BizLevelStrategy

8/7/2019 BizLevelStrategy

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Business Level Strategy:Co-Alignment between Strategy and Structure

Quinn (Quinn, 1980)defines strategy as a pattern or plan that integrates an organizations goals,

policies and action sequences into a cohesive whole.

Burns and Stalker(Relating strategy) view structure as a process in itself a means of holding

together an organization so that it is able to determine its own destiny. Organizations that operate in

dynamically changing and uncertain environments tend to need organic/flexible structures while

more stable environments lend themselves to more familiar mechanistic bureaucratic structures.

If strategy is about realizing a plan, then in implementing it, a suitable means of structuring

resources and activities must be found and maintained. Olsen (Relating strategy) uses the term co-

alignment to describe the best-fit relationship between strategy and organizational structure.

Thus, an effective strategic leadership is characterized by the ability to select an appropriate

strategy and match it with the appropriate structure.

A Business-level strategy is a plan to combine the core competencies in order to position the

organization so that it has a competitive advantage in its domain (OB Book).Michael Porter has

argued that a firms strengths ultimately fall into one of the two headings: cost advantageand

differentiation(Porter, 1980).

Target Scope Advantage

Low Cost Product Uniqueness

Broad Market Scope Cost Leadership Strategy Differentiation Strategy

Narrow Market Segment Focus Cost Leadership Focussed Differentiation

Table 1: Porter's Business-level strategies

Business Level Strategies and Matching Structures

This ability is a product of the way the organization designs its structure. Strategy and structure

have a reciprocal relationship (Yin & Zajac, 2004). Research however suggests, that strategy has a

much more important influence on structure than reverse(Keats & O'Neill).

Matrix

Structure

Functional

Structure

Differentiation

Complex

Decentralised

Organic

ow-Cost Strateg

Simple

Centralisec

Mechanistic

Product,

Market or

Geo ra hic

Product

team

structure


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Matc

i

tructur f r

t Leader

ipStrategy

To closel cont ol t e cost of product development low-cost companies generall adopt t e

simplest structure. Simple reporting relationships, few layers in decision-making and authority

structure, a centrali ed corporate staff, and a strong focus on process improvements is what is

needed.

y WalMart successfully implemented a Cost-leadership strategy bystreamlining its supply chain operations. Its other functions like Marketing,

Personnel aligned themselves according to the supply chain

y TATA Steel heavily invested in its Manufacturing division because it derivesits competitive advantage from primarily this function

Fi

u

1: Function

l, C

nt

lis

d st

uctu

fo

Cost L

d

ship St

t

y

Matc i g structure f r Differentiati n Strategy

To have the ability to introduce new products in the market, a firm following differentiation strategy

will have to be dynamic, with decentrali ed decision-making structures to quickly respond to

market conditions. A product structure, with each product as separate divisions, served by the same

group of support functions like personnel, R D etc. is best suited forthese types of firms.

y Apple has always tried to differentiate its products, be it the Mac, the IPod or theIPad. This has created a large si e of Apple loyalists who are willing to high prices for

Apple products.

Fi

u

2: Di

ision

l, Decent

lisedst

uctu

e fo

Differenti

tedStrategy

Office of thepreside ! t

Engineering Personne "Operations

#

ccounting Marketing

CentralizedStaff

Office of the

President

Product 1 Product 2 Product 3Support

Services


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IKEAs Globalization story

History

IKEA is a Swedish home furnishings retailer, founded in 1943, with its headquarters in enmark. It

is the worlds largest furniture retailer, specializing in stylish but inexpensive ready-to-assemble

furniture.

Founding values

The founder, Ingvar Kamprad, believes that Most things still remain to be done a glorious future!

Time is your most important asset. The corporate culture at Ikea is based on this philosophy all the

way from the furniture design teams right down to the customer support team.

The IKEA Concept, like its founder, was born in Smland. This is a part of southern Sweden where

the soil is thin and poor. The people are famous for working hard, living on small means and using

their heads to make the best possible use of the limited resources they have. This way of doing

things is at the heart of the IKEA approach to keeping prices low.

But quality is not compromised for the sake of cost. Sweden has an international reputation forsafety and quality you can rely on, and IKEA retailers take pride in offering the right quality in all

situations.

Facts and $ igures

IKEA Group

y First store opened in Sweden in 1958y 267 countries in 25 countries (2009)y Biggest marketing tool is the IKEA Cataloguey Published in 36 countries, 27 languages

Corporate culture

A persistent strife to improve in all areas of the value chain is an effective way to shape theindustry

to better fit Ikea's futurestrategies. ue to the uniqueness ofIkea's strategic positioning, being

thelargest competitor in its field, the firmhas the advantage of setting the phaseof the industry.

Bureaucracy is fought at all levels in theorganization. Kamprad believes that"simplicity and

common sense shouldcharacterize planning and strategicdirection" (Bartlett et Al, 1993: 78).

In addition, the culture emphasizesefficiency and low cost which is not to beachieved on the

expense of quality orservice.

0

%

10

1&

20

2%

2004 200% 200' 200( 200)

Sales in billion Euro

Sales in billion

Euro

Figure 3: 2004-2009Sales figures


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Symbolic policies such as, flyingeconomy class and stay at economicalhotels, employing young

executives andsponsoring university programs havemade cost part of corporate culture and

has furtherinspired the influx ofentrepreneurship into the organi ation.

Because of the high level of innovation required to churn out new designs atlower costs the

designers are given complete autonomy in their design process.

Ikeas Internali 0 ati 1 nIkea applies a conservative approach towards Internali ation. As a general rule, the firm never make

a direct entry into a potential market, by opening a retail outlet. Instead a supplier relationship

model is created. This reduces the risk where the local sellers can provide valuable inputs on the

political, legal, cultural and financial issues which provide for opportunities and/or threats to the

Ikea Concept.

Expansi2

n by fully owned subsidiaries

In stable markets, Ikea establishes fully owned subsidiaries. These are setup by an expansion team

from the central expansion team. The purpose of this process is to ensure standardi ation of the

store look, training of the operators, operational control etc. This shows a high need for global

integration.

This is important because Ikea wants to ensure similar customer experiences in its stores throughout

the world.

Expansionby franc3

ising

To approach, relatively unknown, dynamic markets, Ikea goes though franchisees. The franchises

have the decision making power to design the product mix to fit the local market needs. But the

franchisee operators undergo pre-opening activities and training to learn the frugal Ikea way. All

product catalogues and promotional activities are still kept within the headquarters.

This approach takes into consideration the local markettastes. Increasingly, franchising is becoming

the favoured method of entry for Ikea. This signifies a planned move by the firm to move towards a

transnational strategy. But as the product decisions still remain with the headquarters in Sweden, it

is can be classified as Global Product Organi ation.

Supporting Organi 0 ationalStructure

The present organisational structure can be defined as highly functional, with a global market

strategy. It is able to maintain centrali ed control over functional activities and at the same time

take the advantage oflow cost and enhanced quality of overseas suppliers,

Balance between StructuralAutonomy andStrategic Direction

As Ikea continues to expand overseas, the significance of centrali ed strategic direction will

increase. Naturally, rapid internationali ation will trigger a range of challenges imposed on the

headquarters in Sweden: Such challenges include:

y The complexity ofthe logistics system willincrease.y It will be more difficultto respond to national needs and cultural sensitivity issues.y Franchisees may demand more control over operations.


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y Emerging demographic trends will force the organi ation to broaden its focus strategy torespond to varying nation-level consumer groups.

With all these challenges emerging, it will be very difficult to maintain a global organi ational

structure. The best approach to meetthese challenges is to find the proper balance between country

level autonomy and centrali ed intervention. Likewise, intensifying and responding to local rivalry

requires increased subsidiary/franchisee autonomy.

What next?

As the reach increases, Ikea will be under pressure to move from a globalto a transnational one.

The global strategy has been successfultill now by achieving economies of scale. Butthe

transnational approach will combine the scale with the local responsiveness. Hence more

independence has to be given to the franchisees/subsidiaries. They can get more say in the product

design phase. Thus a store in China can getlow-cost furniture according to nationaltastes instead of

being force-fed Swedish furniture.

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