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Organizational

Design & Strategy


in a Changing Global
Environment
Strategy
Strategy :- the specific pattern of decisions and actions
that mangers take to sue core competences to
achieve a competitive advantage and outperform
competitors.
 An orgz develops a strategy to increase the value it
can create for stakeholders.
 Through strategy, orgz try to develop core
competences to gain competitive advantage

Core Competences :- the skills and abilities in value


creation activities that allow a company to achieve
superior efficiency, quality, innovation, or customer
responsiveness.

 Eg: McDonald's : CC of fast food for new line of


breakfast food, GILLETTE : CC to sell razor blades in
VALUE CREATION CYCLE
2 . An
1 . Ability to allows an organizationa
obtain scarce organization l strategy
resources to create

stinctive competences give an organization a competitive advantage , which faci


and invest
which resources to
increases its develop

which enable
the 3 . Core
4. A organization
competitive competence
to create
advantage
Sources of Core
Competences
 Specialized Resources :-
 Functional resources :- the skills possessed by an organization’s
functional personnel
 Eg:-Microsoft’s software design group is its biggest function
resource.
 P&G’s new product development skill is its biggest function
resource.
 Organizational Resources :- the attributes that give an
organization a competitive advantage such as the skills of the
top-management team or possession of valuable and scarce
resources.
 Eg:- Reputation of Toyota & Microsoft are difficult to imitate.

 Coordination Ability :- an organization’s ability to coordinate its


functional and organizational resources to create maximal value.
(achieved through the control provided by organization's overall
structure and culture)
 Centralization and decentralization
 Control systems used to coordinate and motivate people
Global expansion and core
competences
 Expanding globally into overseas markets can be an
important facilitator of the development of an
organization’s core competences.

1 . Transfer of 2 . Establishment of
core competences a global network
abroad

4 . Use of global 3 . Gaining access


learning to to global skills
enhance core and resources
competences
Global expansion and core
competences
 Transferring Core Competences Abroad- value creation @ global
level begins when an orgz transfers a CC in one or more of its
functions to an overseas market to produce cheaper or improved
products that will give the orgz a low-cost or differentiation
advantage over its competitors in that market.

 Eg:- Microsoft took its CC of advance software production tech


to produce tailored software for customers abroad.

 Establishing a Global Network- while going global, the firm


locates its value-creation activities in countries where eco, political
and cultural conditions are likes to enhance its low-cost or
differentiation advantage.
 It establishes a global network- sets of task and reporting
relationships among managers, functions, and divisions that link
an orgz’s value-creation activities globally.
 Low factor costs- to lower costs, value-creation functions are
located in countries having low factor costs; cost of raw
materials, unskilled or skilled labor, land & tax.
 Eg:-Nintendo – HQ in one country, assembly operations in another
Global expansion and core
competences
Gaining Access to Global Resources and Skills:- an
organization with a global network has access to
resources and skills throughout the world. Because
each country has unique eco, political and cultural
conditions, different countries have different resources
and skills that give them a competitive advantages.

Eg:- Japan has skills in ‘lean’ production and


T.Q.Manufacturing, Kodak, IBM, Ford has established
divisions in Japan to learn these skills.
Eg:- Toys “R”U’s, has network of stores throughout Europe

using its CC distribution & retailing . They took German


and Swiss new & high-quality toys and sold to US thus
enhancing its differentiation advantage, creating more
value.
Global expansion and core
competences
Using Global Learning to Enhance Core
Competences:- organizations set up their global
activities to gain access to knowledge that will
allow them to improve their CC. The global
exposure gives new ways to improve and its
brought back to the domestic base to enhance
the CC and then transfer its enhanced
competencies back to its overseas operations to
increase its competitive advantage.
Eg:- After WWII, Toyota, Panasonic and other

Japanese co, studied US based production and


marketing methods and took it back to base. They
improved on it, compared it with top co’s like GM
and adapted it for home country. By this Japan
obtained competitive advantage over US co’s who
Dangers associated with outsourcing
competencies to abroad
Company risks losing control of its technology,
partner may improve it and end up as a
competitor.
If outsourced, that functional activity will no
longer be having resource invested to
improve it, so it is giving away a potential
source of competitive advantage in future.
So, co’s must be careful in which skill and
competencies they should nurture and
protect and which they should allow other
companies to perform to reduce their costs.
Four Levels of Strategy
 Strategy is formulated at four organizational
levels:-
Functional-level strategy:- a plan of action
to strengthen an organization’s functional
and organizational resources, as well as its
coordination abilities, in order to create core
competences.
Scan and manage the functional environment
to ensure that the org knows what is going
both inside and outside its domain.
 Understand techniques and products of
rivals.
Eg:- Coke invests heavily to devise innovative

approaches to marketing
Four Levels of Strategy
Business-level strategy:- a plan to combine
functional core competences in order to
position the organization so that it has a
competitive advantage in its domain.
It is the responsibility of the top management
team, whose job is to decide how to position
the org to compete for resources in its
environment.
Eg:- CBS, NBC and ABC, compete with Fox, CNN,

and Tuner Broadcasting to attract viewers.


programming is the main variable these co’s
work upon and they have functional experts in
news, documentary and identify future viewing
trends so that they can commission programs
Four Levels of Strategy
Corporate-level strategy:- a plan to use and
develop core competences so that the
organization can not only protect and enlarge its
existing domain but can also expand into new
domains.
CLS is the responsibility of top management
team who’s responsibility is to take the value-
creation skills present in the divisions and in
corporate HQ and combine them to improve the
competitive position of each division and of the
organization as a whole.
They combine resources and create more value
than individual departments.
Eg:- Mercedes-Benz used its competences in R&D

and product development to enter the household


products and aerospace industry.
Four Levels of Strategy
Global expansion strategy:- a plan that
involves choosing the best strategy to expand
into overseas markets to obtain scarce
resources and develop core competences.
Functional Level
Strategy
Functional level strategy
A plan of action to strengthen an orgzn’s
functional & orgznl resources, as well as its
coordination abilities, in order to create core
competencies.
The strategic goal of each fun is to create a
core competence that gives the orgzn a
competitive advantage.
An orgzn creates its value by applying its funl
skills and knowledge to inputs and
transforming them to outputs of finished
goods and services.

To gain competitive
advantage, an orgzn should
1.Perform functional activities at a cost lower
than that of its rivals, or
2.
3.Perform funl activities in a way that clearly
differentiates its goods and services from
those of its rivals-by giving its pdts unique
qualities that customers greatly desire.
Strategies that Lower Costs
Or Differentiate Products
Any function that can lower the cost at which a
pdt is produced or that can differentiate a pdt
adds value to the pdt and the orgzn.

Value Creating Source of low cost Source of


Function advantage differentiation advge
Manufacturing Dvpmt of skills in Increase in pdt qlty &
flexible manufg reliability
techgy
HR mgmt Reduction of turnover Hiring of highly
& absenteeism skilled personnel
Dvpmt of innovative

training pgms

Value Creating Fun Source of low cost Source of
advantage differentiation advge

Materials mgmt Use of JIT inventory Use of compan


stm/ computerized reputation & long term
warehousing relationships with
Dvpmt of long term suppliers & customers
relationships with to provide high qlty
suppliers & customers ips & efficient
distribution & disposal
Sales & markrting Increased demand & Targeting of customer
of ops
lower pdtn costs groups

Tailoring pdts to

customers
Research & Improved efficiency of Promoting
Creation ofbrand
new pdts
development manufg techgy names
Improvement of
existing pdts
Functional Level Strategy
And Structure
The strength of a function’s core competence
depends not only on the function’s resources
but also its ability to coordinate the use of
resources.
In effective orgzns, the pdtn, sales and the
R&D deptmts develop an orientation specific
to its functional tasks and develops its own
ways of responding to its particular funl
envimt.
According to contingency theory, an
orgzn’sdesign should permit each fun to
develop a structure that suits its human and
Structural characteristics associated with
the development of core competences in
Production, Sales & R&D
Manufacturing Sales R&D
Mechanistic Organic
Structure
Structure`
Manufacturing Sales R&D
Tall Flat
organizatio organizatio
n n
Manufacturing Sales R&D

Centralized Decentralized
decision decision
making making
Manufacturing Sales R &D
Mutual
Standardizatio adjustment
n
Successful research and development reflects the
ability of R&D experts to apply their skills &
knowledge in innovative ways and to combine
their activities with technical resources to
produce new pdts.
The structure most conductive to the development
of funlabilities in R&D is a flat, decentralized
structure in which mutual adjustments among
teams is the main means of coordinating human
& technical resources.
The manufg fun has used a tall hierarchy in which
decision making is centralized & the speed of the
pdtn line controls the pace of work.
Stdzn is achieved through the use of extensive
rules and procedures, & the result of these design
choices is a mechanistic structure.
Japanese companies has always had a more
organic structure than US. It is flatter, more
decentralized and relies more on mutual
The sales fun uses a flat, decentralized
structure to coordinate its activities bcos
incentive pay stms rather than direct
supervision by mgrs are primary control
mechanism in sales settings.
Sales people are paid on the basis of how
much they sell, and the infon abt customer
needs the changing custr reqmts is relayed to
the sales people’s superiors through a stdzed
reporting stm.
Bcos sales people work alone, mutual
adjustments are unimportant
Thus the structure of sales fun is likely to be
mechanistic compared to that used by the
R&D fun, but not as mechanistic as that used
Functional Level Strategy
And culture
Orgzn culture is a set of shared values that
orgznl members use when they interact with
one another and with other stakeholders.


Importance of orgznl
culture
A competitor can easily imitate another orgzn’s
structure, b t it is very difficult for a
competitor to imitate the culture, for culture
is embedded in the day to day interactions of
funl personnel.
Orgzn’s culture emerge gradually and are a pdt
of many factors: an orgzn’s property right
stm, its structure, its ethics, and the
characteristics of its top mgmt team.
Functional Level Strategy
1.As members or mgrs of a fun, identify the functional
resources or coordination abilities that give your fun
a core competence. Having identified the sources of
your fun’s core competence, establish a plan to
improve or strengthen them and create a set of
goals to measure your progress.
2.Study your competitors and the methods and the
practices they use to control their funl activities. Pick
your most effective competitor, study its methods
and use them as a benchmark for what you wish t
achieve in your fun.
3.Analyze the way your funl structure and culture affect
funl resources and abilities. Experiment to see
whether changing a component of structure or
culture can enhance your fun’s core competence.
Business Level Strategy &
Culture
Organizational Culture plays determinant role in use
of functional and organizational resources
effectively.
Challenge is to develop values, norms, rules which

allow organization to use functional resources at


the best advantage.
Low-cost organizations
 Develop functions that reflect organization’s value for
economy.
 Eg:- Nucor, a leading low-cost steel manufacturer. The
ceo Ken Iverson operated the company in a frugal
way. Top managers followed the same path and spend
less on luxury.
Differentiator Organizations:-
 Product development or marketing is at the centre
stage.
C o rp o ra te - Le ve lS tra te g y
Vertical Integeration

A strategy in which an organization


takes over and owns its
suppliers or its distributors
Input Related
Domain Domain

Backward Related
vertical diversification
Integration

Core Domain

Forward
Vertical Unrelated
integration diversification

Output Unrelated
Domains Domains
Input Domains Related Domains
eg:- sugar plantations, bottle makers) (e.g:- Snack foods, Candy maker )

Core Domain
Soft Drinks

Output domains Unrelated domains


g companies that distributes soft(edrinks
.g:- Department
; fast food
stores
restraunts
, financial
) networks, cable
Related Diversification
 The entry into a new domain that is related in
some way to an organization’s domain
U n re la te d D iv e rsifica tio n
The entry into a new domain that is not
related in any way to an organization's core
domain.
Corporate - level Strategy and
Structure
The appropriate organizational structure must
be chosen at the corporate level in order to
realize the value associated with vertical
integration and related and unrelated
diversification.
Corporate-level Strategy and
Structure
Conglomerate structure:- a structure in which each
business is placed in a self-contained division and
there is no contact between divisions.
CEO

Corporate
Headquarters
Staff

A B C D E F G H I
Division Division Division Division Division Division Division Division Division
Corporate-level Strategy and
Structure
Structures for Related Diversification:- an
organization pursuing a strategy of related
diversification tries to obtain value by sharing
resources or by transferring functional skills
from one division to another—processes that
require a great amount of coordination and
integration.
Corporate-level Strategy and
Culture
Cultural values and the common norms, rules
and goals that reflect those values can
greatly facilitate the management of a
corporate strategy.
An organization has to create a culture that
reinforces and builds on the strategy it purses
and the structure it adopts.
Inter organizational strategies increase value
by allowing the organization to avoid the
bureaucratic costs often associated with
managing a new organization.
Managerial implications of
Corporate-Level Strategy
To protect the organization’s existing domains
and to exploit the organization’s core
competences to create value for
stakeholders.
To distinguish between a value-creation
opportunity and a value-losing opportunity,
cost benefit analysis.
No matter which corporate strategy managers
pursue, as the organization grows, a mangers
must be careful to match organizations’
structure and climate to the strategy.
p le m e n tin g S tra te g y A cro ss C o u n tri
IMLEMENTING STRATEGY ACROSS COUNTRIES
 Global strategy play a crucial role in strengthening a company’s control over its
environment.
 Four principal strategies that companies can use as they begin to market
their products and establish production facilities abroad.
Ø a multidomestic strategy
Ø an international strategy
Ø a global strategy
Ø a transnational strategy
The choice of structure and control systems for managing a global business is a
function of three factors:
 The decision how to distribute and allocate responsibility and authority b/w
managers at home and abroad so that effective control over a company’s
global operations is maintained.
 The selection of the organizational structure that groups divisions both at
home and in a way that allows the best use of resources and serves the
needs of foreign customers most effectively.
 The selection of the right kinds of integration and control mechanisms and
organizational culture to make the overall global structure function
effectively.
IMPLEMENTING A MULTIDOMESTIC STRATEGY

Ø A company decentralizes control to subsidiaries and divisions in each


country in which it operates to produce and customize products to local
markets.
Ø Generally operates with a global geographic structure ,where the company
duplicates all value –creation activities and establishes an overseas
division in every country or world area in which it operates.
eg. Car companies such as DaimlerChrysler , GM and Ford used global area

structures to manage their overseas operations.


Ø A company that makes and sells the same products in many different
countries often groups its overseas divisions into world regions to simplify
the coordination of products across countries.

Strategy-Structure Relationships in the International Environment
Vertical Low Need for Coordination High
Differentiation
Choices`
Levels in the Relatively flat Relatively tall Relatively tall Relatively flat
hierarchy
Centralization of Decentralized Core competences Centralized Simultaneously
authority centralize, centralized and
others decentralized
decentralized
Horizontal Global Global product Global product Global matrix or
Differentiation geographic group structure group structure “matrix in the mind”
structure

Integration
Need for integrating Low Medium High
mechanisms such as Medium
task forces and
integrating roles

Need for electronic


integration and Medium` High High Very High
management networks

Need for integration Low Medium` Very High


by international High
organizational culture

Low Bureaucratic Costs High


GLOBAL GEOGRAPHIC STRUCTURE

Corporate
Headquarters
( Located in
Sweden )

Canadian United British French Japanese South


Division States Division Division Division American
Division Division

Functional
Activities
Implementing international
strategy
International strategy, based on R&D and
marketing being centralized at home and all
the other value-creation functions to be
decentralized to national unit.
For coordinating the flow of different products
across different countries, many companies
use a global product group structure and
create product group headquarters.
Implementing international
strategy Corporate
Headquarters
( located in the
U.S)

Worldwide Worldwide Worldwide


Chemicals Consumer Automotive
Product Group Goods Product Product Group
Headquarters Headquarters Headquarters

Canadian British United French Japanese


Division Division States Division Division
Division

Product Groups
Domestic & Foreign
Division
Implementing global
strategy
Global strategy, oriented toward cost
reduction, with all the principle value-creation
functions centralized at the lowest cost global
location.
The companies locates its manufacturing and
other value- chain activities at the global
location for increasing efficiency and quality.
 Eg: philips
Implementing transnational
strategy
A transnational strategy, focused so that it can
achieve both local responsiveness and cost
reduction.
Thank You