Organizational Theory
Organizational strategy is a specific pattern
of decisions and actions that managers
take to use core competencies to achieve
a competitive advantage and outperform
competitors.
Core competencies are skills and abilities in
value creation activities that allow a company
to outperform its rivals.
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Organizational Theory
Table 8-1 Low-Cost and Differentiation Advantages Resulting from Functional-Level Strategy
Value-creating
function
Source of low-cost
advantage
Source of differentiation
advantage
Manufacturing
• Development of skills in
flexible manufacturing technology
• Increase in product
quality and reliability
Human resource
management
• Reduction of turnover
and absenteeism
• Hiring of highly skilled
personnel
• Development of innovative
training programs
Materials
management
• Use of just-in-time inventory
• Use of company reputation
system/ computerized warehousing and long-term relationships
with suppliers and customers
• Development of long-term
to provide high-quality inputs
relationships with suppliers and
and efficient distribution and
customers
disposal of outputs
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Organizational Theory
Table 8-1 Low-Cost and Differentiation Advantages Resulting from Functional-Level Strategy (continued)
Value-creating
function
Source of low-cost
advantage
Source of differentiation
advantage
Sales and marketing
• Increased demand and lower
production costs
• Targeting of customer groups
• Tailoring products to
customers
• Promoting brand names
Research and
development
• Improved efficiency of
manufacturing technology
• Creation of new products
• Improvement of existing
products
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FIGURE 8-3 Structural Characteristics Associated with the Development of Core
Competencies in Production, Sales, and Research Development
Manufacturing
Sales
R&D
Mechanistic
structure
Organic
structure
Manufacturing
Sales
R&D
Tall
organization
Flat
organization
Manufacturing
Sales
R&D
Centralized
decision
making
Decentralized
decision
making
Manufacturing
Sales
R&D
Standardization
Mutual
adjustment
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.
Organizational Theory
Once an organization has chosen its domain,
it can use either of the following:
Low-cost business-level strategy—
produces low-priced goods and services
for all customer groups.
Differentiation business-level strategy—
produces high-priced, quality products
aimed at particular market segments.
5
Organizational Theory
One type of business-level strategy is the
focus strategy.
Focus strategy involves specialization in
one segment of the market and focusing
all of the organization’s resources on
that segment.
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FIGURE 8-5
Characteristics of Organizational Structure Associated with Business-Level Differentiation
and Low-Cost Strategies
Matrix
Product team
Product, market,
Functional
structure
structure
or geographic
structure
structure
Differentiation Strategy
Low-Cost Strategy
Complex structure
Simple structure
Decentralized decision making
Centralized decision making
High differentiation
Low differentiation
High integration
Low integration
Organic structure
Mechanistic structure
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FIGURE 8-6
Corporate-Level Strategies for Entertaining New Domains
Input
Domains
Backward
vertical
integration
Related
diversification
Related
Domains
Core Domain
Output
Domains
Forward
vertical
integration
Unrelated
diversification
Unrelated
Domains
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Organizational Theory
Organizations pursuing a strategy of
unrelated diversification are likely to use
a conglomerate structure.
Conglomerate structure—a structure in
which each business is placed in a
self-contained division and there is no
contact between divisions.
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FIGURE 8-8
Conglomerate Structure
CEO
Corporate
Headquarters
Staff
A
Division
B
Division
C
Division
D
Division
E
Division
F
Division
G
Division
H
Division
I
Division
10
11
12
Organizational Theory
Multidomestic Strategy
Pressures for Local
Responsiveness
HIGH
Pressures for Global
Integration
LOW
• Manufacturing, R&D, marketing abroad
• Achieve a differentiation advantage
• Bureaucratic costs are lowest
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Organizational Theory
International Strategy
Pressures for Local
Responsiveness
LOW
Pressures for Global
Integration
LOW
• Manufacturing abroad
• R&D and marketing at home
• Bureaucratic costs are low
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Organizational Theory
Global Strategy
Pressures for Local
Responsiveness
LOW
Pressures for Global
Integration
HIGH
• Manufacturing at a few low-cost locations
• R&D and marketing at home
• Bureaucratic costs are high
15
Organizational Theory
Transnational Strategy
Pressures for Local
Responsiveness
HIGH
Pressures for Global
Integration
HIGH
• Manufacturing, R&D, marketing abroad, BUT
• Emphasis on global learning / cost reduction
• Bureaucratic costs are highest
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Organizational Theory
Vertical differentiation choices
Levels in the hierarchy
Low
Need for Coordination
High
Multidomestic
Strategy
International
Strategy
Global
Strategy
Transnational
Strategy
Relatively
flat
Relatively
tall
Relatively
tall
Relatively
flat
Low
Bureaucratic Costs
High
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Organizational Theory
Vertical differentiation choices
Centralization of authority
Low
Need for Coordination
High
Multidomestic
Strategy
International
Strategy
Global
Strategy
Transnational
Strategy
Decentralized
Centralized /
Decentralized
Centralized
Simultaneous
Centralized &
Decentralized
Low
Bureaucratic Costs
High18
Organization Theory
Horizontal differentiation
Type of Structure
Low
Need for Coordination
High
Multidomestic
Strategy
International
Strategy
Global
Strategy
Global
geographic
structure
Global
product group
structure
Global
Global matrix
product group
structure
Low
Bureaucratic Costs
Transnational
Strategy
High19
Organizational Theory
Global geographic structure —
a structure in which foreign divisions are
created in every country or region in which
an organization operates to replicate
all its domestic value creation activities.
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FIGURE 8-9
Global Geographic Structure
Corporate
Headquarters
(located in Sweden)
Canadian
United
British
French
Japanese
South
Division
States
Division
Division
Division
American
Division
Division
Functional activities
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Organizational Theory
Global product group structure —
a structure in which product group
headquarters coordinates the activities
of the domestic and foreign divisions
within each product group.
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FIGURE 8-10
Global Product Group Structure
Corporate Headquarters
(located in the United States)
Worldwide Chemicals
Worldwide Consumer
Worldwide Automotive
Product Group
Goods Product
Product Group
Headquarters
Headquarters
Headquarters
Canadian
British
United States
French
Japanese
Division
Division
Division
Division
Division
Product groups
Domestic and foreign divisions
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Organizational Theory
Global matrix structure —
a structure that coordinates organizational
activities and resources along two
dimensions:
•
•
Product groups
and
World areas
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FIGURE 8-11
Global Matrix Structure
North American Area
Canadian
Division
Mexican
Division
United
States
Division
European Area
British
Division
French
Division
Pacific Area
Japanese
Division
Taiwan
Division
Chemicals
product
group
Consumer
goods
product group
Automobile
product
group
Individual business division
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“GM Unveils Overhaul of Europe
Operations”
 General Motors unveiled much-anticipated
overhaul of European operations designed to
streamline Co by bringing units Adam Opel,
Vauxhall Motors, and Saab under single mngt
structure
 Intended to speed up decision making and increase
efficiency
 Centralizing finance, design and engineering, buying,
manufacturing, sales and marketing
 “Asking all of our European ees to recalibrate
themselves to a mindset of working for General
Motors overall, instead of an individual brand or
country operation”
 Source: Wall Street Journal, 6/18/04
 See also “Reversing 80 Years of History…”
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“International Isn’t Just IBM’s
First Name”
 Lotus Symphony is package of PC software
applications
 Work on new version started in July 2007
 Teams in Beijing (lead); Austin, TX; Raleigh, NC;
Boeblingen, Germany contributing
 One of major challenges is difficulty of communicating
via e-mail or videoconferencing when programmers
have never met one another
 Trust is big problem
 IBM trying to bridge gap w/ software that borrows
heavily from social networking
 New program called Beehive is essentially corporate
version of Facebook
 Ees create profiles and post photos, lists of interests,
etc.
 Source: Business Week, 1/28/08
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