1 Session Two Strategy, Organization Design and Effectiveness

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Session Two

Strategy, Organization Design

and Effectiveness

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Top Management Role in Organization Direction, Design, and Effectiveness

CEO, TopManagement

Team

External Environment

OpportunitiesThreats

UncertaintyResource Availability

Internal SituationStrengths

WeaknessesDistinctive Competence

Leadership StylePast Performance

Strategic Direction

Organization Design

Effectiveness Outcomes

Definemission,officialgoals

Selectoperationalgoals,competitivestrategies

ResourcesEfficiencyGoal attainmentCompeting values

Structural Form – learning vs. efficiencyInformation and control systemsProduction technologyHuman resource policies, incentivesOrganizational cultureInterorganizational linkages

Source: Adapted from Arie Y. Lewin and Carroll U. Stephens,“Individual Properties of the CEO as Determinants of OrganizationDesign,” unpublished manuscript, Duke University, 1990; and Arie Y. Lewinand Carroll U. Stephens, “CEO Attributes as Determinants of Organization Design:An integrated Model,” Organization Studies 15, no. 2 (1994): 183-212

Top Management Responsibilities Determine the organization’s purpose Determine the organization’s goals in order to

enact and fulfill the purpose Develop strategy to achieve the goals Design the organization to enact the strategy

given the demands of: Changing and uncertain stakeholders Changing and uncertain environment

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Environment/Goals/Strategy/Structure Analysis Process

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ExternalEnvironmentalAssessment

InternalEnvironmentalAssessment

2. Goals 3. Strategy 4. Structure

6. Outcome Assessment – have you been successful?

Learning orEfficiency

Learning orEfficiency

1. Tells you what you should do

5. Outcome

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Selecting Strategy and Design to Achieve Organizational Goals1. Goals Where you want to go

2. Strategy How you are going to get there. A plan for interacting with the competitive environment to achieve organizational goals.

3. Structure How you can do what you need to do to implement strategy and achieve goals

Environment Goals Strategy Structure

Selecting Strategy to Achieve Organizational Goals Different strategies are better for achieving

certain types of goals We need to understand the theoretical types

of strategies that organizations follow and which ones fit which types of goals, which in turn are best implemented by certain types of structures

Looking to understand the types, how to implement them and what their outcomes are

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Selecting Strategy to Achieve Organizational Goals

Competitive Advantage

CompetitiveScope

Low Cost Uniqueness

Broad

Narrow

Low-costLeadership

Differentiation

Focused Low-costLeadership

FocusedDifferentiation

Porter’s Competitive Strategies

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Competitive Advantage: The ability to earn extraordinary profits from

activities or resources that no one else can do or possess

Cost Leadership: Producing at a price that is lower than any others’

to gain market share to gain profits lost by low prices

Uniqueness: Producing things that are different, producing

things differently than others’ that are valued by the market and can command a price premium

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Competitive Scope: The degree to which an organization

operates in different markets or segments Broad – many Narrow – few

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Differentiation: Organizations attempt to distinguish their

products/services from competitors Can reduce rivalry and threats of

substitutes by creating loyalty Costly, heavy product research and

marketing, creative employees

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Low-cost Leadership: Attempts to increase market share via low

cost Organization aggressively seeks

efficiencies, cost reductions and tight controls

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Miles and Snow’s Strategy Typology Prospector

Learning orientation; flexible, fluid, decentralized structure Strong capability in research Values creativity, risk-taking, and innovation

Defender Efficiency orientation; centralized authority and tight cost

control Emphasis on production efficiency, low overhead

Close supervision; little employee empowerment

Source: Based on Michael Treacy and Fred Wiersema, “How Market Leaders Keep Their Edge,” Fortune February 6, 1995, 88-98; Michael Hitt, R. Duane Ireland, and Robert E. Hoskisson, Strategic Management (St. Paul, Minn.: West, 1995), 100-113; andRaymond E. Miles, Charles c. Snow, Alan D. Meyer, and Henry L. Coleman, Jr., “Organizational Strategy, Structure, and Process,”Academy of Management Review 3 (1978), 546-562

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Miles and Snow’s Strategy Typology (cont’d) Analyzer

Balances efficiency and learning; tight cost control with flexibility and adaptability

Efficient production for stable product lines; emphasis on creativity, research, risk-taking for innovation

Reactor No clear organizational approach; design characteristics

may shift abruptly depending on current needs

Source: Based on Michael Treacy and Fred Wiersema, “How Market Leaders Keep Their Edge,” Fortune February 6, 1995, 88-98; Michael Hitt, R. Duane Ireland, and Robert E. Hoskisson, Strategic Management (St. Paul, Minn.: West, 1995), 100-113; andRaymond E. Miles, Charles c. Snow, Alan D. Meyer, and Henry L. Coleman, Jr., “Organizational Strategy, Structure, and Process,”Academy of Management Review 3 (1978), 546-562

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Organization Design Outcomes of StrategyPorter Strategy: Differentiation Org. Design:

Learning org. flexible, strong horizontal coordination

Research emphasis Values and builds

mechanisms for customer intimacy

Rewards creativity, risk-taking and innovation

Miles and Snow Strategy: Prospector Org. Design:

Learning oriented, flexible, decentralized

Research emphasis Strategy: Analyzer Org. Design:

Balance efficiency and learning, cost control with flexibility and adaptability

Efficient production for stable product lines, emphasis on creativity, research, risk-taking for innovation

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Organization Design Outcomes of StrategyPorter Strategy: Low-cost

Leadership Org. Design:

Efficiency, strong central authority, cost control, frequent detailed reporting

Standard operating procedures

Efficient procurement and distribution

Close employee supervision, routine tasks, limited empowerment

Miles and Snow Strategy: Defender Org. Design:

Efficiency, centralized, cost control

Production efficiency, low overhead

Close supervision, little empowerment

Strategy: Reactor Org. Design:

No clear org. approach, design characteristics may shift depending on current needs

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Strategy Comparisons

Efficiency/Mechanical

System

High

Low

Low-costLeadership

Defender

Differentiation

Analyzer

Focused Low-costLeadership

Reactor

FocusedDifferentiation

Prospector

Learning/Organic System

Low High

Frameworks:PorterMiles & Snow

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Contingency FactorsAffecting Organization Design

Strategy

Environment Technolog

y

Size/Life Cycle Culture

Organizational Structure and Design

The Right Mix of Design Characteristics Fits the Contingency Factors

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Contingency Approaches to the Measurement of Organizational Effectiveness

Organization

Internalactivities

andprocesses

ResourceInputs

Product andServiceOutputs

Resource-basedapproach

InternalProcess approach

Goalapproach

External Environment

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Assessing Effectiveness - Goal Approach Concerned with identifying the organization’s

output goals and assessing how well it did in attaining them

Indicators: Must consider the operative goals as they are

more specific and reflect the activities the organization is actually doing

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Assessing Effectiveness - Goal Approach Usefulness:

Often used by businesses because of the ease of measurement – often objective

Must deal with multiple and sometimes conflicting goals due to potential subjectivity of evaluation – objective measures preferred but not always available Triangulation of results

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Reported Goals of U.S. Corporations

Goal % CorporationsProfitability 89Growth 82Market Share 66Social Responsibility 65Employee welfare 62Product quality and service 60Research and development 54Diversification 51Efficiency 50Financial stability 49Resource conservation 39Management development 35

Source: Adapted from Y. K. Shetty, “New Look at Corporate Goals,” California Management Review 22, no. 2 (1979), pp. 71-19.

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Assessing Effectiveness - Resource-based Approach Looks at the input side of the transformation

process and assumes that effectiveness is determined by the degree of success the organization has in obtaining, managing and integrating its valued, scarce and needed resources

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Assessing Effectiveness - Resource-based Approach Indicators:

Bargaining Position: the extent to which the organization is able to obtain its resources from the environment (i.e. how hard is it to get them and who has the power?)

The ability to correctly perceive and interpret the influencing factors in the external environment (i.e. forecasting needs)

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Assessing Effectiveness - Resource-based Approach Indicators:

The ability to use tangible and intangible resources to achieve superior performance

The ability of the organization to respond to environmental changes

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Assessing Effectiveness - Resource-based Approach Usefulness:

Often more appropriate in not-for-profit organizations or when outcomes are difficult to quantify or specify

More internally than externally focused

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Assessing Effectiveness - Internal Process Approach Effectiveness is measured as internal

organizational health and efficiency. Effectiveness =

Smooth operations Happy employees Good interaction and integration of departments for high

productivity No focus on the external environment (i.e. inputs

or market)

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Assessing Effectiveness - Internal Process Approach Indicators: Corporate Cultural Efficacy:

Strong corporate culture, positive work climate Team spirit, group loyalty, teamwork Confidence, trust, communication between

workers and management Flat org. structure and decision empowerment Undistorted horizontal and vertical communication Managers rewarded for employee development Conflicts resolved with org’s best interests in mind

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Assessing Effectiveness - Internal Process Approach Usefulness:

Efficient use of resources via a harmonious group of internal subsystems leads to effective operations, learning and environmental adaptation

Does not focus on ability or requirement to gain needed resources or effectively meet market needs

Difficult to accurately measure what are often subjective measures

Assessing Effectiveness – Competing Values Model Balancing the concerns of many parts of the

organization, recognizing that many of the subsystems have differing and potentially competing definitions of effectiveness. It is therefore hard to get consensus without understanding and recognizing many indicators

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Assessing Effectiveness – Competing Values Model Indicators

Focus – are dominant concerns internal (managerial concern for well-being and efficiency of employees) or external (well-being of the organization’s relationship with its environment) to the organization

Structure – is stability (efficiency) or flexibility (learning/change) the dominant structural consideration for management

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Assessing Effectiveness – Competing Values Model Dimensions:

External focus and flexible structure – open systems emphasis Growth and resource acquisition

External focus and structural control – rational goal emphasis Productivity and efficiency

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Assessing Effectiveness – Competing Values Model Dimensions:

Internal focus and structural control – internal process emphasis Stability and equilibrium

Internal focus and flexibility – human relations emphasis Development of human resources

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Assessing Effectiveness – Competing Values Model Usefulness

Allows managers to prioritize assessment based on which stakeholder is more vital to achieving certain specific overall goals

Assessment will change over time as priority of values changes as strategy and environment changes

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Assessing Effectiveness – Competing Values Model

Human Relations Emphasis

Primary Goal: human resource developmentSubgoals: cohesion, morale, training

Internal Process Emphasis

Primary Goal: stability, equilibrium

Subgoals: information management, communication

Rational Goal Emphasis

Primary Goal: productivity, efficiency, profit Subgoals: planning, goal setting

Open Systems Emphasis

Primary Goal: growth, resource acquisitionSubgoals: flexibility, readiness, external evaluation

Flexibility

Control

Internal External

STRUCTURE

FOCUS

Adapted from Robert E. Quinn and John Rohrbaugh, “A Spatial Model of Effectiveness Criteria: Toward a Competing Values Approach to Organizational Analysis,” Management Science 29 (1983): 363-377; and Robert E. Quinn and Kim Cameron, “Organizational Life Cycles and Shifting Criteria of Effectiveness: Some Preliminary Evidence,” Management Science 29 (1983): 33-51.

The Balanced Scorecard

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A comprehensive management control system that balances financial and operational measures

Designed to be integrative and self-reinforcing to link short and long term goals Set goals allocate resources plan budgets

set rewards

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Financial Ensuring activities contribute to continued short

and long term financial performance Net income, ROI etc.

Customer Service How do customers/clients view the organization? Retention and satisfaction

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Process Indicators Operating statistics – relates to efficiency and

productivity Order fulfillment, cost per client

Potential for Learning and Growth How well are human resources and capital managed

for the future Employee retention, product/service/program

innovations

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Documents

1 Session Two Strategy, Organization Design and Effectiveness