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Chapter
Twelve
Implementing
Strategy in
Companies
That Compete
in a Single
Industry
Implementing Strategy
Through Organizational Design
Organizational Design is 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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Building Blocks of
Organizational Structure
An organization structure assigns people to tasks
and connects the activities of different people and
functions:
 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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 Group Tasks, Functions
and Divisions
Choice of structure is made on its 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 subunits.
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
• Span of control (number of subordinates)
• Tall versus flat organizations
 Flexibility  Communication problems  Response time
 Expense  Distortion of commands
 Decision Making: Centralized versus Decentralized
• Delegating and empowering employees
 Requires fewer managers  Reduces information overload
 Increases motivation and accountability
• Centralized decisions
 Easier coordination of activities
 Decisions fit broad organizational objectives
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
• Creates a context within which managers across
functions or divisions can work together
 Liaison roles
• Increases coordination
• Gives one manager in each function or division
the responsibility for coordinating with the other
 Teams
• Use when multiple functions share mutual problems
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 – to allow managers to respond
as necessary to unexpected events
• Accurate information – giving a true
picture of organizational performance
• Timely – presentation of information
for timely decision making
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
the basis on which managers at lower
levels design their controls systems.
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Figure 12.4
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Types of
Strategic Control Systems
 Personal Control
Shape and influence the behavior of a person in a face-to-face
interaction in the pursuit of a company’s goals.
 Managers question and probe to better understand
subordinates.
 The result is more possibilities for learning to occur and
competencies to develop.
 Output Control
Forecast appropriate performance goals for each division,
department, and employee – then measure actual performance
relative to these goals .
The achievement of these goals is a sign that the company’s
strategy is working.
 Behavior Control
Establish a system of rules and procedures to direct the actions
or behavior of divisions, functions, or individuals.
The result is standardization, predictability, and accuracy.
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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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Organizational Culture
Organizational Culture is the specific collection of
values and norms shared by people in the
organization.
• Organizational socialization – how people learn the
culture so that they become organization ‘members’.
• Strategic leadership – style established by the
founder and transmitted to the company’s managers.
The culture becomes more distinct as the
organization’s members become more similar.
• Strong and adaptive cultures – are innovative,
encourage and reward initiative, and have common values:
 Bias for action – autonomy, entrepreneurship, and risk-taking
 Organization’s mission – ‘sticks to its knitting’ and business model
 How to operate the organization – motivate employees to do
..their best
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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 hand-offs across the functions.
 Communications 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;
however, managers must coordinate and integrate
across functions and business units.
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
and Differentiation
 Pursuing a cost leadership approach
• The aim is to become the lowest cost producer in
the industry
• Reducing costs across all functions
• 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.
 Implementing a differentiation approach
Design organization structure around the source of
distinctive competency, differentiated products,
and customer groups.
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How Organizational Design
Increases Profitability
Figure 12.6
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Product Structure:
Implementing a Wide Product Line
Product structure is used to solve
the control problems that result
from producing may different kinds
of products for many different
market segments.
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 met 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 Structure 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
» Output is lower
» Reduced opportunity for
economies of scale
• 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
To improve performance, a single business company
often employs 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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