ch8 of org behavior by jones
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Organizational Theory,Design, and Change
Sixth Edition
Gareth R. Jones
Chapter 8
Organizational Design
and Strategy in a
Changing Global
Environment
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Learning Objectives
1.
Identify the ways managers can usefunctional-level strategy to developcore competences that allow an
organization to create value and givesit a competitive advantage
2.
Explain how the way managers
combine their organizations distinctivecompetences can create a successful
business-level strategy that allowsthem to compete for scarce resources
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Learning Objectives (cont.)
3.
Differentiate among the corporate-level strategies companies can use toenter new domains where they can
continue to grow and create value4.
Appreciate the importance of linking
strategy to structure and culture at
each level to increase the ability tocreate value
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Learning Objectives (cont.)
5. Understand how global expansionstrategies allow an organization toseek new opportunities to exploit its
core competences to create value forstakeholders
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Strategy and the Environment
!
Organizational strategy:the specificpattern of decisions and actions thatmanagers take to use core
competences to achieve a competitiveadvantage and outperform competitors
!
Core competences:the skills and
abilities in value creation activities thatallow a company to achieve superiorefficiency, quality, innovation, or
customer responsiveness
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Figure 8.1: The Value-Creation Cycle
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Sources of Core Competences
!
Specialized resources
! Functional resources:the skills
possessed by an organizations
functional personnel
! Organizational resources:the
attributes that give an organization a
competitive advantage such as the skillsof the top-management team orpossession of valuable and scarceresources
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Sources of Core Competences(cont.)
!
Coordination ability
! An organizations ability to coordinate
its functional and organizational
resources to create maximal value! Effective coordination of resources leads
to competitive advantage by means of:
! Control systems
! Centralization or decentralization of
authority
! Development and promotion of shared
cultural values
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Global Expansion andCore Competences
!
Transferring core competences abroad! Transfer core competence overseas to
produce cheaper or improved product
!
Establishing a global network! Establish value-creation activities in
countries where economic, political, and
cultural conditions are likely to enhanceits low-cost or differentiation advantage
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Global Expansion and CoreCompetences (cont.)
!
Gaining access to global resources andskills
! Different countries have different
resources and skills that give them acompetitive advantage
!
Using global learning to enhance core
competences! Global activities provide access to
knowledge that will allow an organizationto improve its core competences
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Figure 8.2: The Creation ofValue Through Global Expansion
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Four Levels of Strategy
!
Functional-level strategy:a plan tostrengthen an organizations functionaland organizational resources, as well as
its coordination abilities, in order tocreate core competences
!
Business-level strategy:a plan to
combine functional core competencesto position the organization so that ithas a competitive advantage in its
domain
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Four Levels of Strategy (cont.)
!
Corporate-level strategy:a plan touse and develop core competences sothat the organization not only can
protect and enlarge its existing domainbut can also expand into new domains
!
Global expansion strategy:a plan
that involves choosing the beststrategy to expand into overseasmarkets to obtain scarce resources and
develop core competences
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Functional-Level Strategy
!
The strategic goal of each function isto create a core competence thatgives the organization a competitiveadvantage
!
To gain a competitive advantage, anorganization must be able to do atleast one of the following:
!
Perform functional activities at a cost lowerthan that of its rivals, or
! Perform functional activities in a way that
clearly differentiates its goods and servicesfrom those of its rivals
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Functional-Level Strategy(cont.)
!
Strategies to lower costs ordifferentiate products
! The manufacturing function can lowerthe costs of production by pioneeringthe adoption of the most efficientproduction methods
! The human resource management
(HRM) function can lower costs bydesigning appropriate control andreward systems to increase employeemotivation and reduce absenteeism andturnover
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Functional-Level Strategy(cont.)
!
Strategies to lower costs ordifferentiate products (cont.)
! The materials managements just-in-time
inventory systems, computerizedwarehousing, purchasing managersskillsin developing long-term links withsuppliers and distributors, and fostering
of an organizations reputation can leadto a low-cost or differentiation advantage
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Functional-Level Strategy(cont.)
!
Strategies to lower costs ordifferentiate products (cont.)
! The skills and expertise of sales and
marketing can contribute directly to alow-cost or differentiation advantage
! R&D can reduce costs by developing
cheaper ways of making a product
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Table 8.1: Low-Cost and DifferentiationAdvantages Resulting From Functional-LevelStrategy
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Functional-Level Strategy(cont.)
!
Functional-level strategy and structure
! The strength of a functions corecompetence depends not only on the
functions resources, but on its ability tocoordinate the use of its resources
! According to contingency theory, each
function should develop a structure thatsuits its human and technical resources
Fi 8 3 St t l Ch t i ti
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Figure 8.3: Structural CharacteristicsAssociated with Development of CoreCompetences in Production, Sales, and R&D
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Functional-Level Strategy(cont.)
!
Functional-level strategy and culture!
A competitor can easily imitate anorganizations structure but it is verydifficult to imitate their culture
! The coordination abilities that stem from
an organizations culture emergegradually and are a product of theproperty rights system, structure, ethics,and characteristics of its top-management team
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Functional-Level Strategy (cont.)
!
Functional-level strategy and culture(cont.)
! The importance of culture for functional-
level strategy! To gain a competitive advantage, an
organization must design its functionalstructure and culture to provide a setting in
which core competences develop! If culture is embedded in the day-to-day
interactions of functional personnel, it isdifficult for a competitor to imitate anotherorganizations culture
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Business-Level Strategy
!
The business-level strategy involves:
! Selecting and managing the domain the
organization will compete in
! Positioning the organization so that it
can use its resources and abilities tomanage its specific and generalenvironments to protect and enlargethat domain
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Business-Level Strategy (cont.)!
Strategies to lower costs ordifferentiate products
! Low-cost business-level strategy:
use of skills in low-cost value creation toproduce for a customer group thatwants low-priced goods and services
! Differentiation business-level
strategy: use of skills to differentiateproducts for customer groups that wantand can afford differentiated productsthat command a high or premium price
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Business-Level Strategy (cont.)
!
Strategies to lower costs ordifferentiate products (cont.)
! Focus business-level strategy:
specialization in one segment of a market,and focusing all of the organizationsresources on that segment
Fi 8 4 T f
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Figure 8.4: Types ofBusiness-Level Strategy
B i L l St t d
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Business-Level Strategy andStructure
!
With a differentiation strategy,companies must be able to developproducts quickly; therefore close
cooperation between functions isrequired
!
A organic structure permits the
development of a decentralized, cross-functional team approach to decisionmaking
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B i L l St t d
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Business Level Strategy andStructure (cont.)
!
A low-cost strategy is associated withthe need for close control of functionalactivities to monitor and lower the
costs of production
!
A mechanistic structure is often themore appropriate choice
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Business-Level Strategy andStructure (cont.)
Three factors affect an organizations choiceof a structure to create a competitiveadvantage:! As an organization produces a wider range of
products, it needs greater control over thedevelopment, marketing, and production of theseproducts
! As an organization seeks to find new customergroups for its products, it needs a structure that
allows it to serve the needs of its customers
!
As the pace of new product development in anindustry increases, an organization will need astructure that increases coordination among itsfunctions
Fi 8 5 Ch t i ti f O i ti l
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Figure 8.5: Characteristics of OrganizationalStructure Associated with Business-LevelDifferentiation and Low-Cost Strategies
i l S d
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Business-Level Strategy andCulture
! Challenge is to develop organization-widevalues and specific norms and rules thatallow the organization to combine and use
its functional resources to the bestadvantage
! Organizations pursuing low-cost strategymust develop values of economy and
frugality! Differentiators must develop values of
innovation, quality, excellence, anduniqueness
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Corporate-Level Strategy
!
Involves a search for new domains inwhich to exploit and defend the ability tocreate value from its core competences
!Vertical integration:a strategy in which
an organization takes over and owns itssuppliers (backward vertical integration) orits distributors (forward vertical integration)!
May be more profitable
! May lead to production cost savings!
May differentiate its products
! May avoid opportunistic behavior of suppliers
! May lead to savings in distribution
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Corporate-Level Strategy (cont.)
!
Related diversification:the entryinto a new domain in which it canexploit one or more of its existing
competences
!
Unrelated diversification:the entryinto new domains that have nothing in
common with its core domain
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Figure 8.6: Corporate-LevelStrategies for Entering New Domains
Corporate Level Strategy and
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Corporate-Level Strategy andStructure
!
For organizations operating in morethan one domain, a multidivisionalstructure is appropriate
!
Conglomerate structure and unrelateddiversification
! Conglomerate structure:a structure in
which each business is placed in a self-contained division and there is no contactbetween divisions
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Figure 8.8: ConglomerateStructure
Corporate Level Strategy and
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Corporate-Level Strategy andStructure (cont.)
! Related diversification creates value by sharingresources or transferring skills from one division
to another
!
Requires lateral communication betweendivisions as well as vertical communicationbetween divisions and headquarters
! Integrating roles and teams of functional
experts are needed to coordinate skills andresource transfers
! Multidivisional structures or matrix allow for the
coordination needed
Corporate Level Strategy
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Corporate-Level Strategyand Culture
!
Cultural values and the commonnorms, rules, and goals that reflectthose values can greatly facilitate the
management of a corporate strategy
!
Organizations need to create culturesthat reinforce and build on the strategy
they pursue
Implementing Strategy
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Implementing StrategyAcross Countries
!
Four principal strategies!
Multidomestic strategy:orientedtoward local responsiveness by
decentralizing control to subsidiaries anddivisions in each country
! International strategy:
decentralization of all value-creation
functions except for R&D and marketing
Implementing Strategy
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Implementing StrategyAcross Countries (cont.)
!
Four principal strategies (cont.)!
Global strategy:oriented toward costreduction, with all the principal value-creation functions centralized at thelowest-cost global location
! Transnationalstrategy:some
functions are centralized, while others are
decentralized at the global location bestsuited to achieving these objectives toachieve both local responsiveness andcost savings
Implementing Strategy
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Implementing StrategyAcross Countries (cont.)
!
Choice of structure and controlsystems for managing a globalbusiness is a function of:
! The decision of how to distribute and
allocate responsibility and authoritybetween managers at home and abroadso that effective control over a
companys global operations ismaintained
Implementing Strategy
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Implementing StrategyAcross Countries (cont.)
! The selection of the organizational
structure that groups divisions both athome and abroad in a way that allowsthe best use of resources and serves the
needs of foreign customers mosteffectively
! The selection of the right kinds of
integration and control mechanisms andorganizational culture to make the overallglobal structure function effectively
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Table 8.2: Strategy-StructureRelationships in the International Arena
Implementing a
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Implementing aMultidomestic Strategy
!
Generally operates with a globalgeographic structure
! Duplication of value-creation activities in
all countries! Authority delegated to each overseas
division
! Managers at global headquarters use
market and output controls
Figure 8 9: Global Geographic
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Figure 8.9: Global GeographicStructure
Implementing International
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Implementing InternationalStrategy
!
Companies use a global product groupstructure and create product groupheadquarters to coordinate the activities
of domestic and foreign divisions!
Product managers responsible fororganizing all aspects of value creation ona global level
! Managers abroad are in the control of theinternational division managers
Figure 8 10: Global Product
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Figure 8.10: Global ProductGroup Structure
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Implementing Global Strategy
!
Manufacturing and other value-chainactivities placed at the global locationthat will allow it to increase efficiency
and quality!
Must find ways to reduce bureaucraticcosts associated with transfers betweencorporate headquarters and the global
divisions
! May establish a global product group
structure
Implementing Transnational
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Implementing TransnationalStrategy
!
Global matrix structure! Lowers global cost structures! Differentiates activities through superior
innovation and responsiveness to global
customers! Managers at the regional or country level
control local operations! Companys corporate product groups are
grouped by world region! Decentralizes control to overseas managers! Corporate managers exert centralized
control to coordinate companys globalactivities
Figure 8 11: Global Matrix
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Figure 8.11: Global MatrixStructure