Strategy, Organization Design,

and Effectiveness

CHAPTER 2

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 The Role Of Strategic Direction In
Organization Design

 An Organization is created to achieve some purpose

 Top executives decide on the end purpose of the
organization VISION and the direction it will take to
accomplish it MISSION.
 It is this PURPOSE and DIRECTION that shapes how
the organization is DESIGNED and MANAGED.
 The primary responsibility (?)is to determine an
organization goals, strategy, and design, therein
adapting it to a changing environment.
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  Middle management does the same for major
departments within the guidelines provided by top
management.
 The direction setting process begins with an
assessment of the opportunities and threats in the
external environment, including the amount of
change , uncertainty, and resource availability.

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  Top management also assesses internal
strengths and weaknesses to define the
company’s distinctive competence compared
with other firms.
 The next step is to define the overall mission
and official goals based on the correct fit
between the external opportunities and internal
strengths-(weaknesses and threats?)
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  Organization design reflects the way goals and
strategies are implemented (?) .
Organization Design affects the administration
and execution of a strategic plan(?).
Organization direction is implemented through
decisions about structural form, including
whether the organization will be designed for
learning or efficiency.

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  Other factors like information and control
systems, the type of production technology
human resource policies culture linkages to
other organizations has to be taken into
consideration.
 Finally the figure shows that management
evaluates the effectiveness of organizational
efforts-(realization of GOALS).
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 ORGANIZATIONAL PURPOSRE

 Organizations are created and continued to

accomplish goals (something).

 Many types of goals exist in an organization,

officially stated goals and departmental
operative goals (major distinction).

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 MISSION

 The overall goal for an organization is often

called the MISSON , (the organization reason
for existence).
 The mission describes the organization’s vision
, its shared values and beliefs.
 The mission is sometimes called the
OFFICIAL GOALS.

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  The mission statement is often written in a
policy manual or the annual report.
 The PRIMARY purpose of a mission statement
is to serve as COMMUNICATION tool
(customers, investors, suppliers, and
competitors what the organization stands for
and what it is trying to achieve).

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 OPERATIVE GOALS

 Designates the ends sought through the actual

operating procedures of the organization and
explains what the organization is trying to do. It
describes SPECIFIC MEASURABLE
OUTCOMES, and are often concerned with
the short run.
 Operative goals typically pertain to primary
tasks an org. must perform (subsystems).
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  Thesegoals concern overall performance,
boundary spanning, maintenance, adaptation,
and production activities.

 Specific goals for each primary task, provide

direction for the day-to-day decisions and
activities within departments.

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  Overall Performance. Profitability reflects the
overall performance of the organization.
 Profitability is a LAG INDICATOR.

 Performance may be expressed in terms of net

income, earnings per share, or return on
investment. Other overall performance goals are
growth and output volume.

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  Resources. Resource goals pertain to the
acquisition of needed material and financial
resources from the environment.

 Market. Market goals relate to market share

or market standing desired by the organization
(niche strategy).

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  Employee Development. Pertain to the
training, promotion, safety, and growth of
employees. It includes both managers and
workers. Return on talent is becoming an
important measure in today organization
evaluation.

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  Innovation and change. Innovation goals
pertain to internal flexibility and readiness to
adapt to unexpected changes in the
environment. Innovation goals are often
defined with respect to development of new
services, products, or production processes.

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  Productivity.Productivity goals concern the
amount of output achieved from available
resources. Are stated in terms of “ cost for unit
of production”, ”units produced per employee”,
or “resources cost per employee”.

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  Successful organizations use a carefully
balanced set of operative goals. (BALANCED
SCORE CARDS).
 Although profitability is important, some of
today’s best companies recognize that a
single-minded focus on bottom-line profits is
not the best way to achieve high performance.

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 THE IMPORTANCE OF GOALS

 Both official and operative goals are important

for the organization (why?), but they serve very
different purposes.
 Official goals and mission statements describe a
value system for the organization; operative goals
represent the primary tasks of the organization.
(HOW CAN WE ALIGN BOTH ?).

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 A FRAMEWORK FOR SELECTING
STRATEGY AND DESIGN

 To support and accomplish the direction

determined by organization mission and operative
goals, managers have to select a specific strategy
and design options that will help the organization
achieve its purpose and goals within its
competitive environment.
 Two models for formulating strategies are the
PORTER model of competitive strategies and
MILES and SNOW’S strategy typology.
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 PORTER’S COMETITIVE STRATEGIES

 Introduced a framework describing three competitive

strategies: LOW COST LEADERSHIP,
DIFFERENTIATION, and FOCUS.

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  Differentiation: In a differentiation strategy,
organizations attempt to distinguish their
products or services from others in the industry.
They may use distinctive product features,
exceptional services, or new technology to achieve
a product that is unique.
 IT usually target customers who are not
particularly concerned with price so it can be
quite profitable.
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  A differentiation strategy can reduce rivalry with
competitors and fight off the threat of substitute
products because customers are loyal to the
company’s brand.
 However, it requires a number of costly activities,
such as product research and design and extensive
advertising. They need also strong marketing
abilities and creative employees who are given the
time and resources to seek innovation.
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  LOW COST leadership: Tries to increase
market share by emphasizing low total cost
compared to competitors.
 The organization aggressively seeks efficient
facilities, pursues cost reductions, and uses tight
controls to produce products more efficiently
than its competitors. (Types of control? –
Innovation in processes or products?).

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  This strategy is concerned primarily with stability
rather than taking risks or seeking new
opportunities for innovation and growth.

 A low cost position means the company can

undercut competitors’ prices and still offer
comparable quality and earn a reasonable profit.

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 MILES &
SNOW’S STRATEGY TYPOLOGY

 Itis based on the idea that managers seek to

formulate strategies that will be congruent
with the external environment.

 The four strategies that can be developed are

the PROSPECTOR, THE DEFENDER, THE
ANALYZER, and THE REACTOR.

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  PROSPCTOR: Is to innovate, take risks, seek out new
opportunities, and grow.
 This strategy is suited to a dynamic, growing
environment, where creativity is more important than
efficiency.
 DEFENDER: Is almost the opposite of the prospector.
Rather than taking risks and seeking out new
opportunities, the defender strategy is concerned with
stability or even retrenchment.

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  This strategy seeks to hold onto current customers,
but it neither innovates nor seeks to grow.
 IT is concerned primarily with internal efficiency
and control to produce reliable, high-quality
products for steady customers.
 This strategy can be successful when the organization
exists in a declining industry or a stable environment.

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  In a reactor strategy, top management has not
defined a long-range plan or given the organization
an explicit mission or goal, so the organization takes
whatever actions seem to meet immediate needs.
 Although the reactor strategy can sometimes be
successful it can also lead to failed companies.
( if you are not exceptional you will loose eventually).

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  Analyzer : Tries to maintain a stable business
while innovating on the periphery.
 It seems to lie midway between the prospector
and the defender. Some products will be targeted
toward stable environments in which an
efficiency strategy designed to keep current
customers is used.
 Others will be targeted toward new, more
dynamic environments, where growth is possible.
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  The analyzer attempts to balance efficient
production for current product lines with the
creative development of new product lines.
(what are the hidden problems facing an
organization following analyzer strategy?).
 REACTOR: IT is not a strategy at all. Rather
reactors respond to environmental threats and
opportunities in an ad hoc fashion.
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 HOW STRATEGIES AFFECT
ORGANIZATION DESIGN:

 Choice of strategy affects internal organization

characteristics.
 With a low cost leadership strategy, managers
take an efficiency approach to organization
design, whereas a differentiation strategy calls for
a learning approach.
 A low cost strategy, is associated with a strong,
centralized authority and tight control, standard
operating procedures, and emphasis is on efficient
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 procurement and distribution systems.
 Employees generally perform routine tasks under
close supervision and control and are not
empowered to make decisions or take action on
their own
 A differentiation strategy, on the other hand
requires that employees be constantly
experimenting and learning.

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  Structure is fluid and flexible, with strong
horizontal coordination. Empowered employees
work directly with customers and are rewarded
for creativity and risk taking.

 The organization values research, creativity, and

innovation over efficiency and standard
procedures.

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 OTHER FACTORS AFFECTING
ORGANIZATION DESIGN

 Strategy is one important factor that affects

organization design.
 Ultimately, however, organization design is a
result of numerous contingencies.
 The emphasis given to efficiency and control over
learning and flexibility is determined by the
contingencies of strategy, environment, size and
life cycle, technology, and organization culture.

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  In a stable environment, the organization can have
a traditional structure that emphasizes tight
control, efficiency, specialization, standard
procedures, and decentralized decision making.
 However, a rapidly changing environment may
call for a more flexible structure, with strong
horizontal coordination and collaboration through
teams or other mechanisms.

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  Design must also fit the work flow technology of
the organization. For mass production technology,
the organization functions best by emphasizing
efficiency, formalization, specialization, central
decision making, and tight control.
 A final contingency that affects organizational
design is corporate culture, a culture that values
teamwork, collaboration, creativity, and open
communication among all employees and
managers would not function well a tight vertical
structure with tight rules.
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  ONE RESPONSIBILITY OF MANAGERS IS TO
DESIGN ORGANIZATIONS THAT FIT THE
CONTINGENCY FACTORS OF STRATEGY,
ENVIRONMENT, SIZE, AND LIFE CYCLE,
TECHNOLOGY, AND CULTURE

 FINDING THE RIGHT FIT LEADS TO

ORGANIZATIONAL EFFECTIVENESS.

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 CONTINGENCY EFFECTIVENESS
APPROACHES

 Contingency approaches to measuring effectiveness

focus on different parts of the organization.
 The GOAL approach, is concerned with the output
side and whether the organization achieves its goals in
terms of desired level of output.
 The RESOURCE BASED approach, assesses
effectiveness by observing the beginning of the process
and evaluating whether the organization effectively
obtains resources necessary for high performance.

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  The INTERNAL PROCESS
approach looks at internal activities and
assesses effectiveness by indicators of internal
health and efficiency.

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