Theory of Strategic Management

with Cases, 8e
Hills, Jones

Chapter Twelve
Corporate Single Industry Strategy
 Implementing Strategy
Through Organizational Design
Organizational Design: the process of selecting the right
combination of organizational structure, control systems,
and culture to pursue a business model successfully.
Organizational Structure
Assigns employees to specific value creation tasks and roles
To coordinate and integrate the efforts of all employees
Strategic Control Systems
A set of incentives to motivate employees
To provides feedback on performance so corrective action can
be taken
Organizational Culture
The collection of values, norms, beliefs, and attitudes shared
within an organizations
To control interactions within and outside the organization
 Implementing Strategy
Through Organizational Design
Figure 12.1

Organizational structure, control, and culture shape peoples

behaviors, values, and attitudes and determine how they will
implement an organizations business model and strategies.
 Building Blocks of
Organizational Structure
Grouping tasks, functions, and divisions
How best to group tasks into functions and
functions into business units or divisions to
create distinctive competencies and pursue a
particular strategy
Allocating authority and responsibility
How to allocate authority and responsibility to
these functions and divisions
Integration and integrating mechanisms
How to increase the level of coordination or
integration between functions and divisions as a
structure evolves and becomes more complex
 Grouping Tasks, Functions
and Divisions
Choice of structure is made on ability to implement
companys business model and strategies successfully:
Organizational structure follows the range and
variety of tasks that an organization pursues.
Companies group people and tasks into
functions, and then functions into divisions.
A function is a collection of people who work together and
perform similar tasks or hold similar positions.
A division is a way of grouping functions to allow an
organization to better serve its customers.
Handoffs are the work exchanges between people,
functions, and subunits.
Bureaucratic costs result from the inefficiencies
surrounding these handoffs.
 Allocating Authority
and Responsibility
To economize on bureaucratic costs and effectively
coordinate the activities, company must develop a
clear and unambiguous hierarchy of authority
Organizational Structure
Decision Making: Centralized versus
Decentralized
Delegating and empowering employees
Centralized decisions
Principle of the Minimum Chain of Command:
Choose hierarchy with the fewest levels of
authority necessary to use organizational
resources efficiently and effectively
Tall and Flat Structures
Figure 12.2
 Integration and
Integrating Mechanisms
Integration and integrating mechanisms are used to
increase communication and coordination among
functions and divisions
Direct contact
Liaison roles
Teams
The greater the complexity of an
organizations structure, the greater the
need for formal coordination among
people, functions, and divisions.
 Strategic Control Systems
The formal target-setting, measurement, and
feedback systems to evaluate whether a company
is implementing its strategy successfully
Characteristics of an effective control system:
Flexible
Provides accurate information
Timely
Measures should be tied to the goals of
developing distinctive competencies in
efficiency, quality, innovativeness, and
responsiveness to customers.
Steps in Designing
an Effective Control System
Figure 12.3
Levels of Organizational Control
Controls at each level should provide Figure 12.4
the basis on which managers at lower
levels design their controls systems.
 Types of
Strategic Control Systems
Personal Control
Managers question and probe to better understand
subordinates.
The result is more possibilities for learning to occur
and competencies to develop.
Output Control
Set appropriate performance goals for each
division, department, and employee, then measure
actual performance relative to these goals.
Behavior Control
Establish standardization, predictability, and
accuracy by creating a system of rules to direct
actions and/or behaviors of divisions, functions, or
individuals.
 Using Information Technology
Behavior control
IT standardizes behavior through the use of a
consistent, cross-functional software
platform.
Output control
IT allows all employees or functions to use
the same software platform to provide
information on their activities.
Integrating mechanism
IT provides people at all levels and across all
functions with more information.
 Building Distinctive Competencies at
the Functional Level
Most companies group people and tasks around a
functional structure on the basis of their common
expertise or because they use the same resources.
Functional Structure advantages:
People doing similar functions can learn from one another.
People can monitor each other and improve work processes.
Managers have greater control over organizational activities.
Managing is easier with separately managed specialized groups.
Role of Strategic Control
Managers and employees can monitor and improve operating
procedures.
Easier to apply output control.
Developing Culture
Managers must implement functional strategy and develop
incentive systems to allow each function to succeed.
Functional Structure
Figure 12.5
 Functional Structure
and Bureaucratic Costs
Whenever different functions work together, bureaucratic
costs arise because of communication and measurement
problems arising from the handoffs across the functions.
Communication problems
Stem from differences in goal orientations and outlooks
Measurement problems
Difficulties measuring contribution as product range widens
Customer problems
Satisfying customer needs and coordinating value-chain functions
Location problems
Functional structure not the best way to handle regional diversity
when selling or producing in multiple locations
Strategic problems
These problems mean a company has outgrown its structure
Consider a more complex structure or outsourcing options.
 Implementing Strategy
in a Single Industry
Implementation begins at the functional level
Effective strategy implementation and
organization design at the business level:
Increases differentiation, adds value for customers,
allows for a premium price
Reduces bureaucratic costs associated with
measurement and communications problems
Effective organization design often means
moving to a more complex structure that:
Economizes on bureaucratic costs
Increase revenue from product differentiation
Lowers overall cost structure by obtaining economies of
scope or scale
 Implementing Cost Leadership
and Differentiation
Pursuing a cost leadership approach
The aim is to become the lowest cost producer in
the industry
Reducing costs across all functions
Lowering cost structure while preserving its ability
to attract customers
Continuously monitoring for effective operation
In practice, the functional structure is the most suitable
for cost leadership.
Implementing a differentiation approach
Design organization structure around the source of
distinctive competency, differentiated products,
and customer groups.
How Organizational Design
Increases Profitability
Figure 12.6
Product Structure:
Implementing a Wide Product
Line
Implementing a broad product structure:
Group the overall product line into
product groups
Centralize support value chain functions
to lower costs
Divide support functions into product-
oriented teams who focus on the needs
of one specific product group.
Measure the performance of each product
group separately from the others
Closely link rewards to performance of
product group
Nokias Product Structure
Figure 12.7
 Market Structure: Increasing
Responsiveness to Customer Groups
Market structure focuses on the ability to meet the needs
of distinct and important sets of customers or different
customer groups.
Increasing responsiveness to customer
groups:
Identify the needs of each customer group.
Group people and functions by customer or market
segments.
Make different managers responsible for
developing products for each group of customers.
Establish market structure brings managers and
employees closer to specific groups of customers.
Market Structure
Figure 12.8
 Geographic Structure:
Expanding Nationally
Geographic regions may become the basis for grouping
organizational activities when companies expand
nationally through internal expansion, horizontal
integration, or mergers.
Expanding nationally geographic structure
More responsive to needs of regional customers
Can achieve a lower cost structure and economies
of scale
Provides more coordination and control than a
functional structure through the regional
hierarchies
Geographic Structure
Figure 12.9
 Matrix and Product-Team
Structures
In fast-changing, high-tech environments, competitive
success depends on fast mobilization of company skills
and resources to ensure that product development and
implementation meet customer needs.
Matrix structure
Value chain activities are grouped by
function and by product or project
Flat and decentralized
Promotes innovation and speed
Norms and values based on
innovation and product excellence
Product-team structure
Tasks divided along product or project lines
Functional specialists are part of permanent
cross-functional teams
Matrix Structure
Figure 12.10
Product-Team Structure
Figure 12.11
 Focusing on a
Narrow Product Line
A focused company concentrates on developing a
narrow range of products aimed at one or two market
segments as defined by type of customer or location.
Focusing on a narrow product line:
Focusers tend to have higher production costs
Has to develop some form of distinctive
competency
Structure and controls systems need to be:
Inexpensive to operate
Flexible enough to allow distinctive competency
Focuser normally adopts a functional structure
Restructuring and Reengineering
Restructuring
Streamlining hierarchy of and reducing number of
levels
Downsizing the workforce to lower operating costs
Reasons to restructure and downsize:
Change in the business environment
Excess capacity
Bureaucratic costs: organization grew too tall and inflexible
To improve competitive advantage and stay on top
Reengineering
Fundamental rethinking and radical redesign of
business processes to achieve dramatic
improvements
Focuses on processes (which cut across functions),
not on functions