ORGS 2010 2.docx

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Week 2: Organization as a Strategic Design:
Strategic Design:
Sees an organization as a system that has been deliberately constructed to achieve strategic goals
Fundamental concept: Maximization of organizational efficiency and effectiveness
o Efficiency: Accomplishing strategic goals with the least possible expenditure of resources
o Effectiveness: Ensuring goals are accomplished to the standard necessary for the organization
to succeed
Managers can make organizations successful by:
o Understanding basic principles of organization design
o Aligning the organization's design with its strategy
o Making sure strategy and design fit the environment in which the organization is operating
o Value proposition and Distinctive competitive advantage establishes what activities the
organization must carry out to achieve success in its strategies (i.e.: Strong R&D)
o Key strategic questions whose answers shape organization design: Which activities should be
inside the boundaries of the organization and which outside?
How to organize strategies
Key Elements of Organization Design:
Strategic Design sees information as the key resource to the organization
Information Processing and Enhancing System
o To achieve strategic goals, people need to share information, create it through cooperation,
and direct it to those who can use it
Task: Basic element of organization design:
o Complexity - How complex the task is can vary
o Routinization - Extent to which the activity can be specified and programmed
Task Interdependence:
o Sequential Interdependence: When one task is completed and then handed off for the next
o Pooled Interdependence: When interdependent task are undertaken at the same time and
then put together
o Reciprocal Interdependence: When tasks are conducted in repeated interaction with each
Organizational Design:
Strategic Grouping: differentiation of clusters of activities, positions, and individuals into
work units
Linking: Units must be linked according to the nature and level of interdependence in
their tasks, to ensure that information and other needed resources flow effectively and
efficiently between the activities or groups separated
Alignment Mechanisms: The design must use this to ensure that people have the
resources and the inventives to carry out the tasks assigned to them by the grouping
Organizations are effective when the components are aligned with strategy and with each
Strategic Grouping:
Gathers together some tasks, functions, or disciplines, and separates them from others
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Communication and coordination is much easier in an unit rather than across units
1. Grouping by Expertise/Function
o Brings together individuals who share similar functions, disciplines, skills, and work processes
o Advantages:
It allows the development of deep functional expertise and a high degree of
specialization of knowledge within each function
"Economies of Scope" - the functional organization makes it relative easy to transfer
resources across activities within functions
A functional organization allows each group to create separate alignment systems
suited to its needs and to reinforcing its strengths
o Disadvantages:
Cost of integration across functions
Individuals tend to develop narrower perspectives and have difficulty solving problems
that require joint efforts with other groups
Difficulty to assess costs clearly and accountability for overall performance
Few opportunities for managers to gain experience outside their functional areas as
they move up the career ladder
Not able to develop managers who can see they organization as a whole and make
decisions that serve the organization's strategy
2. Grouping by Output/Product
o Organizes on the basis of the service or product provided
o People provide a variety of different tasks and activities, but they all contribute to the same
o Advantages:
Transparency of Performance: it makes the costs and profits of each business much
clearer than does the functional structure
Clear strategic focus it provides managers of the product division
o Disadvantages:
Making each business unit accountable for its own profit and loss statement can make it
difficult for units to share resources and can lead to duplication of activities
Difficult to create new business
o Grouping by Market (Geography or Customer)
o Organizations whose strategies are customer-focused adopt this structure
o Gathers together people who perform different activities and tasks and product different
outputs but who serve the same customers or market segments
o Advantage:
Developing deep customer knowledge and close customer relationships
Allows organizations to tailor its products and services to differentiated customer needs
o Disadvantages:
Duplication of activities and resources
Erosion of deep technical expertise
Missed opportunities for synergies and learning
Hybrid Structures
Organizational strategies frequently require attention to multiple priorities simultaneously
Attempt to break out of the constraints imposed by a single mode of strategic grouping
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