (6)0 Matrix structures also allow team members to join and then leave to join other teams, as their skills are needed. (7)0 Well-thought-out matrix structures can free managers from spending lots of time on operating matters, as employees and teams are self-directed to a great extent. (8)0 An effective implementation of the matrix structure requires a culture based on innovation and quality. (9)0 A disadvantage of the matrix structure is the time and effort that it spent just formulating the teams and getting them started on their tasks. (10)0 Another disadvantage is the conflict that can occur between the two bossesthe project manager and the functional managerdue to different goals. The former seek cost reduction; the latter seek improved quality. (11)0 Another disadvantage is the difficulty in monitoring ever-changing teams in which each worker is reporting to two bosses. Companies may also use the product-team structure in high-tech environments.

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Chapter 12: Implementing Strategy in Companies That Compete in a Single Industry Show Transparency 81 Figure 12.10: Product-Team Structure (1)0 The product-team structure is very similar to the matrix structure, except that the teams are permanent, rather than the temporary teams of the matrix design. (2)0 Product teams are formed at the beginning of the process, so that every function is involved in a project from the start. (3)0 Product teams also have decentralized authority and are ultimately responsible for new product development. (4)0 Product teams differ from the product structure, because support functions are not centralized, but are distributed to each team. (5)0 The costs of coordinating the teams activities are lower in a product team than in a matrix structure, but a company still obtains the gains from close cooperation across functional boundaries. Companies that compete with a focus strategy often use a functional structure, which both increases differentiation and reduces costs. 10. Focusers tend to be smaller firms, and therefore the functional structure may be sufficient for their integration and coordination needs. 20. A functional structure is also very flexible, which is important to focusers, who must adapt to customers constantly-changing requirements.

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STRATEGY IN ACTION 12.6: RESTRUCTURING AT LEXMARK


Lexmark, a printer and typewriter manufacturer, was formed when IBM sold an underperforming business unit. CEO Marvin Mann had the task of turning the company around. He changed the firms tall, centralized, multidivisional structureinherited from IBMto a flatter, decentralized, product-team structure. He also reduced the variety in the product line, created four product groups with cross-functional teams to develop and manufacture new products, and advocated benchmarking and a stock ownership incentive plan. Lexmarks new structure has been very successful. Teaching Note: Lexmarks case illustrates the benefits of the product-team structure and a reduced product line. In a class discussion, ask students to suggest specific ways that Mann could have implemented this strategy, in addition to those mentioned in the case. For example, he must have provided training for managers in the effective use of teams, and so on. VIII0. Restructuring and Reengineering A0. To improve corporate performance, a single-business firm can use restructuring and reengineering. B0. Restructuring involves reducing the number of levels in the organizational hierarchy (flattening the organization) and downsizing the workforce. These measures are implemented to reduce costs. 10. There are valid reasons for restructuring, however, many times restructuring occurs because firms have not made incremental changes as they were needed, and so a radical readjustment is called for. C0. Another way to improve corporate performance is through the use of reengineering, which is a radical rethinking and redesign of a firms business processes. Note that reengineering focuses on processes, not on functions. 10. A business process is any activity that is vital to competitive advantage and involves several functions simultaneously. 20. Firms that are reengineering ignore their traditional tasks, functions, groupings, and so on. Instead, they look at what they do from a customers point of view, and attempt to maximize the value the customer receives from the organization. 30. Reengineering is compatible with, and complementary to, TQM. Firms often use both together to first redesign processes and then to further refine the processes and improve quality. 40. Advances in information technology that have led to more and better quality information help firms reengineer.

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