EXPANSION STRATEGY

organization structures follow the growth strategies of firms. Growth strategies tend to follow certain patterns.

GROWTH STRATEGIES I
The initial stage typically involves plants, sales offices, or warehouses in a single industry, a single location, and performance of a single function. If successful, they follow a predictable path.

GROWTH STRATEGIES II
The first growth stage is VOLUME EXPANSION, producing selling and distributing more of their product or service to customers.

GROWTH STRATEGIES III

The next stage of growth is GEOGRAPHIC EXPANSION, continuing what it was already doing in new geographical areas, with new field units.

GROWTH STRATEGIES IV
The third growth strategy is VERTICAL INTEGRATION, as firms either buy or create other functions.

GROWTH STRATEGIES V
The ultimate growth strategy, PRODUCT DIVERSIFICATION, involving the firm in new industries either through merger, acquisition, or creation (product development).

Expansion
The change to geographic expansion, and ultimately, product diversification increases the firms concern for adaptability and flexibility in the face of diverse and complex environments. Thus, the organization structures of such firms are characterized by product-based divisions and departments, decentralized authority, and relatively wide spans of control.

Stage-1
As demand grows for products. Companies expand. They increase product lines. Integrate vertically to control sources of supply. Reducing dependency on suppliers. To produce a greater variety of products. They separate into product groups within the organization.

Stage-2
Strategies become more ambitious and elaborate. Expand activities within their same industry. Vertical integration requires more complex coordination due to increased interdependence between organizational units. Accomplished by redesigning the structure to form specialized units based on functions performed.
(Moderate Centralization, Moderate Formalization, Moderate Complexity)

Stage-3
Growth and diversification give rise to the need for an autonomous multi-divisional structure. The centralized structure becomes inefficient and impractical for dealing with significantly greater complexity.

Product diversification
A product-diversification strategy requires a structural form that allows for the efficient allocation of resources. Accountability for performance, and coordination between units. This can best be achieved through the creation of a multiple set of independent divisions, each responsible for a specified product line. (High Complexity, Low Centralization, Moderate Formalization)

Strategic types
Classify organizations into four strategic types: 1. Defenders: seek stability by producing only a limited set of products directed at a narrow segment of the total potential market. Strive aggressively to prevent competitors from entering their limited niche or domain. They accomplish this by standard economic actions such as competitive pricing or production of high-quality products.

Defenders tend to ignore developments outside their product line areas. They do little environmental scanning and limit product development. There is intensive planning towards cost and efficiency issues.

Example Soft Soap

2. Prospectors: Almost the opposite of Defenders. They find and exploit new-product and market opportunities. Innovation is sometimes more important than profitability after exploiting a new opportunity, they get out. Must have high profit margins to cover high costs.

Examples - 3M, some Magazine publishers

3. Analyzers: Capitalize on the best of both Defenders and Prospectors. Minimize risk and maximize opportunities for profit. They move into new innovations and new markets only after Prospectors have proven the viability of the market. They live by imitation. They take the ideas of Prospectors and copy them. Analyzers must have the ability to respond to leading Prospectors, but maintain operating efficiency. They tend to have smaller profit margins than Prospectors, but are more efficient.

Analyzers seek both flexibility and stability. They develop a structure made up of dual components. Parts have high levels of standardization, routinization, and mechanization for efficiency. Other parts are adaptive to maintain flexibility. Examples IBM, Catapillar, Digital Equipment Corp.

4. Reactors: A residual strategy. Inconsistent and unstable patterns when one of the other three strategies is pursued improperly. In general, Reactors respond inappropriately, perform poorly, and are reluctant to commit themselves aggressively to a specific strategy.

ENVIRONMENT STRATEGY CONTINUUM

Little Change and Uncertainty
Rapid Change & High Uncertainty

Defender

Reactor

Analyzer

Prospector

TWO-VARIABLE ANALYSIS OF INDUSTRIES

INDUSTRY-STRUCTURE
TYPE A and C INDUSTRIES: The high capital requirements tend to result in large organizations and a limited number of competitors. Firms in Type A and C industries will be highly structured and standardized, with the Type As (text error) being more decentralized to facilitate rapid response to innovations introduced by competitors.

INDUSTRY-STRUCTURE II
TYPE B and D INDUSTRIES: Because of low capital requirements. These industries tend to be made up of a large number of small firms. Type D, however, will likely have more division of labor and more formalization than Type Bs because low innovation rates allow for greater standardization. in the same way that capital requirements influence organizational size and number of competitors. We should expect high product-innovation rates to result in less formalization and more decentralization of decision-making.

THE EFFECTS OF STRUCTURE ON STRATEGY

1. Complexity 2. Formalization 3. Centralization

COMPLEXITY
As the level of complexity increases, so does the probability that:
1. Members initially exposed to the decision stimulus will not recognize it as being strategic or will ignore it because of parochial preferences. 2. A decision must satisfy a large constraint set, which decreases the likelihood that decisions will be made to achieve organization-level goals; 3. Strategic action will be the result of an internal process of political bargaining, and moves will be incremental; and

FORMALIZATION
As the level of formalization increases, so does the probability that: 1. The strategic decision process will be initiated only in response to problems or crises that appear in variables monitored by the formal system; 2. Decisions will be made to achieve precise, yet remedial, goals, and means will displace ends; 3. Strategic action will be the result of standardized organizational processes, and moves will be incremental; and

CENTRALIZATION
As the level of centralization increases, so does the probability that:

1. The strategic decision process will be initiated only by the dominant few, and it will be the result of proactive, opportunity-seeking behavior; 2. The decision process will be oriented toward achieving positive goals (i.e.- intended future domains) that will persist in spite of significant changes in means; 3. Strategic action will be the result of intendedly rational choices, and moves will be major departures from the existing strategy; and