8aa expansion strategies

8/13/2019 8aa Expansion Strategies

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EXPANSION STRATEGY


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organization structures follow the growth

strategies of firms.

Growth strategies tend to follow certain

patterns.


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GROWTH STRATEGIES I

The initial stage typically involves plants,

sales offices, or warehouses in a singleindustry, a single location, and performance

of a single function. If successful, they

follow a predictable path.


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GROWTH STRATEGIES II

The first growth stage is VOLUME

EXPANSION, producing selling anddistributing more of their product or

service to customers.


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GROWTH STRATEGIES III

The next stage of growth is

GEOGRAPHIC EXPANSION,continuing what it was already doing in

new geographical areas, with new field

units.


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GROWTH STRATEGIES IV

The third growth strategy is

VERTICAL INTEGRATION, as firmseither buy or create other functions.


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GROWTH STRATEGIES V

The ultimate growth strategy,

PRODUCT DIVERSIFICATION,involving the firm in new industries

either through merger, acquisition, or

creation (product development).


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The change to geographic expansion, andultimately, product diversification increases

the firms concern for adaptability andflexibility in the face of diverse andcomplex environments. Thus, the

organization structures of such firms are

characterized by product-based divisionsand departments, decentralized authority,

and relatively wide spans of control.

Expansion


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As demand grows for products. Companies expand.

They increase product lines. Integrate vertically to

control sources of supply. Reducing dependency on

suppliers. To produce a greater variety of products.

They separate into product groups within the

organization.

Stage-1


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Strategies become more ambitious and elaborate.

Expand activities within their same industry.

Vertical integration requires more complex

coordination due to increased interdependencebetween organizational units. Accomplished by

redesigning the structure to form specialized

units based on functions performed.

(Moderate Centralization, Moderate Formalization,

Moderate Complexity)

Stage-2


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Stage-3

Growth and diversification give rise to the need for an

autonomous multi-divisional structure. The centralized

structure becomes inefficient and impractical for

dealing with significantly greater complexity.


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A product-diversification strategy requires a

structural form that allows for the efficient allocation

of resources. Accountability for performance, and

coordination between units. This can best be achievedthrough the creation of a multiple set of independent

divisions, each responsible for a specified product

line.

(High Complexity, Low Centralization, Moderate

Formalization)

Product diversification


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Strategic types

Classify organizations into four strategic types:

1. Defenders: seek stability by producing only a limited

set of products directed at a narrow segment of thetotal potential market. Strive aggressively to prevent

competitors from entering their limited niche or domain.

They accomplish this by standard economic actions such

as competitive pricing or production of high-quality

products.


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Defenders tend to ignore developments outside their

product line areas. They do little environmental

scanning and limit product development. There is

intensive planning towards cost and efficiencyissues.

ExampleSoft Soap


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2. Prospectors: Almost the opposite of Defenders. They

find and exploit new-product and market opportunities.

Innovation is sometimes more important than profitabilityafter exploiting a new opportunity, they get out. Must

have high profit margins to cover high costs.

Examples - 3M, some Magazine publishers


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3. Analyzers: Capitalize on the best of both Defenders

and Prospectors. Minimize risk and maximize

opportunities for profit. They move into new

innovations and new markets only after Prospectors

have proven the viability of the market. They live

by imitation. They take the ideas of Prospectors

and copy them.

Analyzers must have the ability to respond toleading Prospectors, but maintain operating

efficiency. They tend to have smaller profit margins

than Prospectors, but are more efficient.


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Analyzers seek both flexibility and stability. They develop

a structure made up of dual components. Parts have high

levels of standardization, routinization, and mechanizationfor efficiency. Other parts are adaptive to maintain

flexibility.

ExamplesIBM, Catapillar, Digital Equipment Corp.


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4. Reactors: A residual strategy. Inconsistent and unstable

patterns when one of the other three strategies is pursued

improperly.

In general, Reactors respond inappropriately, perform poorly,

and are reluctant to commit themselves aggressively to a

specific strategy.


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ENVIRONMENT STRATEGY

CONTINUUM

Little Change

and Uncertainty

Rapid Change

& High Uncertainty

Defender ProspectorReactor Analyzer


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TWO-VARIABLE ANALYSIS

OF INDUSTRIES


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INDUSTRY-STRUCTURE

TYPE A and C INDUSTRIES: The high capital

requirements tend to result in large organizations and alimited number of competitors. Firms in Type Aand C

industries will be highly structured and standardized, with

the Type As(text error) being more decentralized to

facilitate rapid response to innovations introduced by

competitors.


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INDUSTRY-STRUCTURE II

TYPE B and D INDUSTRIES:Because of low capital

requirements. These industries tend to be made up of a large

number of small firms. Type D, however, will likely havemore division of labor and more formalization than Type Bs

because low innovation rates allow for greater standardization.

in the same way that capital requirements influence

organizational size and number of competitors. We should

expect high product-innovation rates to result in lessformalization and more decentralization of decision-making.


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THE EFFECTS OF

STRUCTURE ON STRATEGY

1. Complexity2. Formalization

3. Centralization


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COMPLEXITY

As the level of complexity increases, so does the

probability that:

1. Members initially exposed to the decision stimulus will

not recognize it as being strategic or will ignore itbecause of parochial preferences.

2. A decision must satisfy a large constraint set, which

decreases the likelihood that decisions will be made to

achieve organization-level goals;3. Strategic action will be the result of an internal process of

political bargaining, and moves will be incremental; and


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FORMALIZATION

As the level of formalization increases, so does the

probability that:

1. The strategic decision process will be initiated only inresponse to problems or crises that appear in variables

monitored by the formal system;

2. Decisions will be made to achieve precise, yet remedial,

goals, and means will displace ends;

3. Strategic action will be the result of standardized

organizational processes, and moves will be incremental;

and


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CENTRALIZATION

As the level of centralization increases, so does the

probability that:

1. The strategic decision process will be initiated only bythe dominant few, and it will be the result of proactive,

opportunity-seeking behavior;

2. The decision process will be oriented toward achieving

positive goals (i.e.- intended future domains) that will

persist in spite of significant changes in means;3. Strategic action will be the result of intendedly rational

choices, and moves will be major departures from the

existing strategy; and

8aa expansion strategies

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