CHAPTER 12
Implementing Strategy in Companies That
Compete in a Single Industry
SYNOPSIS OF CHAPTER
Chapter 12 examines how managers can best implement their strategies in single-industry firms in order to
achieve a competitive advantage and superior performance. First, the main elements of strategy implementation—
structure, control systems, and culture—are analyzed in detail, focusing on the way they work together to create
an organizing framework.
Then the chapter turns to the topic of using structure, control, and culture at the functional level to build
distinctive competencies. After that, the chapter addresses the challenges of implementing the generic business
strategies of cost leadership or differentiation in a single industry.
The final section covers restructuring and reengineering, two strategies that single-business firms can use to
improve corporate performance.
The next chapter takes up where this one leaves off and examines strategy implementation across industries and
across countries—that is, implementing corporate and global strategy in firms that compete in more than one
industry.
TEACHING OBJECTIVES
1.
Introduce the main elements of strategy implementation—structure, control systems, and culture—and their
relationships to each other.
2.
Demonstrate how structure, control, and culture can build distinctive competencies at the functional level.
3.
Describe the use of structure, control, and culture in implementing a single-business firm’s generic business
strategy.
4.
Discuss the use of restructuring and reengineering in improving the performance of a single-business firm.
OPENING CASE: STRATEGY IMPLEMENTATION AT DELL
COMPUTER
Dell Computer grew rapidly from its founding as one-person, dorm-room operation in 1984. As the company has
grown, Dell’s structure, control systems, and culture has changed to keep the firm on track to reaching its strategic
goals. Michael Dell hired managers with computer industry experience from firms such as IBM and Compaq.
Together, they formed a functional structure with a taller hierarchy, in which Michael Dell delegated authority to
his functional managers. Dell’s organizational culture emphasized hard work and customer service, leading to
high profits and satisfied buyers. However, as Dell continued to grow, its functional structure could not support
higher levels of coordination and specialization. So Dell moved to a customer structure, with divisions focused on
the unique needs of each customer segment. As Dell grew even more, it developed even more specialized teams
for different segments, and it increasingly turned to the Internet for coordination, allowing the firm to decentralize
and become flatter.
Teaching Note: Dell has been forced to change its structure, control systems, and strategy several times as it has
grown and the industry has matured. This situation is one that has been played out, over and over again, in many
different companies. You can give other examples to students, such as the way in which GM moved to a
divisional structure after acquiring competitors such as Cadillac, Pontiac, and Buick. Another discussion point is
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Chapter 12: Implementing Strategy in Companies That Compete in a Single Industry
145
the interrelatedness of structure, control systems, and culture, which is shown in Dell’s centralization and
subsequent decentralization, its taller then flatter structure, and so on.
LECTURE OUTLINE
I.
II.
Overview
A. A well thought-out strategy can lead to success only if it is properly implemented, thus the study of
implementation is critical to an understanding of strategy.
B.
This chapter introduces concepts related to implementation, with a focus on functional- and businesslevel strategy implementation. Strategy implementation refers to the ways a firm creates, uses, and
combines organizational structure, control systems, and culture to pursue strategies that lead to a
competitive advantage and superior performance.
Implementing Strategy Through Organizational Structure, Control, and Culture
A. The first component of strategy implementation is organizational structure, which assigns
employees to specific tasks and specifies how those tasks link together to realize a competitive
advantage. The purpose of organizational structure is to coordinate and integrate the efforts of all
employees at the corporate, business, and functional levels, and across functions and business units,
so that they work together to help the firm achieve its strategies successfully.
B.
Another component of implementation is a strategic control system, which provides the incentives
that motivate employees to help the firm achieve its strategies. Control systems also provide
performance feedback to managers so that corrective action can be taken if needed.
C.
Organizational culture is another important component of strategy implementation, and it consists
of the values, norms, beliefs, and attitudes that are shared by people in an organization. Culture guides
the way that employees interact with each other and with stakeholders outside the organization, and
thus will have an important impact on the implementation of an organization’s strategies.
Show Transparency 71
Figure 12.1: Implementing Strategy
III.
Building Blocks of Organizational Structure
A. One issue that managers must address as they design an organizational structure that will aid in
accomplishing the firm’s strategic goals is the grouping of items. Tasks must be grouped into
functions and functions grouped into divisions or businesses.
B.
The tasks an organization must perform are based on its strategy, and therefore an organization’s
structure tends to match its strategy.
C.
Tasks must be grouped into functions, which are a collection of people who work together and
perform the same types of work or hold similar positions. Functions are designed to minimize
bureaucratic costs—the costs of operating an organizational structure. Functions then are grouped
into divisions.
D. One important characteristic of organizational structure is the way in which it allocates authority and
responsibility.
1.
The hierarchy of authority refers to the organization’s chain of command, extending from the
CEO down to the lowest-level employees.
2.
Every manager at every level supervises some number of employees, which is called the span
of control.
3.
Managers decide how many levels to have in the organizational chain of command.
Organizations with many levels are called “tall,” because of the long and vertical appearance of
their organization charts. Organizations with few levels are called “flat.”
Show Transparency 72
Figure 12.2: Tall and Flat Structures
4.
As companies grow taller, problems may arise.
a.
Communication problems are prevalent in tall organizations, because the long delays that
occur as messages move up and down numerous levels can lead to confusion.
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Chapter 12: Implementing Strategy in Companies That Compete in a Single Industry
b.
5.
6.
Another reason for communication problems is that the large number of levels leads to
differing perceptions of the meaning of the messages.
c.
Another problem is that a tall organization has more managers, and managers are very
expensive.
To avoid these problems, managers should follow the principle of the minimum chain of
command, that is, they should use the minimum number of hierarchical levels required for
implementing a strategy successfully. Too many levels in the hierarchy cause a variety of
problems.
Decentralization of decision-making authority is one tactic for overcoming the disadvantages
associated with a tall organizational structure. Decentralization delegates authority to lowerlevel employees.
a.
Decentralization reduces information overload because managers spend time making only
those decisions that must be made at their organizational level.
b.
Decentralization gives lower level employees autonomy, increasing flexibility,
motivation, and accountability.
c.
Decentralization reduces the need for expensive, high-level managers, because lower
level employees can make their own decisions with little supervision.
STRATEGY IN ACTION 12.1: UNION PACIFIC DECENTRALIZES TO INCREASE
CUSTOMER RESPONSIVENESS
Union Pacific used a very centralized organizational structure in an effort to reduce costs. However, the central
scheduling and planning led to long delays, missed freight, and irate customers. The company changed to a
decentralized structure in which managers have the authority to make operational decisions, leading to increased
responsiveness to customers.
Teaching Note: This case shows some of the difficulties organizations experience as they attempt to find the
optimal level of centralization/decentralization. You can point out to students that both centralization and
decentralization have disadvantages, and that companies must continually strike the right balance somewhere
between the two. For class discussion, you can ask students whether they would prefer to work in a highly
centralized or a highly decentralized company. This discussion should highlight for students the advantages and
disadvantages of both.
7.
E.
On the other hand, centralization also offers some advantages. Therefore, organizations must
balance the advantages and disadvantages of differing levels of centralization as they design
their organizational structure.
a.
Centralization implies a coordinated strategy and quicker decision making when needed.
b.
Centralization ensures that decisions reflect the organization’s overall strategy.
c.
Centralization fosters strong leadership because authority is centered on one person or
group.
In large, complex organizations, coordination through the hierarchy of command isn’t enough, and
organizations turn to other integrating mechanisms. Companies can choose from various integrating
mechanisms to increase coordination and communication. These mechanisms fall on a continuum
from single to complex. In general, the more complex the organization, the more need for complex
forms of integration.
1.
Direct contact is a simple integrating mechanism that asks managers in different functions to
work together to solve mutual problems. However, when managers in different functions
disagree, it is hard to achieve coordination because they all have equal authority.
2.
When the volume of contacts between two departments increases, one person in each
department is given the responsibility of coordinating activities between the two. This is called
interdepartmental liaison roles. They meet to solve problems and then feed the outcomes of
their discussion back to their respective departments.
3.
When two or more functions share many common, on-going problems, a permanent integrating
mechanism is needed, such as a team. A team consists of members who are managers of the
various functions, and they meet to make decisions jointly.
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Chapter 12: Implementing Strategy in Companies That Compete in a Single Industry
IV.
147
Strategic Control Systems
A. After managers establish an organization’s strategy and structure, then they turn their attention to
ensuring that the strategy and structure are, in fact, achieving the desired results. Strategic control
systems provide the means by which a company monitors, evaluates, and changes the performance of
its various functions and divisions.
B.
Strategic control is not just about current performance; it also means keeping an organization on track
and future focused.
C.
Strategic control is important because it helps managers achieve superior efficiency, quality,
innovation, and responsiveness to customers.
D. Strategic control systems consist of target-setting, monitoring, and feedback mechanisms; and the
process contains four steps.
Show Transparency 73
Figure 12.3: Steps in Designing an Effective Control System
1.
E.
Step 1 is to establish the standards against which performance is to be evaluated. Standards
express the way the company chooses to evaluate its performance; they are generally derived
from its strategy.
2.
Step 2 requires managers to create the measuring and monitoring systems that indicate whether
or not the targets are being achieved. This can be a complex task because many activities are
difficult to evaluate.
3.
In Step 3, managers compare actual performance against the established targets. If performance
is lower than expected, it is often difficult to explain why.
4.
Step 4 is about initiating corrective action when it is decided that the standards and targets are
not being achieved. Appropriate corrections depend upon an appropriate diagnosis.
Control systems are used to measure performance at all levels in the organization—corporate,
divisional, functional, and individual levels. Care must be taken to ensure that the controls used at
different levels are compatible.
Show Transparency 74
Figure 12.4: Levels of Organizational Control
F.
There are several types of strategic controls.
1.
One type is the balanced scorecard approach, which was discussed in Chapter 11.
2.
Another type of control is personal control, in which superiors or peers interact face-to-face
with an employee, influencing the employee’s behavior.
3.
A third type of control is output control, which is used when a company forecasts performance
goals and then monitors goal achievement. Output control is used at all levels of the
organization.
a.
At the divisional level, challenging goals are set for efficiency, quality, innovation, and
responsiveness to customers.
b.
At the functional level, goals are set for functional managers to develop skills leading to
competitive advantage in support of divisional goals.
c.
Employees are given individual goals that support the achievement of divisional and
functional goals.
d.
Output controls must be used carefully, because they can encourage conflict between
units, as well as provide an incentive for dishonesty.
4.
A fourth type of control is behavior control, which establishes rules and procedures to guide
individual action. Rules specify how things are to be done and thus standardize behavior so that
the result is predictable.
a.
Operating budgets are one type of behavior control. They specify the amount of
resources available to achieve goals. Managers decide how to allocate the funds across
the various activities. Performance is then measured by looking at profits relative to
resources.
b.
Standardization is also a very important means of behavior control.
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Chapter 12: Implementing Strategy in Companies That Compete in a Single Industry
(1)
G.
Inputs can be standardized by screening them so that only high-quality inputs enter
the company.
(2) Conversion activities are standardized so that tasks are done in the same way time
and time again. This improves predictability.
(3) Organizational outputs are standardized by specifying performance characteristics
of the final product. Only goods and services that meet these criteria are allowed to
leave the organization.
c.
Managers must periodically review behavior controls to ensure they are still effective.
Companies tend to accumulate rules over time, reducing flexibility and ultimately
reducing effectiveness.
Information technology (IT) is playing an increasing role in strategy implementation at many firms.
1.
IT’s ability to provide better and faster information aids managers as they use control systems.
2.
IT can provide standardization, which can be used to control behavior or to perform output
control.
3.
IT is an integration mechanism, because of information sharing.
STRATEGY IN ACTION 12.2: CONTROL AT CYPRESS SEMICONDUCTOR
Cypress CEO T. J. Rodgers wanted to maintain a flat and decentralized organizational structure with a minimum
of management layers in order to increase flexibility in the rapidly changing semiconductor industry. At the same
time, he needed to control his employees to ensure that they perform in a manner that is consistent with the goals
of the company. Rodgers implemented a computer-based information system through which he can manage every
employee’s progress towards meeting his/her goals. Rodgers claims that he can review the goals of all 1,500
employees in about four hours, and he does so each week.
Teaching Note: This case shows how IT can be used to give better information to managers, and thus can aid in
establishing effective control systems. Share with students additional examples of IT used as a control
mechanism, or ask students to share other examples with which they are familiar. Examples might include:
software houses monitoring employees’ code production, computerized timekeeping systems such as are used by
delivery or law firms, and so on.
H.
V.
Linking reward systems to control systems facilitates control.
1.
Managers must decide what behaviors to reward and then link one of the control systems to the
reward system.
2.
The design of the organization’s incentive system is crucial because it motivates and reinforces
desired behaviors. It helps overcome the agency problem and align the interests of shareholders,
managers, and employees at other levels in the organization.
3.
Typically, companies use some combination of base pay, bonuses, and stock options.
Organizational Culture
A. Another factor in successful strategy implementation is organizational culture, the values and norms
shared by people and groups in an organization. Organizational values are beliefs about what kinds of
goals members of an organization should pursue and about the appropriate standards of behavior
organizational members should use.
B.
Based on their values, organizations develop organizational norms, that is, expectations that prescribe
appropriate behavior.
C.
Managers use organizational culture as a strategic control when they develop and nurture values that
support employees in achieving the organization’s objectives. Because different organizations have
different goals, they also have different cultures.
D. Employees learn organizational culture through a process called socialization.
1.
Culture is transmitted to organizational members through the stories, myths, and language
people use in an organizational setting.
2.
Once an employee is socialized into an organization’s culture, they will behave appropriately
without much conscious thought. Thus, culture is a very powerful form of control.
E.
The values of an organization’s culture are strongly influenced by the values of its founder and top
managers. People are often attracted to a company because they share its founder’s values, and many
organizations select only such people for employment. Hence the cultures of different organizations
tend to become more distinct and different over time.
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Chapter 12: Implementing Strategy in Companies That Compete in a Single Industry
149
STRATEGY IN ACTION 12.3: HOW RAY KROC ESTABLISHED MCDONALD’S
CULTURE
In the fast food industry, quality control and standardization are very important. But as McDonald’s grew, founder
Ray Kroc made extensive use of output control and behavior control to standardize both outputs and employee
behaviors at the firm’s thousands of franchises. He established a comprehensive system of rules and procedures,
and then trained managers in their use. Kroc used the franchising system itself as a form of control because, when
the managers are the owners, the agency problems are solved, and they are more motivated to control quality. In
addition, McDonald’s values are taught to employees and norms are strictly enforced by supervisors. McDonald’s
includes even customers in its culture by offering family-friendly products and services.
Teaching Note: This case explains how McDonald’s culture is taught to workers and managers, how it was
influenced by the founder’s values, and how it has become part of American culture, so that virtually every
customer could explain the McDonald’s values. For classroom discussion, ask about ways in which McDonald’s
transmits its culture, in addition to the ways mentioned in the case. Ask students: “How does the restaurant design
reflect the culture? the uniforms? the prices? the products themselves?”
F.
VI.
Organizational structure also affects organizational culture. The way an organization designs its
structure affects the cultural norms and values that develop within the organization.
G. Adaptive cultures are those that are innovative and encourage initiative-taking by middle- and lowerlevel managers. Inert cultures are those that are more cautious and conservative, and do not value
initiative and innovation as highly.
1.
Organizations with adaptive cultures adapt more readily to environmental changes.
2.
Adaptive cultures share several traits.
a.
Adaptive cultures have a bias toward action, which emphasizes autonomy and
entrepreneurship and encourages people to take risks and adopt a hands-on approach.
b.
Adaptive cultures promote the organization’s mission and protect the source of its
competitive advantage. Companies should stick to what they do best and stay close to
their customers. This is called “stick to the knitting.”
c.
Adaptive cultures help organizations improve the way they operate. They help to
motivate employees, increase coordination and integration, and reward employees for
good performance.
Building Distinctive Competencies at the Functional Level
A. There are three important components of implementing strategy at the functional level.
1.
Organizational structure is an important component of implementing strategy at the functional
level.
a.
As the organization grows, the range of value chain activities to be performed expands. It
becomes clear that each person can only effectively perform one value chain activity.
b.
A functional organizational structure groups people together if they perform similar
tasks or if they use the same skills or equipment.
Show Transparency 75
Figure 12.5: Functional Structure
c.
2.
The functional structure has several advantages for organizational structure.
(1) When people who perform similar tasks are grouped together, they can learn from
one another and become more expert and specialized.
(2) They can also monitor one another and prevent shirking by other team members.
(3) Because there are many different functional hierarchies (one in production, one in
finance, and so on), there is more control in the structure.
Strategic control has an important role in managing an organization with a functional structure.
a.
Strategic control helps managers to set ambitious goals and then encourages employees to
meet those goals.
b.
Strategic control enables organizational learning, as employees and their superiors work
closely together.
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Chapter 12: Implementing Strategy in Companies That Compete in a Single Industry
c.
3.
Output control is easy with a functional structure because each function can clearly see its
contribution to the performance of the organization.
d.
Strategic control facilitates implementation of a fair, objective system of rewards.
Functional structures make it easy to build a cohesive culture, which also supports effective
control.
STRATEGY IN ACTION 12.4: GATEWAY’S NEW RULES BACKFIRE
Gateway, the personal computer maker, began to experience increasing customer dissatisfaction and falling sales
in 2001. The problem was traced to a new set of policies for the firm’s customer service personnel, in an effort to
reduce after-sales service expenses. One problematic rule stated that, if the customer installed any software in
addition to what was on the machine at the time of sale, the warranty would be invalidated. The other problem
area was a new policy that rewarded customer service representatives more the less time they spent on each call.
The result of these two changes were that customers often had very unsatisfying service, and the reps felt that they
now could not deliver the excellent service that Gateway’s culture encouraged. Managers abolished the rules, but
it may have been too late. Today, Gateway is struggling to hold onto a market share that is less than 10 percent,
compared to industry leader Dell with more than 25 percent.
Teaching Note: This case illustrates the problems that may arise as a result of inappropriate control systems.
Although the idea behind the policies—to reduce service costs—was sound, the implementation was catastrophic.
Use this case as an example of how just one strategic mistake may have enduring, disastrous consequences. Give
other examples in class, or ask students if they know of any other examples. For example, the near-disaster that
resulted when Coca-Cola switched to New Coke, or the pay-for-speed policy that led Domino’s (pizza delivery)
into several lawsuits related to fatal car crashes.
B.
Even large companies usually retain some elements of a functional structure because of its benefits,
but a functional structure does entail some bureaucratic costs.
1.
Functions can become increasingly remote from one another because they each develop a
unique perspective over time, leading to communication problems.
2.
As the number of its products grows, a company struggles to measure the contribution of one
product to overall profitability.
3.
Growth in products also causes interaction with more varied types of customers. Firms have a
difficult time coping with the expanded product range that results.
4.
A functional structure is too centralized for controlling production or sales in many different
regions, because managers cannot be sensitive to the needs of their diverse customers.
5.
Finally, as managers spend more and more time and resources coping with the above problems,
long-term strategic considerations may be ignored.
C.
If a firm is growing too complex to use an exclusively functional structure, one way that the firm may
respond is to switch to the use of outsourcing in one or more functions.
1.
A firm should not outsource in an area in which it has an important distinctive competency.
2.
However, use of outsourcing can free up managerial and other resources to focus on the truly
important functions.
VII. Implementing Strategy in a Single Industry
A. To pursue its business-level strategy successfully, managers must find the right combination of
structure, control, and culture that links and combines the competencies in a company’s value chain
functions.
B.
Effective strategy implementation allows the company to be more successful in pursuing a cost leader
or differentiation strategy.
Show Transparency 76
Figure 12.6: How Organizational Design Increases Profitability
C.
Strategy implementation aids firms in pursuing a cost leader strategy, because it can help them reduce
expenses in all functions through improved coordination and control.
1.
Managers must choose the combination of structure, control, and culture that will lead to the
lowest costs.
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Chapter 12: Implementing Strategy in Companies That Compete in a Single Industry
151
2.
D.
E.
Managers must continuously monitor their structure, control, and culture to ensure that costs are
continuously driven down.
Strategy implementation aids firms that are pursuing a differentiation strategy, because it helps the
company to add value and uniqueness to its products.
1.
A differentiation strategy requires a broad product line, leading to high bureaucratic costs. Thus
an effective coordination mechanism is especially important.
2.
To successfully pursue a differentiation strategy, a company’s functions must work
cooperatively together. Behavior controls and culture are more effective than output controls in
a cooperative situation, because it’s hard to measure the relative contribution of different groups
when they are cooperating.
3.
Thus, differentiators tend to have a very different culture than cost leaders. Differentiators tend
to have a collegial or professional culture, based on expertise and cooperation.
As companies try to both increase differentiation and reduce costs simultaneously, strategy
implementation becomes much more complex. This leads to new forms of structure and control
systems.
1.
To cope with the complexity of producing many products for many market segments,
companies can adopt a product structure.
a.
To implement a product structure, a company must first group its products into categories
targeted at specific groups of customers and managed by one set of managers.
b.
Support activities from the value chain are centralized to keep costs low. However, subgroups within each function specialize in meeting the needs of a particular product group.
c.
The organization then develops a control system that examines each product group
separately. This creates an ability to rapidly spot problem areas, and also a way to give
rewards for high performance.
d.
However, rewards still are closely tied to organizational, and not group, performance, to
ensure that managers work together across units as needed.
STRATEGY IN ACTION 12.5: KODAK’S PRODUCT STRUCTURE
In the 1970s, Kodak, the leading maker of photographic film in the world, began to face intensifying competitive
pressure from cost leaders such as Fuji. CEO Daniel Carp wanted to bring about new and improved products at a
relatively low cost, and he decided that a product structure would best support that strategy. The new strategy
organizes on product lines, such as digital imaging or health care applications. Product managers are responsible
for cost cutting within groups, and they share centralized support functions. The new structure encourages cost
reduction, but it also facilitates sharing of knowledge throughout the organization.
Teaching Note: Kodak provides an exemplary case for studying the implementation of a product structure. The
chosen structure is appropriate for the firm’s strategy, and the implementation has been very effective. For
classroom discussion, have students offer example of other firms that might benefit from the use of a product
structure. Ask them, “What do these firms have in common?”
Show Transparency 77
Kodak’s Product Structure
2.
Companies that are focused on meeting the needs of many different groups of customers can
use the market structure.
Show Transparency 78
Figure 12.7: Market Structure
a.
b.
To group people into units based on the customers they serve, it is first important to
clearly understand the needs of each customer group.
Employees then become close to each customer segment, while support functions are
centralized.
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Chapter 12: Implementing Strategy in Companies That Compete in a Single Industry
3.
Geographic structures are appropriate for firms that are attempting to expand their geographic
reach.
Show Transparency 79
Figure 12.8: Geographic Structure
a.
b.
4.
Geographic regions become the basis for grouping organizational activities.
Activities at the level of the region are controlled by regional managers, but there is still
control by top managers at the center, as well as centralized support from the specialist
functions.
Companies competing in a fast-changing, high-tech environment can use either the matrix or
the product-team structure.
a.
Fast-paced environments make the costs associated with lack of communication and
coordination even greater.
b.
Often the firm must organize around the needs of the R&D function. However, managers
must work to ensure that the new high-tech products meet customer needs and are
affordable.
c.
A structure that addresses these concerns is the matrix structure, in which value chain
activities are grouped in two different ways at the same time.
Show Transparency 80
Figure 12.9: Matrix Structure
(1)
d.
Activities are grouped by function, to obtain the advantages of a functional
structure.
(2) Activities are also grouped by product, to obtain those advantages. This results in a
complex design of reporting relationships.
(3) The matrix structure is very flat because above the functional bosses and the project
bosses there is only the CEO. Mid- and lower-level managers and employees report
to two bosses—both the functional boss and the project boss. The bosses are
responsible for maintaining coordination between the functions and projects.
(4) A matrix structure has the advantage of strong cross-functional integration, which
improves the organization’s speed and flexibility in dealing with change.
(5) In the matrix structure, hierarchical control is minimal, and employees are expected
to coordinate their own activities to get the work done.
(6) Matrix structures also allow team members to join and then leave to join other
teams, as their skills are needed.
(7) Well-thought-out matrix structures can free managers from spending lots of time on
operating matters, as employees and teams are self-directed to a great extent.
(8) An effective implementation of the matrix structure requires a culture based on
innovation and quality.
(9) A disadvantage of the matrix structure is the time and effort that it spent just
formulating the teams and getting them started on their tasks.
(10) Another disadvantage is the conflict that can occur between the two bosses—the
project manager and the functional manager—due to different goals. The former
seek cost reduction; the latter seek improved quality.
(11) Another disadvantage is the difficulty in monitoring ever-changing teams in which
each worker is reporting to two bosses.
Companies may also use the product-team structure in high-tech environments.
Show Transparency 81
Figure 12.10: Product-Team Structure
(1)
The product-team structure is very similar to the matrix structure, except that the
teams are permanent, rather than the temporary teams of the matrix design.
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Chapter 12: Implementing Strategy in Companies That Compete in a Single Industry
153
(2)
F.
Product teams are formed at the beginning of the process, so that every function is
involved in a project from the start.
(3) Product teams also have decentralized authority and are ultimately responsible for
new product development.
(4) Product teams differ from the product structure, because support functions are not
centralized, but are distributed to each team.
(5) The costs of coordinating the teams’ activities are lower in a product team than in a
matrix structure, but a company still obtains the gains from close cooperation
across functional boundaries.
Companies that compete with a focus strategy often use a functional structure, which both increases
differentiation and reduces costs.
1.
Focusers tend to be smaller firms, and therefore the functional structure may be sufficient for
their integration and coordination needs.
2.
A functional structure is also very flexible, which is important to focusers, who must adapt to
customer’s constantly-changing requirements.
STRATEGY IN ACTION 12.6: RESTRUCTURING AT LEXMARK
Lexmark, a printer and typewriter manufacturer, was formed when IBM sold an underperforming business unit.
CEO Marvin Mann had the task of turning the company around. He changed the firm’s tall, centralized,
multidivisional structure—inherited from IBM—to a flatter, decentralized, product-team structure. He also
reduced the variety in the product line, created four product groups with cross-functional teams to develop and
manufacture new products, and advocated benchmarking and a stock ownership incentive plan. Lexmark’s new
structure has been very successful.
Teaching Note: Lexmark’s case illustrates the benefits of the product-team structure and a reduced product line. In
a class discussion, ask students to suggest specific ways that Mann could have implemented this strategy, in
addition to those mentioned in the case. For example, he must have provided training for managers in the effective
use of teams, and so on.
VIII. Restructuring and Reengineering
A. To improve corporate performance, a single-business firm can use restructuring and reengineering.
B.
Restructuring involves reducing the number of levels in the organizational hierarchy (flattening the
organization) and downsizing the workforce. These measures are implemented to reduce costs.
1.
There are valid reasons for restructuring, however, many times restructuring occurs because
firms have not made incremental changes as they were needed, and so a radical readjustment is
called for.
C.
Another way to improve corporate performance is through the use of reengineering, which is a
radical rethinking and redesign of a firm’s business processes. Note that reengineering focuses on
processes, not on functions.
1.
A business process is any activity that is vital to competitive advantage and involves several
functions simultaneously.
2.
Firms that are reengineering ignore their traditional tasks, functions, groupings, and so on.
Instead, they look at what they do from a customer’s point of view, and attempt to maximize the
value the customer receives from the organization.
3.
Reengineering is compatible with, and complementary to, TQM. Firms often use both together
to first redesign processes and then to further refine the processes and improve quality.
4.
Advances in information technology that have led to more and better quality information help
firms reengineer.
ANSWERS TO DISCUSSION QUESTIONS
1.
What is the relationship of organizational structure, control, and culture? Give some examples of when and
under what conditions a mismatch between these components might arise.
These three elements are the three main tools used in strategy implementation, therefore each must be in
harmony with the others. For example, if an organization’s culture were informal and collegial, then a
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Chapter 12: Implementing Strategy in Companies That Compete in a Single Industry
highly centralized and bureaucratic organizational structure would be inappropriate. When each is in
harmony with the others, organizational effectiveness will be greatly enhanced.
As an organization grows and experiences change, mismatch between these three elements can occur. For
example, Time Warner purchased Turner Broadcasting in 1996, and then experienced postacquisition
integration problems because Turner’s entrepreneurial culture didn’t mesh with Time Warner’s more
conservative culture. Mismatch might also result from a change in societal expectations, such as the way in
which many firms have changed their culture to embrace diversity. In summary, virtually any type of
change may lead to a need to realign the company’s structure, control, and/or culture.
2.
What kind of structure best describes the way your (a) business school and (b) university operate? Why is
the structure appropriate? Would another structure fit better?
You may need to give students information about organizational structure, as well as the school’s and
university’s strategic goals, resources, and external pressure, in order to equip them to answer this question
properly. As they answer the questions, encourage them to think about the relationship between strategy and
structure.
3.
Why would a company choose a matrix structure? What are the problems associated with managing this
structure, and why might a product-team structure be preferable?
Companies use a matrix structure because they need a high level of coordination and communication, in
order to effectively deal with a fast-changing high-tech environment. The benefits include a simultaneous
emphasis on functions and products, a flat organization structure, strong cross-functional integration leading
to speed and flexibility, and employee autonomy.
Disadvantages of the matrix structure include the time and effort needed to repeatedly formulate teams, the
potential for conflict between functional and product managers, and the difficulty of monitoring
performance when workers report to two supervisors.
Because of the matrix structure’s disadvantages, companies might instead opt for a product-team structure,
in which teams are permanent, rather than the temporary teams of the matrix design. The product-team
structure has advantages over the matrix structure, especially in reduced time spent formulating and
launching teams.
4.
For each of the structures discussed in the chapter, outline the most suitable control systems.
The most suitable control systems for each structure can be found in the table below:
Functional structure
Product structure
Geographic structure
Matrix structure
Product-team structure
5.
Personal supervision and organizational culture
Output control and bureaucratic culture
Output control and organizational culture
Organizational culture and teams
Organizational culture and bureaucratic control
What kind of structure, controls, and culture would you would be likely to find in (a) a small manufacturing
company, (b) a chain store, (c) a high-tech company, and (d) a Big Four accounting firm?
A small manufacturing company would be likely to use a functional structure, which is simple and allows
for task specialization. Because this company is small, its need for coordination is relatively low, and thus
the functional structure would be best. Control is likely to be personal supervision, because the top
managers of the firm can have personal contact with every employee. Organizational culture would
probably tend to focus on friendly, informal relationships between workers and managers.
A chain store would most likely use a geographic structure. This allows the stores to customize product
offerings for regional tastes, selling bathing suits in the South and ice skates in the North, for example.
Control is likely to be output control, focused on setting challenging goals. Culture would probably
emphasize rule compliance and be more formal and bureaucratic in style.
A high-tech company would probably use a product-team structure, because that allows flexibility,
innovation, and knowledge sharing, while still supporting functional specialization. Controls are likely to be
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Chapter 12: Implementing Strategy in Companies That Compete in a Single Industry
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through direct supervision and from group members. The organization’s culture would tend to encourage
innovation and entrepreneurial spirit.
A Big Four accounting firm would be likely to use a matrix structure, forming temporary audit teams as
needed. Each team would contain functional leaders, as well as project leaders. Control is likely to be
bureaucratic in nature, emphasizing rule compliance. The organization’s culture would tend to encourage
professionalism, impersonal relationships, teamwork, and hard work.
SMALL-GROUP EXERCISE: DECIDING ON AN ORGANIZATIONAL
STRUCTURE
Students are asked to break into small groups, to read a short case, and then act as managers of a large soft drink
maker. The students must decide how best to implement a strategy of increasing the number of products offered,
in order to fill more market niches. Specifically, students should consider either a more complex kind of product
structure or the creation of spin-offs for each product type. They should then report their choice and the reasons
for it.
Teaching Note: As students answer the questions, remind them that they must choose an organizational structure
that would allow maximum performance under the conditions described in the case. They should be able to easily
develop a list of advantages and disadvantages of each alternative structure, based on material found in the
chapter. For classroom discussion, ask them to share their ideas with the class and debate the merits of each
suggested alternative. You can use this exercise to again point out to students that no strategic choice is perfect—
every decision creates advantages but also incurs costs and closes off other avenues.
ARTICLE FILE 12
Students should find a single-business company that has recently implemented a strategic change, and then
describe the change, the reasons for it, and the impact it had on the firm.
Teaching Note: Students will not have a hard time finding examples of firms that have recently changed their
structure, controls, or culture. If they need guidance, suggest they look for firms that have recently entered or
exited an industry, recently undergone a merger or acquisition, or experienced some other radical shift in their
plans.
STRATEGIC MANAGEMENT PROJECT: MODULE 12
Students examine their firm’s structure, controls, and culture in this module. They are asked to address many
different issues related to implementation.
Teaching Note: Students may encounter difficulty finding detailed information about their firm’s structure,
controls, and culture. Encourage them to be creative and make inferences where necessary. For example,
interviewing a manager or employee of that firm, looking at job titles to gain an understanding of structure,
assessing executive compensation practices for evidence about control, and even visiting a firm’s facilities may
give clues. A visit to a local Wal-Mart would give you clues about how they treat their employees and customers,
what the firm values, and so on.
If the eleven questions seem overwhelming, you can assign a subset. For example, questions 1 and 2 together
explore issues about authority, whereas questions 3 and 4 address the organization’s type of structure.
EXPLORING THE WEB: VISITING HOME DEPOT
Students are asked to visit Home Depot’s web site (www.homedepot.com) and evaluate that firm’s organizational
structure, controls, and culture. In the General Task, students are asked to find a company that is changing its
implementation practices and to describe the changes and the likely benefits of the change.
Teaching Note: After visiting Home Depot’s web site, students will understand that the firm’s structure is a
geographic structure, with regional vice presidents serving seven areas within the U.S., and Canada and Mexico.
Control systems include standardization of work practices and budgets, as well as output controls to support
personnel in meeting their objectives. The organization’s culture values responsive service to customers and is
friendly and informal.
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Chapter 12: Implementing Strategy in Companies That Compete in a Single Industry
CLOSING CASE: SAM WALTON’S APPROACH TO IMPLEMENTING
WAL-MART’S STRATEGY
Sam Walton, founder of Wal-Mart developed an extensive strategic control system for the firm, to motivate
workers and managers to achieve high levels of customer satisfaction. An information gathering and sharing
system records stored data and communicates it throughout the firm. Meetings and store visits keep managers
informed about store performance and enable rapid solutions to any difficulties. Walton also insisted on
promotion from within and a pay-for-performance system that rewards all employees with Wal-Mart stock.
Standardization and budgets keep costs in control. Finally, Walton helped to develop a strong and cohesive
organization culture, with emphasis on friendly and responsive customer service.
Teaching Note: This case describes a variety of implementation measures at Wal-Mart. One area that would be
interesting to discuss in class is organizational culture. Ask students to describe other organizations with which
they are familiar that have distinctive organizational cultures. What are those culture’s values? How are they
communicated and reinforced?
Answers to Case Discussion Questions
1.
What were the main elements of the control system that Sam Walton created?
The Closing Case describes how Wal-Mart has established a sophisticated set of controls to monitor its
performance. First, the company has developed a state-of-the-art financial control system that provides upto-the-minute feedback about ongoing operations and allows top managers to intervene quickly when
problems seem to be arising. Second, Wal-Mart links performance to rewards and also has implemented an
elaborate system of rules and standard operating procedures to guide employees. Finally, Wal-Mart has a
strong culture in large part because Sam Walton wanted to create a motivated and committed workforce
who would focus on providing customers with high-quality customer service.
2.
In what ways will this control system facilitate Wal-Mart’s strategy of global expansion?
There are benefits and drawbacks to Wal-Mart’s control system when considering global expansion. The
greatest benefit is that its control system is very standardized and thus is transferable to other locations. One
major challenge is, however, the question whether the unique Wal-Mart culture as part of its successful
control system will mesh with the local culture. One of the authors recently completed a field study of WalMart stores overseas and found significant differences in the way customers are treated in the U.S. and
Germany, for example. This is a challenge that the Wal-Mart executives need to work on.
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