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Chapter 2

Chapter 2 BU398.docx

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Shawn Komar

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BU398 Chapter 2 – Strategy, Organizational Design, and Effectiveness Week 1 The Role of Strategic Direction in Organizational Design -An organization is created to achieve some purpose, which is decided by the CEO and top management team -The primary responsibility of top management is to determine an organization’s goals, strategy, and design,, therein adapting the organization to a changing environment -The direction setting process typically begins with an assessment of the opportunities and threats in the external environment, including the amount of change uncertainty, and resource availability, -Top managers also assess internal strengths and weaknesses to define the company’s distinctive competence compared with other firms in the industry -The assessment of internal environment often includes an evaluation of each department and is shaped by past performance and the leadership style of the CEO and top management team -The next step is to define the overall mission and official goals based on the correct fit between external opportunities and internal strengths -Organizational design reflects the way goals and strategies are implemented -Organizational design is the administration and execution of the strategic plan -Managers evaluate the effectiveness of organizational efforts – the extent to which the organization realizes its goals -Managers can interpret the environment differently and develop different goals -The choices top managers make about goals, strategies, and organizational design have a tremendous impact on organizational effectiveness -Top managers and middle managers must select goals for their own units, and the ability to make these choices largely determines firm success -Organizational design is used to implement goals and strategy and also determines organization success Organizational Purpose -Organizations are created and continued in order to accomplish something -This purpose may be referred to as the overall goal, or mission Mission -Mission – the overall goal for an organization – the organization’s reason for existence -The mission describes the organization’s vision, its shared values and beliefs, and its reason for being -This mission is sometimes called the official goals -Official goals – the formally stated definition of business scope and outcomes the organization is trying to achieve -One of the primary purposes of a mission statement is to serve as a communication tool -The 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 -Operative goals – designate the ends sought through the actual operating procedures of the organization and explain what the organization is actually trying to do -Describe specific measureable outcomes and are often concerned with the short run -Pertain to the primary tasks an organization must perform -Concern overall performance, boundary spanning, maintenance, adaptation, and production activities Overall Performance -Profitability reflects the overall performance of for-profit organizations -Other measures are growth and output volume BU398 Chapter 2 – Strategy, Organizational Design, and Effectiveness Week 1 -Growth pertains to increases in sales or profits over time -Volume pertains to total sales or the amount of products or services delivered Resources -Pertain to the acquisition of needed material and financial resources from the environment -May involve obtaining financing for construction of new plants, finding less-expensive sources for raw materials or hiring top-quality technology graduates Market -Relate to the market share or market standing desired by the organization -Responsibility of marketing, sales and advertising departments Employee Development -Refers to the training, promotion, safety, and growth of employees -Includes both managers and workers Innovation and Change -Innovation goals pertain to internal flexibility and readiness to adapt to unexpected changes in the environment -Often defines in terms of the development of specific new services, products or production processes Productivity -Concern the amount of output achieves from available resources -Describe the amount of resource inputs required to reach desired outputs -Successful organizations use a carefully balanced set of operative goals The Importance of Goals -Official goals and mission statements describe a value system for the organization; operative goals represent the primary tasks of the organization -Official goals legitimize the organization; operative goals are more explicit and well defined -Operative goals can provide employees with a sense of direction, so that they know what they are working toward -Goals provide a standard for assessment A Framework for Selecting Strategy and Design -To support and accomplish the direction determined by organizational mission and operative goals, managers have to select specific strategy and design options that will help the organization achieve its purpose and goals within its competitive environment -Strategy – 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 -Strategies can include any number of techniques to achieve the goal -Two models for formulating strategies: Porter model of competitive strategies and Miles and Snow’s strategy typology Porter’s Competitive Strategies -Three competitive strategies: low-cost leadership, differentiation, and focus -Focus strategy – organization concentrates on a specific market or buyer group -To use this model, managers evaluate two factors, competitive advantage and competitive scope Differentiation BU398 Chapter 2 – Strategy, Organizational Design, and Effectiveness Week 1 -Differentiation strategy – organizations attempt to distinguish their products or services from others in the industry -An organization may use advertising, distinctive product features, exceptional service, or new technology to achieve a product perceived as unique -Usually targets customers who are not particularly concerned with price, so it can be quite profitable -Ex. Roots clothing -Reduces rivalry with competitors and fight off the threat of substitute products because customers are loyal to the company’s brand -Requires a number of costly activities -Need strong marketing abilities Low-Cost Leadership -Tries to increase market share by emphasizing low cost compared to competitors -Concerned primarily with stability rather than taking risks or seeking new opportunities for innovation and growth -Means a company can undercut competitor’s prices and still offer comparable quality and earn a reasonable profit Focus -Organization concentrates on a specific regional market or buyer group -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 -Raymond Miles and Charles Snow -Based o
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