Ch.2 - Strategy, Organization Design, and Effectiveness

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3 Apr 2012
Chapter 2: Strategy, Organization Design, and Effectiveness
The Role of Strategic Direction in Organization Design
Top Management Role in Organization Direction, Design, and Effectiveness
Organizational Purpose
The organization’s reason for existence, the overall goal of a company
It describes the organization’s visions, its shared values and beliefs, and its reason for being
It is sometimes called the official goals, which are the formally stated definitions of business scope
and outcomes the organization is trying to achieve
The official goal statement defines business operations and may focus on values, markets, and
customers that distinguish the organization
A mission statement communicates to current and prospective employees, customers, investors,
suppliers, and competitors what the organization stands for and what it is trying to achieve
Operative Goals
Defined: descriptions of the ends sought through the actual operating procedures of the
organization; these explain what the organization is trying to accomplish
They typically pertain to the primary tasks an organization must perform, similar to the subsystem
activities identified in Chapter 1
oOverall performance
Profitability reflects the overall performance in for-profit organizations, and can be
expressed in terms of net income, EPS, or ROI
Other overall performance goals are growth and output volume
Government and nonprofit organizations don’t have goals of profitability, but they
have goals that attempt to specify the delivery of services to people within specified
expense levels
These goals pertain to the acquisition of needed material and financial resources
from the environment
They may involve obtaining financing for the construction of new plants, finding less
expensive sources for raw materials, or hiring top-quality technology graduates
These goals relate to the market share or market standing desired by an
Market goals are the responsibility of marketing, sales, and advertising departments
For example, Honda could have a goal of overtaking Toyota Motor Company as the
number-one seller of cars in Japan
market standing – desired position of the company in the future
oEmployee Development
Pertains to the training, promotion, safety, and growth of employees, and includes
both managers and workers
For example, Wegmans Food Markets was #1 on Fortune magazine’s list of “100
best companies to work for” because of its motto “Employees First, Customers
oInnovation and Change
These goals pertain to internal flexibility and readiness to adapt to unexpected
changes in the environment
Innovation goals are often defined with respect to the development of specific new
services, products, or production processes
For example, 3M has a goal that 30% of sales come from products that are less than
4 years old
change readiness
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These goals concern the amount of output achieved from available resources
They typically describe the amount of resource inputs required to reach desired
outputs and are thus stated in terms of “cost for a unit of production,” “units products
per employee,” or “resource cost per employee”
The Importance of Goals
Official goals describe a value system for the organization, while operative goals legitimize the
organization and are more explicit and well defined
Official goals provide legitimacy
Operative goals give employee direction and motivation, decision guidelines, and standard of
A Framework for Selecting Strategy and Design
A strategy is a plan for interacting with the competitive environment to achieve organizational goals
Goals define where the organization wants to go and strategies define how it will get there
Porter’s Competitive Strategies
oOrganizations attempt to distinguish their products or services from others in the industry
oThey may use advertising, distinctive product features, exceptional service, or new
technology to achieve a product perceived as unique
oThis strategy usually targets customers who are not particularly concerned with price, so
companies such as Harley Davidson, Tommy Hilfiger, and Jaguar use this strategy
oService firms like Four Seasons and Starbucks can use a differentiation strategy as well
Low-Cost Leadership
oThis strategy tries to increase market share by emphasizing low cost compared to
oThe organization aggressively seeks efficient facilities, pursues cost reduction, and uses
tight controls to produce products or services for efficiently than its competitors
oEx. Southwest Airlines
Focus/Scope(Niche & Narrow or Broad & Generic)
oThe organization concentrates on a specific regional market or buyer group, and the
company will try to achieve either a low-cost advantage or a differentiation advantage within
a narrowly defined market
Miles and Snow’s Strategy Typology
Based on the idea that managers seek to formulate strategies that will be congruent with the
external environment
oThe prospector strategy is to innovate, take risks, seek out new opportunities, and grow
oIt is suited to a dynamic, growing environment, where creativity is more important than
oFedEx, which innovates in both services and production technology in the rapidly changing
shipping, document management, and information services industry, is an example of a
oRather than taking risks and seeking out new opportunities, the defender strategy is
concerned with stability or even retrenchment
oIt seeks to hold onto current customers, but doesn’t innovate or seek to grow
oThey are concerned with internal efficiency and control to produce reliable, high-quality
products for steady customers
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