Chapter

Twelve
Implementing
Strategy in
Companies
That Compete
in a Single
Industry
 Implementing Strategy
Through Organizational Design
Organizational Design: the process of selecting the right
combination of organizational structure, control systems,
and culture to pursue a business model successfully.
 Organizational Structure
Assigns employees to specific value creation tasks and roles
 To coordinate and integrate the efforts of all employees
 Strategic Control Systems
A set of incentives to motivate employees
To provides feedback on performance so corrective action
can be taken
 Organizational Culture
The collection of values, norms, beliefs, and attitudes shared
within an organizations
To control interactions within and outside the organization
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 Implementing Strategy
Through Organizational Design
Figure 12.1

Organizational structure, control, and culture shape people’s

behaviors, values, and attitudes – and determine how they will
implement an organization’s business model and strategies.

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 Organizational Structure
 Assigns specific value creation tasks and roles

 Specify how these tasks and roles are to be linked

together to increase efficiency, quality, innovation and
responsiveness to customer
 Purpose is to coordinate and integrate efforts of all
employees at corporate, business and functional levels

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 Strategic Control Systems
 A set of incentives of motivate employees to work toward
increasing efficiency, quality and responsiveness to
customer
 Specific feedback on how well an organization and its
members performing and building a competitive advantage
 It helps managers to strengthen business model

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 Organizational Culture

 The collection of values, norms, beliefs, and

attitudes shared within an organizations
 To control interactions within and outside the
organization

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 Building Blocks of
Organizational Structure
 Grouping tasks, functions, and divisions
How best to group tasks into functions – and
functions into business units or divisions to
create distinctive competencies and pursue a
particular strategy
 Allocating authority and responsibility
How to allocate authority and responsibility to
these functions and divisions
 Integration and integrating mechanisms
How to increase the level of coordination or
integration between functions and divisions as
a structure evolves and becomes more
complex
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 Grouping Tasks, Functions
and Divisions
Choice of structure is made on ability to implement
company’s business model and strategies successfully:
• Organizational structure – follows the range and
variety of tasks that an organization pursues.
• Companies group people and tasks into
functions, and then functions into divisions.
» A function is a collection of people who work together and
perform similar tasks or hold similar positions.
» A division is a way of grouping functions to allow an
organization to better serve its customers.
» Handoffs are the work exchanges between people,
functions, and sub-units.
Bureaucratic costs result from the inefficiencies
surrounding these handoffs.

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  Allocating Authority
and Responsibility
To economize on bureaucratic costs and effectively
coordinate the activities, company must develop a
clear and unambiguous hierarchy of authority
 Organizational Structure
 Decision Making: Centralized versus
Decentralized
• Delegating and empowering employees
• Centralized decisions

Principle of the Minimum Chain of Command:

Choose hierarchy with the fewest levels of authority necessary
to use organizational resources efficiently and effectively
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 Tall and Flat Structures
Figure 12.2

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  Integration and
Integrating Mechanisms
Integration and integrating mechanisms are used to
increase communication and coordination among
functions and divisions
Direct contact
Liaison roles
Teams

The greater the complexity of an organization’s

structure, the greater the need for formal
coordination among people, functions, and divisions.

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 Strategic Control Systems
The formal target-setting, measurement, and
feedback systems to evaluate whether a company
is implementing its strategy successfully
Characteristics of an effective control system:
• Flexible
• Provides accurate information
• Timely
Measures should be tied to the goals of
developing distinctive competencies in
efficiency, quality, innovativeness, and
responsiveness to customers.

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 Steps in Designing
an Effective Control System
Figure 12.3

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 Levels of Organizational Control
Controls at each level should provide Figure 12.4
the basis on which managers at lower
levels design their controls systems.

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 Types of
Strategic Control Systems
 Personal Control
• Managers question and investigation to better
understand subordinates.
• The result is more possibilities for learning to occur
and competencies to develop.
 Output Control
• Set appropriate performance goals for each
division, department, and employee, then measure
actual performance relative to these goals.
 Behavior Control
• Establishment of comprehensive system of rules
and procedures to direct the actions or behavior of
divisions, functions and individuals. Intention is to
standardize the way or means of reaching them.
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 Using Information Technology
 Behavior control
• IT standardizes behavior through the use of
a consistent, cross-functional software
platform.
 Output control
• IT allows all employees or functions to use
the same software platform to provide
information on their activities.
 Integrating mechanism
• IT provides people at all levels and across
all functions with more information.
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 Building Distinctive Competencies at
the Functional Level
Most companies group people and tasks around a
functional structure on the basis of their common
expertise or because they use the same resources.
 Functional Structure – advantages:
• People doing similar functions can learn from one another.
• People can monitor each other and improve work processes.
• Managers have greater control over organizational activities.
• Managing is easier with separately managed specialized groups.
 Role of Strategic Control
• Managers and employees can monitor and improve operating
procedures.
• Easier to apply output control.
 Developing Culture
• Managers must implement functional strategy and develop
incentive systems to allow each function to succeed.
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 Functional Structure
Figure 12.5

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 Functional Structure
and Bureaucratic Costs
Whenever different functions work together, bureaucratic
costs arise because of communication and measurement
problems arising from the handoffs across the functions.
 Communication problems
• Stem from differences in goal orientations and outlooks
 Measurement problems
• Difficulties measuring contribution as product range widens
 Customer problems
• Satisfying customer needs and coordinating value-chain functions
 Location problems
• Functional structure not the best way to handle regional diversity
when selling or producing in multiple locations
 Strategic problems
• These problems mean a company has outgrown its structure
Consider a more complex structure or outsourcing options.
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 Implementing Strategy
in a Single Industry
Implementation begins at the functional level
 Effective strategy implementation and
organization design at the business level:
• Increases differentiation, adds value for customers,
allows for a premium price
• Reduces bureaucratic costs associated with
measurement and communications problems
 Effective organization design often means
moving to a more complex structure that:
• Economizes on bureaucratic costs
• Increase revenue from product differentiation
• Lowers overall cost structure by obtaining economies of
scope or scale

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 Implementing Cost Leadership
• The aim is to become the lowest cost producer in the industry

• Reducing costs across all functions

• R & D focuses on product and process development rather that

expensive innovative ideas
• Offering standard products

• Lowering cost structure while preserving its ability to attract

customers
• Continuously monitoring for effective operation

In practice, the functional structure is the most suitable for

cost leadership.
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 Implementing Differentiation
Design organization structure, control,
culture around the source of distinctive
competency, differentiated products,
and customer groups
Offer customized products or services
Develop sophisticated control system,
increasingly make use of IT, focus on
developing culture and norms

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 How Organizational Design
Increases Profitability
Figure 12.6

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Product Structure:
Implementing a Wide Product
Line
Implementing a broad product structure:
• Group the overall product line into
product groups
• Centralize support value chain functions
to lower costs
• Divide support functions into product-
oriented teams who focus on the needs
of one specific product group.
• Measure the performance of each product
group separately from the others
• Closely link rewards to performance of
product group

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 Nokia’s Product Structure
Figure 12.7

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 Market Structure: Increasing
Responsiveness to Customer Groups
Market structure focuses on the ability to meet the needs
of distinct and important sets of customers or different
customer groups.
 Increasing responsiveness to customer
groups:
• Identify the needs of each customer group.
• Group people and functions by customer or market
segments.
• Make different managers responsible for
developing products for each group of customers.
• Establish market structure brings managers and
employees closer to specific groups of customers.

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 Market Structure
Figure 12.8

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 Geographic Structure:
Expanding Nationally
Geographic regions may become the basis for grouping
organizational activities when companies expand
nationally through internal expansion, horizontal
integration, or mergers.

 Expanding nationally – geographic structure

• More responsive to needs of regional customers
• Can achieve a lower cost structure and economies
of scale
• Provides more coordination and control than a
functional structure through the regional
hierarchies

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 Geographic Structure
Figure 12.9

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 Matrix and Product-Team
Structures
In fast-changing, high-tech environments, competitive
success depends on fast mobilization of company skills
and resources to ensure that product development and
implementation meet customer needs.
 Matrix structure
• Value chain activities are grouped by
function and by product or project
• Flat and decentralized
• Promotes innovation and speed
• Norms and values based on
innovation and product excellence
 Product-team structure
• Tasks divided along product or project lines
• Functional specialists are part of permanent
cross-functional teams
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 Matrix Structure
Figure 12.10

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 Product-Team Structure
Figure 12.11

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 Focusing on a
Narrow Product Line
A focused company concentrates on developing a
narrow range of products aimed at one or two market
segments as defined by type of customer or location.
 Focusing on a narrow product line:
• Focusers tend to have higher production costs
• Has to develop some form of distinctive
competency
• Structure and controls systems need to be:
» Inexpensive to operate
» Flexible enough to allow distinctive competency
Focuser normally adopts a functional structure

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 Restructuring and Reengineering
 Restructuring
• Streamlining hierarchy of and reducing number of
levels
• Downsizing the workforce to lower operating costs
• Reasons to restructure and downsize:
» Change in the business environment
» Excess capacity
» Bureaucratic costs: organization grew too tall and inflexible
» To improve competitive advantage and stay on top
 Reengineering
• Fundamental rethinking and radical redesign of
business processes to achieve dramatic
improvements
• Focuses on processes (which cut across functions),
not on functions

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