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Organizational Design & Strategy in a Changing Global Environment. Chapter 8. Value Creation Cycle. Ability to obtain scarce resources Allows an organization to create an organizational strategy Invest resources to develop core competences

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value creation cycle
Value Creation Cycle
  • Ability to obtain scarce resources
  • Allows an organization to create an organizational strategy
  • Invest resources to develop core competences
  • Enables organization to gain competitive advantage
  • Used to create more value for SH
  • Which increases……
how does an organization gain a competitive advantage where do core competences come from
How does an Organization Gain a Competitive Advantage?Where do core competences come from?

Functional resources:Unique skills possessed by organizational members/ functional personnel

-Use PR to retain talent


Organizational resources:

  • Vision of founders
  • Possession of scarce resources (land, capital, equipment)
  • Skills of top-management
  • Brand name
  • Reputation

Your organization’s core competences?

Coordination abilities: Coordination of above resources to create maximum value. How?
  • Motivation of workforce
  • Promotion of healthy culture
  • Effective integration of divisions
  • Allocation (with minimal conflict) of resources
  • Rapid D/M
  • Reduced time to market

Remember the 4 design challenges!

levels of organizational strategy
Levels of Organizational Strategy
  • Functional level strategy (FLS)
  • Business level strategy (BLS)
  • Corporate level strategy (CLS)
functional level strategy fls
Functional Level Strategy (FLS)
  • Plan to strengthen functional& organizationalresources &coordinate activities to create corecompetences
    • Functional managers train employees so skills exceed competitors
    • Managers scan environment (competition) & find ways to manage uncertainty.
strategies to gain competitive advantage
Strategies to Gain Competitive Advantage

1. Produce G/S at lower cost than rivals -or-

2. Produce wide variety of G/S or G/S that are unique or customized (product differentiation)

--These are ways to “create value”

How do the various support functions use low cost vs. product differentiation functional levelstrategies to remain competitive?
  • Manufacturing
  • HR
  • Sales & marketing (Papa John’s example)
  • R & D
how to provide the functions w resources setting needed for fls
How to Provide the Functions w/ Resources & Setting Needed for FLS?

Design an organizational structure

  • Mechanistic v. organic
  • Tall v. flat
  • Centralized D/M v. decentralized D/M
  • Standardization v. mutual adjustment

What structure would be advantageous to develop core competence in: Manufacturing? R&D? Sales?

Promote an organizational culture

  • Develop OC that is effective & hard to imitate

(TM team, ethics, property rights, socialization)

  • Promote values that are consistent with goals!!!
What kind of values would we want to promote if our core competence is in
  • R & D?
  • Production process?
  • Sales for Neiman-Marcus?
  • Customer service?
business level strategy bls
Business Level Strategy (BLS)
  • Combining functional core competences in order to position the organization to give it a competitive advantage in its domain
  • What’s a domain?
  • The responsibility of the top-management team
    • Select domain to compete in(exploit core competences)
    • Decide how to position org. to compete for resources

(look for opportunities to manage E. uncertainty)

    • Manage the environment to protect & enlarge domain

1. Low-cost BLS -or-

2. Differentiation BLS(unique product, premium price)


Tata, Amazon

bls continued
BLS continued
  • Organizations change BLS to accommodateE. changes(competition, technology,changing customer needs).Why?

--They affect how hard it is for

organization to obtain resources

  • Focus strategy: specialization in 1 segment of the market. Examples?
bls organizational structure
BLS & Organizational Structure

Low cost strategy

  • Simple or complex structure? Why?
  • Centralized or decentralized D/M? Why?
  • Low or high differentiation?
  • High or low integration?
  • Mechanistic or organic structure? Why?

Common structures used?

 Functional, Product, Geographic, Market

bls structure continued
BLS & Structure continued

Product differentiation strategy

  • Simple or complex structure? Why?
  • Centralized or decentralized D/M? Why?
  • Low or high differentiation?
  • High or low integration? Why?
  • Mechanistic or organic structure?

Common structures used?

 Matrix, Product Team

bls organizational culture
BLS & Organizational Culture

Low-cost strategy

Culture that values?

  • Frugality, economy, efficiency, speed, conservativeness

Reflected by norms

  • Small offices, no company cars/jets, cheap furniture, cheap hotels (share rooms), meeting deadlines

Reflected by organizational goals

  • Efficiency, maximum return for investment.
bls oc

Product differentiation strategy

Culture that values?

  • Innovation, responsiveness to customers’ needs, uniqueness, quality, excellence

Reflected by norms

  • Employees rewarded/promoted for being risk takers/innovative, fun & creative

Reflected by organizational goals

  • Excellent customer service & quality product.
corporate level strategy cls
Corporate Level Strategy (CLS)
  • Plan to use core competences to protect & enlarge domain & expand into new domains

Why would you expand into a new domain?

  • Responsibility of corporate level managers (Corp HQ)

1. Vertical integration (VI)

Take over & buys suppliersBACKWARD VI

Take over & buys distributorsFORWARD VI

        • Benefits?
        • Disadvantage?
Vertical integration ____ transaction costs.

A. Increases

B. Decreases

What are the alternatives to vertical integration?

 Any of the linkages used to manage symbiotic relationships (Ch 3)


2. Diversification= entry into new domain

Related diversification entry into domain that is related to present org domain

  • Use existing core competences to create value in new domain
  • Honda, St. Jude

Unrelated diversification entry into domain that is unrelated to org domain

  • Value is created because mgmt can take over inefficient co, restructure operations, reduce BC, increase efficiency & profitability, keep or sell
  • GE, P & G
cls organizational structure
CLS & Organizational Structure

Multidivisional structures are appropriate when operating in > 1 domain. Distinguishing features?

Unrelated diversification:

  • Conglomerate structure (p. 225):every unrelated business is a self contained division; very little coordination/ integration needed small corporate HQ

Related diversification:

  • Multidivisional matrix structure: large amount of integration/ coordination/ lateral communication needed large corporate HQ. Why?

Bureaucratic costs are higher for:

A. Related diversification

B. Unrelated diversification


cls and culture
CLS and Culture

Values promoted for unrelated diversification?

  • Efficient use of resources, cost cutting, economy, bottom line results
  • Remember: each division can have its own culture

Values promoted for related diversification?

  • Cooperation, cohesiveness, teamwork, consistency, innovation, communication.
implementing strategy across countries
Implementing Strategy Across Countries
  • Skip pages 207-208.
  • Skip pages 228-232.