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Organizational Theory,
Design, and Change
Fifth Edition
Gareth R. Jones
Chapter 8
Organizational Design
and Strategy in a
Changing Global
Environment
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Learning Objectives
1. Identify the ways managers can use
functional-level strategy to develop
core competences that allow an
organization to create value and gives
it a competitive advantage
2. Explain how the way managers
combine their organizations distinctive
competences can create a successful
business-level strategy that allows
them to compete for scarce resources
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Learning Objectives (cont.)
!. "ifferentiate among the corporate-
level strategies companies can use
to enter new domains where they can
continue to grow and create value
#. $ppreciate the importance of lin%ing
strategy to structure and culture at
each level to increase the ability to
create value
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Learning Objectives (cont.)
&. 'nderstand how global expansion
strategies allow an organization to
see% new opportunities to exploit its
core competences to create value for
sta%eholders
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Strategy and the Environment

Organizational strategy( the specific

pattern of decisions and actions that
managers ta%e to use core
competences to achieve a competitive
advantage and outperform competitors

Core competences( the s%ills and

abilities in value creation activities that
allow a company to achieve superior
efficiency) *uality) innovation) or
customer responsiveness
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Figure 8-1: he !a"ue
#reation #yc"e
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Sources o$ #ore
#om%etences

+pecialized resources

Functional resources( the s%ills

possessed by an organizations
functional personnel

Organizational resources( the

attributes that give an organization a
competitive advantage such as the s%ills
of the top-management team or
possession of valuable and scarce
resources
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Sources o$ #ore #om%etences
(cont.)

,oordination ability

$n organizations ability to coordinate its

functional and organizational resources
to create maximal value

Effective coordination of resources

leads to competitive advantage by
means of(

,ontrol systems

,entralization or decentralization of authority

"evelopment and promotion of shared

cultural values
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&"oba" E'%ansion and #ore
#om%etences

-ransferring core competences abroad

-ransfer core competence overseas to

produce cheaper or improved product

Establishing a global networ%

Establish value creation activities in

countries where economic) political) and
cultural conditions are li%ely to enhance
its low-cost or differentiation advantage
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&"oba" E'%ansion and #ore
#om%etences (cont.)

.aining access to global resources

and s%ills

"ifferent countries have different

resources and s%ills that give them a
competitive advantage

'sing global learning to enhance core

competences

.lobal activities provide access to

%nowledge that will allow an organization
to improve its core competences
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Figure 8-(: #reation o$ !a"ue
hrough &"oba" E'%ansion
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Four Leve"s o$ Strategy

Functional-level strategy( a plan to

strengthen an organizations functional
and organizational resources) as well
as its coordination abilities) in order to
create core competences

Business-level strategy( a plan to

combine functional core competences
in order to position the organization so
that it has a competitive advantage in
its domain
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Four Leve"s o$ Strategy
(cont.)

Corporate-level strategy( a plan to

use and develop core competences so
that the organization not only can
protect and enlarge its existing domain
but can also expand into new domains

Global expansion strategy( a plan

that involves choosing the best strategy
to expand into overseas mar%ets to
obtain scarce resources and develop
core competences
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Functiona"-"eve" Strategy

-he strategic goal of each function is

to create a core competence that
gives the organization a competitive
advantage

-o gain a competitive advantage) an

organization must be able to do at
least one of the following(

/erform functional activities at a cost lower

than that of its rivals) or

/erform functional activities in a way that

clearly differentiates its goods and services
from those of its rivals
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Functiona"-"eve" Strategy
(cont.)

+trategies to 0ower ,osts or

"ifferentiate /roducts

-he manufacturing function can lower

the costs of production by pioneering
the adoption of the most efficient
production methods

-he human resource management

12345 function can lower costs by
designing appropriate control and
reward systems to increase employee
motivation and reduce absenteeism and
turnover
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Functiona"-"eve" Strategy
(cont.)

+trategies to 0ower ,osts or

"ifferentiate /roducts 1cont.5

-he materials managements 6ust-in-time

inventory systems) computerized
warehousing) purchasing managers s%ills
in developing long-term lin%s with suppliers
and distributors) and fostering of an
organizations reputation can lead to a low-
cost or differentiation advantage
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Functiona"-"eve" Strategy
(cont.)

+trategies to 0ower ,osts or

"ifferentiate /roducts 1cont.5

-he s%ills and expertise of sales and

mar%eting can contribute directly to a
low-cost or differentiation advantage

37" can reduce costs by developing

cheaper ways of ma%ing a product
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ab"e 8-1: Lo)-#ost and *i$$erentiation
+dvantages ,esu"ting From Functiona"-
Leve" Strategy
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Functiona"-"eve" Strategy
(cont.)

8unctional-level strategy and structure

-he strength of a functions core

competence depends not only on the
functions resources) but on its ability to
coordinate the use of its resources

$ccording to contingency theory) each

function should develop a structure that
suits its s%ills and resources
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Figure 8--: Structura" #haracteristics
+ssociated )ith *eve"o%ment o$ #ore
#om%etences
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Functiona"-"eve" Strategy
(cont.)

8unctional-level strategy and culture

Organizational culture( a set of shared

values that organizational members use
when they interact with one another and
with other sta%eholders

-he coordination abilities that stem from

an organizations culture emerge
gradually and are a product of the
property rights system) structure) ethics)
and characteristics of its top-
management team
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Functiona"-"eve" Strategy
(cont.)

8unctional-level strategy and culture

1cont.5

-he importance of culture for functional-

level strategy

-o gain a competitive advantage) an

organization must design its functional structure
and culture to provide a setting in which core
competences develop

If culture is embedded in the day-to-day

interactions of functional personnel) it is difficult
for a competitor to imitate another
organizations culture
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.usiness-"eve" Strategy

-he business-level strategy involves(

+election of the domain the organization

will compete in

/ositioning the organization so that it

can use its resources and abilities to
manage its specific and general
environments in order to protect and
enlarge that domain
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.usiness-"eve" Strategy (cont.)

+trategies to lower costs or

differentiate products

Low-cost business-level strategy( use

of s%ills in low-cost value creation to
produce for a customer group that wants
low-priced goods and services

Differentiation business-level
strategy: use of s%ills to differentiate
products for customer groups that want
and can afford differentiated products
that command a high or premium price
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.usiness-"eve" Strategy (cont.)

+trategies to lower costs or

differentiate products 1cont.5

Focus business-level strategy:

specialization in one segment of a mar%et)
and focusing all of the organizations
resources on that segment
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Figure 8-/: y%es o$
.usiness-Leve" Strategy
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.usiness-"eve" Strategy (cont.)

9usiness-level strategy and structure

-hree factors affect an organizations

choice of a structure to create a
competitive advantage(

$s an organization produces a wider range of

products) it needs greater control over the
development) mar%eting) and production of
these products

$s an organization see%s to find new customer

groups for its products) it needs a structure
that allows it to serve the needs of its
customers
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.usiness-"eve" Strategy (cont.)

9usiness-level strategy and structure

1cont.5

-hree factors affect an organizations

choice of a structure to create a
competitive advantage 1cont.5(

$s the pace of new product development in an

industry increases) an organization will need a
structure that increases coordination among its
functions
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Figure 8-0: #haracteristics o$ Structure
+ssociated )ith .usiness-Leve"
*i$$erentiation and Lo)-#ost Strategy
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.usiness-"eve" Strategy (cont.)

9usiness-level strategy and culture

,hallenge is to develop organization-wide

values) and specific norms and rules) that
allow the organization to combine and use
its functional resources to the best
advantage

:rganizations pursuing low-cost strategy

must develop values of economy and
frugality

"ifferentiators must develop values of

innovation) *uality) excellence) and
uni*ueness
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#or%orate-"eve" Strategy

Involves a search for new domains in

which to exploit and defend the ability to
create value from its core competences

ertical integration( a strategy in which an

organization ta%es over and owns its
suppliers 1bac%ward vertical integration5 or
its distributors 1forward vertical integration5

4ay be more profitable

4ay lead to production cost savings

4ay differentiate its products

4ay avoid opportunistic behavior of suppliers

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#or%orate-"eve" Strategy (cont.)

!elate" "iversification: the entry into

a new domain in which it can exploit
one or more of its existing
competences

#nrelate" "iversification( the entry

into new domains that have nothing in
common with its core domain
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Figure 8-1: #or%orate-Leve"
Strategies $or Entering 2e)
*omains
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#or%orate-"eve" Strategy and
Structure

8or organizations operating in more

than one domain) a multidivisional
structure is appropriate

,onglomerate structure and unrelated

diversification

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: #ong"omerate
Structure
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#or%orate-"eve" Strategy and
Structure (cont.)

+tructures for related diversification

3elated diversification creates value by

sharing resources or transferring s%ills from
one division to another

3e*uires lateral communication between

divisions as well as vertical communication
between divisions and head*uarters

Integrating roles and teams of functional

experts are needed to coordinate s%ills and
resource transfers
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#or%orate-"eve" Strategy and
#u"ture

,ultural values and the common

norms) rules) and goals that reflect
those values can greatly facilitate the
management of a corporate strategy

:rganizations need to create cultures

that reinforce and build on the strategy
they pursue
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3m%"ementing Strategy
+cross #ountries

8our principal strategies

$ulti"omestic strategy: oriented toward

local responsiveness by decentralizing
control to subsidiaries and divisions in
each country

%nternational strategy: decentralization

of all value-creation functions except for
37" and mar%eting
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3m%"ementing Strategy
+cross #ountries (cont.)

8our principal strategies 1cont.5

Global strategy: oriented toward cost

reduction) with all the principal value-
creation functions centralized at the
lowest cost global location

&ransnational strategy: some functions

are centralized) while others are
decentralized at the global location best
suited to achieving these ob6ectives
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3m%"ementing Strategy
+cross #ountries (cont.)

,hoice of structure and control

systems for managing a global
business is a function of(

-he decision how to distribute and

allocate responsibility and authority
between managers at home and abroad
so that effective control over a
companys global operations is
maintained
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3m%"ementing Strategy +cross
#ountries (cont.)

,hoice of structure and control 1cont.5

-he selection of the organizational

structure that groups divisions both at
home and abroad in a way that allows the
best use of resources and serves the
needs of foreign customers most
effectively

-he selection of the right %inds of

integration and control mechanisms and
organizational culture to ma%e the overall
global structure function effectively
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ab"e 8-(: Strategy-Structure
,e"ationshi%s in the 3nternationa" +rena
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3m%"ementing a 4u"tidomestic
Strategy

.enerally operates with a global

geographic structure

"uplication of value-creation activities in

all countries

$uthority delegated to each overseas

division

4anagers at global head*uarters use

mar%et and output controls
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Figure 8-5: &"oba"
&eogra%hic Structure
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3m%"ementing 3nternationa"
Strategy

,ompanies use a global product group

structure and create product group
head*uarters to coordinate the activities
of domestic and foreign divisions

/roduct managers responsible for

organizing all aspects of value creation on
a global level

4anagers abroad are in the control of the

international division managers
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Figure 8-16: &"oba" 7roduct
&rou% Structure
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3m%"ementing &"oba" Strategy

4anufacturing and other value chain

activities placed at the global location
that will allow it to increase efficiency
and *uality

4ust find ways to reduce bureaucratic

costs associated with transfers between
corporate head*uarters and the global
divisions

4ay establish a global product group

structure
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3m%"ementing ransnationa"
Strategy

.lobal matrix structure

0owers global cost structures

"ifferentiates activities through superior

innovation and responsiveness to global
customers

4anagers at the regional or country level

control local operations

,ompanys corporate product groups are

grouped by world region

"ecentralizes control to overseas

managers

,orporate managers exert centralized

control to coordinate companys global
activities
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Figure 8-11: &"oba" 4atri'
Structure