Goals and strategy are interrelated but are not the
same Goals refer to ends - Strategy refers to both means and end - Goals are a part of organization strategy
STRATEGY: DETERMINATION OF THE BASIC LONG_TERM GOALS AND OBJECTIVES OF AN ENTERPRISE< AND THE ADOPTION OF COURSES OF ACTION AND THE ALLOCATION OF RESOURCES NECESSARY FOR CARRYING OUT THESE GOALS
Strategy: Premeditated or it just emerges Planning Mode: Earlier view - Strategy a plan an explicit of guidelines developed in advance where going systematic/structured plan to get there Evolutionary Mode: Current perspective evolves over time as a pattern in a stream of significant decisions e.g. womens clothing manufacturer buying local hotel priced right, generating high ROI copes with both static/dynamic view If there is strategy imperative, then strategy should predict structure - as strategy changes, whether explicitly planned or implicitly evolving, structure should follow
The Strategy Imperative Environmental Factors and Organizational Capabilities Structure Strategy Types of Strategy: Corporate level strategy: Organization in more than one line of business what set of businesses to be in - role each business in organization to play GE: top managements corporate level strategy integrates business- level strategies for multimillion dollar power systems for hydroelectric systems, consumer products like microwave ovens and light bulbs Business-level strategy: How to compete in each of our businesses small organization with one line or large non-diversified large organization: business level strategy = corporate level strategy (uniform structure) in multiple businesses organizations: each division own strategy; defines products/services, customers to reach etc (variety of structural configurations) LEVELS OF STRATEGY: Multi-business Corporation Business Unit 1 Business Unit 2 Business Unit 3 Product 2 Product 3 Product 1 Corporate level Business level Classifying Strategic Dimensions: Tradition focus in strategy-structure relationship restricted to narrow degree of product diversification Strategy much broader than diversification into various products/services For instance decision for a family owned private firm to go public is a significant change in strategy envisages more disclosure to stakeholders/board approval for larger number of decisions This strategic action -> more centralization and increased formalization
Diversity in strategic dimensions 1. Innovation strategy: extent of introduction of new products not simple or cosmetic changes to existing products, but meaningful/unique innovations all firms do not pursue innovation 2. Marketing differentiation strategy: strives to create customer loyalty by uniquely meeting a particular need not necessarily a higher quality/more up-to-date product - create favorable image of product through advertising, market segmentation, prestige pricing e.g. premium beer products, designer apparel manufacturers 3. Breadth strategy: refer to scope of the market to which the business caters: variety of customers, geographic range, number of products grocery chin in a given community vs. regional, national, multinational level 4. Cost control strategy: extent to which organization tightly controls costs, refrain from incurring unnecessary innovation/marketing expenses, cuts prices in selling a basic product Wal-Mart strategy Chandlers strategy-structure thesis: A new strategy required a new or at least refashioned structure if the enlarged organization was to be operated efficiently..unless structure follows strategy, inefficiency results. Unless new structures are developed to meet new administrative needs which result from an expansion of a firms activities into new areas, functions, or product lines, the technological, financial, and personnel economies of growth and size can not be realized. Single product strategy: simple, high centralization, low formalization, low complexity Single product to expansion within same industry (vertical integration) to product diversification strategy( demands structure for efficient allocation of resources, accountability, coordination between units) Time t t+1 t+2 Product- Diversification Strategy low high Structure Simple Functional Divisional Chandlers Thesis Is Chandler right? Claim that strategy influences structure well- supported, but constrained by limitations/definitions inherent in Chanlers work Considered only very large, powerful industrial business firms small/medium, service firms, PSUs not considered Meant only growth strategy, not profitability Definition far from all-inclusive ( concern with market segmentation, financial strengths, leverage opportunities, actions of competitors, assessment of organizations comparative advantage vis--vis competition etc not considered)
Contemporary Strategy-Structure Theory Miles and Snows Four Strategic Types: Classify organizations into four strategic types: defenders, prospectors, analyzers, and reactors rate at which they change products or markets scope: business firms as well as nonprofit organizations 1. Defenders: seek stability by producing only a limited set of products directed at narrow segment of potential market competititive pricing, high quality goods growth through market penetration little/no market scanning full focus on cost and other efficiency issues structure characterized by high horizontal differentiation, centralized control, elaborate formal hierarchy for communication
Miles and Snows Strategic Typologies Strategy Goal (s) Environment Structural Characteristics Defender Stability and Efficiency Stable Tight control; extensive division of labor; high formalization; centralized Analyzer Stability and Flexibility Changing Moderately centralized control; tight control over current activities; looser control for new undertakings Prospector Flexibility Dynamic Loose structure; low division of labor; low formalization; decentralized 2. Prospectors: find and exploit new products, market opportunities innovation more important than high profitability capacity to survey wide environmental conditions, trends, events structure flexible reliance of multiple technologies that have low routinization, mechanization numerous decentralized units, low formalization lateral/vertical communications 3. Analyzers: minimize risk, maximize opportunity for profit move into new markets after viability proved by prospectors live by imitation e.g. IBM, Caterpillar follow smaller competitors after product success seek both flexibility, stability profit margin low compared to prospectors (low risk, no innovation) structure has two parts: one: high standardization, routinization, mechanization; second: adaptive to enhance flexibility 4. Reactors: residual strategy describes inconsitant, unstable patterns when any above strategy pursued inappropriately reason: lack of top management commitment organization fails to meet change
Little change And uncertainty Rapid change and high uncertainty Defender Reactor Analyzer Prospector Environment-Strategy Continuum Porters Competitive Strategy Select strategy that gives organization a competitive advantage choose from 3 strategies: cost leadership, differentiation, focus Cost leadership: low cost producer in an industry product comparable to rivals, acceptable to buyers operation efficiency, low-cost labor, preferential access to RMs Hyundai automobiles Differentiation: seeks to be viewed as unique in ways widely valued by buyers emphasis on high-quality, extraordinary service, innovative design, technological capability, unusual positive brand image significant attribute to justify premium price Toyota (reliability), IBM (trained personnel), Ferrari (performance) Focus Strategy: seeks competitive advantage (cost, differentiation) in a narrow segment size of segment, cost of focusing determine strategy feasibility weekend MBA classes for working executives Stuck in the middle: organizations unable to gain competitive advantage by one of previous strategies no LT success succeeds only when in highly favorable industry or rivals equally stuck Cost leadership strategy: tight controls, minimization of overheads, scale economies - best structure is high complexity, high formalization, centralized Differentiation strategy: unique product development structure: high flexibility, low complexity, low formalization, decentralized decision making Millers Integrative Framework Strategic Dimension Challenge Predicted Structural Characteristics Innovation To understand & manage more products, customer types, technologies, and markets Market scanning to discern customer requirements; low formalization; decentralization; extensive use of coordinative committees and task forces Market differentiatio n To understand and cater to consumer preferences Moderate to high complexity; extensive scanning/analysis of customers reactions and competitor strategies; moderate to high formalization; moderate decentralization Breadth: Breadth- innovation To select the right range of products, services, customers and territory High complexity; low formalization; decentralization Breadth- stability - Same as above - High complexity; high formalization; high centralization Cost control To produce standardized products efficiently High formalization; high centralization Limitations to the Strategy Imperative Impact of strategy greater in early development phase of organization personnel, equipment, procedures, policies tough to change later on restrictions on managers discretionary latitude Capital-to-labor ratio will affect impact of strategy on structure ratio low (labor intensive: managers have more flexibility to exercise change and influence structure Lag Factor: often no immediate change in structure following implementation of a new strategy followers of strong strategy-structure relationship say structures respond but slowly Less competition an organization faces, less rapid its structural response significant lag Could Strategy follow Structure? Does structure determine strategy? Logical possibility: as when a multidivisional structure is installed because everyone else is doing it and then an acquisition strategy is developed to make the structure viable Study of 110 large manufacturing firms, study of 54 firms in Fortune 500 companies reveal structure influences and constrains strategy rather than the other way around If further such studies emerge: as a structural determinant, strategy of limited importance Industry Strategy Structure Industry-Structure Relationship Aerospace Large mainframe Computer Manufacturers
Metals & Mining Appliance Manufacturers Retail building materials sales Bicycle manufacturers Capital Requirements High Low Product Innovation Rate Hi Lo A B C D Type A industries: high on both Type C industries: High on capital, low on product innovation High capital requirements: result in large organizations and limited number of competitors firms in A, C highly structured and standardized C more decentralized for rapid response to innovations by competitors Type B and D low capital requirements large number of small firms Type D: more division of labor, more formalization Type B: low product innovation hence greater standardization High product innovation: Less formalization, more decentralization in ecision making