MANAGING ORGANIZATIONS            Session 6 & 7: Organization Strategy & Structure                                        ...
STRATEGY COMPRISES PLANS AND ACTIVITIES FOR CREATING                         2 AND CAPTURING VALUE IN A SUSTAINABLE MANNER...
THERE ARE FOUR KEY LEVERS OF VALUE CREATION                                                             3                 ...
ORGANIZATIONS CAPTURE VALUE BY CREATING                                                                               4SUS...
STRATEGY IS FORMULATED AT SEVERAL                                                           5INTERDEPENDENT LEVELS        ...
6LINKING FUNCTIONAL STRATEGY TO DESIGN CHOICES         Strategic goals of                 …can be achieved in two ways    ...
7DESIGN IS CONTINGENT ON FUNCTIONAL OBJECTIVES                            R&D              Manufacturing             Sales...
8THERE ARE THREE GENERIC BUSINESS LEVEL STRATEGIES… 1                     •   low cost, high volume efficient producer    ...
…LEADING TO DIFFERENT STRUCTURAL CHARACTERISTICS                                   9                     Cost leader      ...
FOUR KEY ELEMENTS OF CORPORATE STRATEGY                                                                    10• Vertical in...
STRUCTURAL CHARACTERISTICS RELATED                                                                            11TO CORPORA...
12ADDITIONAL ISSUES RELATING TO CORPORATE STRUCTURE     ‘Ideal’ board composition is                 ‘Size’ of corporate s...
13FOUR STRATEGIES FOR COMPETING IN GLOBAL MARKETSCentralizedproduction    High                                   Global   ...
MULTIDOMESTIC STRUCTURE FOR DECENTRALIZED OPERATIONS14                 MNC - HO                                           ...
15INTERNATIONAL DIVISION FOR LOW-DIVERSITY OPERATIONS                 MNC - HO                 International              ...
GLOBAL PRODUCT GROUPS FOR GREATER                                                          16ALIGNMENT WITH PARENT        ...
GLOBAL MATRIX: AN IDEAL STRUCTURE                                                                      17Inputs for global...
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Man org session 6 and 7_org structure and strategy_13th july 2012

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Man org session 6 and 7_org structure and strategy_13th july 2012

  1. 1. MANAGING ORGANIZATIONS Session 6 & 7: Organization Strategy & Structure Sourav MukherjiPGP 2012-14 Section C & E Associate Professor of Organization & StrategyTerm 1:June-September 2012 Indian Institute of Management Bangalore, India
  2. 2. STRATEGY COMPRISES PLANS AND ACTIVITIES FOR CREATING 2 AND CAPTURING VALUE IN A SUSTAINABLE MANNER COMPETITIVE ASSUMPTIONS INNOVATION COMPETITIVE STRATEGY ORGANIZATION PURPOSE PERFORMANCE ORGANIZATION DESIGN ANALYSIS BUILDING Industry Dynamics COMPETENCIES Distinctive Competencies © S Mukherji
  3. 3. THERE ARE FOUR KEY LEVERS OF VALUE CREATION 3 SUPERIOR • Increase in reliability QUALITY • Creates brand name, reputation • Can lead to greater efficiency • Greater resource leverage • Greater employee productivity SUPERIOR COST LEADER SUPERIOR EFFICIENCY INNOVATION DIFFERENTIATOR • Product , process • Managerial, organizational • Incremental, disruptive • Customize goods and services to unique demands SUPERIOR • Can be achieved through CUSTOMER RESPONSE superior design, service and support Capabilities - the skills of an organization at leveraging its resources - are a product of on organization’s structure and control systems © S Mukherji
  4. 4. ORGANIZATIONS CAPTURE VALUE BY CREATING 4SUSTAINABLE COMPETITIVE POSITIONS THREAT OF NEW ENTRANTS BARGAINING POWER OF BUYERS • Brand loyalty • Patents, innovations • How much are the buyers dependent on us ? • Experience curve • How much are we dependent on the buyers ? • Economies of scale • Are the buyers consolidated ? BARGAINING POWER THREAT OF OF SUPPLIERS SUBSTITUTES • Can the needs be serviced by alternate • Nature of supplier industry products or services ? -fragmented or consolidated • Are there chances of technological • Switching costs breakthroughs that might make our • Ability of buyer to vertically INDUSTRY product less attractive / obsolete ? integrate RIVALRY • Dependence of buyer on supplier • Industry structure – fragmented or consolidated • Demand conditions – increasing or declining • Ease of expanding or contracting operations Industry analysis needs to be complemented by analysis of the second order environment - the impact of social , economic, political and technological analysis © S Mukherji
  5. 5. STRATEGY IS FORMULATED AT SEVERAL 5INTERDEPENDENT LEVELS Global Coordinate and integrate global tasks and activities CEO Board of HO Corporate Protect and grow existing domain Directors Expand into new domain Corporate Staff Develop organizational competencies BU BU BU Business Combine functional competencies to gain competitive advantage in Divisional managers chosen domain Functional Improve efficiency and effectiveness of functional operations R&D, Purchase, Manufacturing, HR, Sales © S Mukherji
  6. 6. 6LINKING FUNCTIONAL STRATEGY TO DESIGN CHOICES Strategic goals of …can be achieved in two ways functional operations… • higher efficiency • Perform functional activities at • better quality lower costs than competitors • faster innovation • Perform functional activities • faster customer responsiveness that differentiates its offerings from its rivals Design decisions fall in two categories 1 Choices about level of vertical differentiation 2 Choices about monitoring and evaluating systems © S Mukherji
  7. 7. 7DESIGN IS CONTINGENT ON FUNCTIONAL OBJECTIVES R&D Manufacturing Sales Innovation Faster time to market Strategic aim Efficient New product Reduced sales cycle production development Customer responsivenessVertical differentiation Low High ModerateCentralization Low High ModerateFormalization Low High ModerateControl systems Clan Standardization, Output, normative rules, procedures, rules, regulations outputOverall structure Organic Mechanistic mostly Mechanistic With advent of TQM and FMS, structure of manufacturing moving towards being more organic, decentralized with greater empowerment of shop floor employees © S Mukherji
  8. 8. 8THERE ARE THREE GENERIC BUSINESS LEVEL STRATEGIES… 1 • low cost, high volume efficient producer Cost • cater to mass market , large stable customer base Leadership • R & D focus on process improvement to reduce costs • manufacturing , sourcing, material handling key to success 2 • satisfy customer need in unique way and charge premium Differentiation • quality, innovation, customer responsiveness • R & D , marketing ( branding, BI, segmentation) 3 • serve a particular market niche leveraging specific advantage Focus e.g., local knowledge of tastes, preferences • close to customer, responsive to changing needs • small volume customized product Design decisions are about • degree of horizontal differentiation • integration among functional areas to achieve business level strategies © S Mukherji
  9. 9. …LEADING TO DIFFERENT STRUCTURAL CHARACTERISTICS 9 Cost leader Differentiator Focus Minimize Maximize innovation Maximize responsiveness Structural aim bureaucratic & value creation to niche conditions costs Control costs Configuration Functional Organic, Product Simple, functional mechanistic Matrix Differentiation High High Low Standard and Low Integration Standard means non-standard means Clan control Direct supervision Control Standardization Some rules & output mechanisms Output control, e.g., Some rules and output control control production, cost & quality targets Design Bottom line structure and control systems Adapt to create a focus around source of competitive flexible and economic advantage structure © S Mukherji
  10. 10. FOUR KEY ELEMENTS OF CORPORATE STRATEGY 10• Vertical integration • Mergers • Balancing bureaucratic • Acquisitions costs with transaction • Fast startup costs 1. 2. • Mature industry• Related diversification • Strategic alliances • Economies of scope What business to How to enter • Joint ventures• Unrelated diversification participate to different • Internal new ventures • Risk diversification maximize businesses ? • Embryonic and growth • Internal capital market long term industries profitability? Corporate 4. strategy 3.• Composition of Board What should • Portfolio investor be the What should • Committees be the role • Resource allocation structure of • Executive and non- of corporate • Performance evaluation corporate executive directors centre ? office / • Parenting• Composition of corporate centre ? • Resource allocation office • Performance evaluation • Corporate development • Synergy © S Mukherji
  11. 11. STRUCTURAL CHARACTERISTICS RELATED 11TO CORPORATE STRATEGY • Choose a structure that enables organization to operate efficiently in multiple businesses • Preferred structure chosen at corporate level is Multidivisional structure • loose coupling of different business units • each business unit nearly autonomous in deciding its suitable structure • corporate head office oversees and evaluates operations of business units Vertical integration Related diversification Unrelated diversificationPurpose Economies of integration Economies of scope Internal capital marketInterdependence Sequential Pooled InsignificantNeed for integration High Medium LowIntegration Scheduling, rules Committee Need based,mechanisms procedures Liaison roles MinimumControl mechanisms • Markets transfer price ROCE, ROI ROCE, ROI • Bureaucracies standardization rules budget budget, rules budgets • Clan Moderate Norms, values Norms, values © S Mukherji
  12. 12. 12ADDITIONAL ISSUES RELATING TO CORPORATE STRUCTURE ‘Ideal’ board composition is ‘Size’ of corporate staff an issue of open debate related to role of centre • What is the ideal size of the • Which functions should be board ? centralized and which should be • What should be the composition handled by the business units ? of the board ? • scale economy vs. • executive vs. non executive responsiveness directors • interference vs. autonomy • autonomy vs. business • Role of corporate staff insights • providing strategic inputs • What should be the composition • environmental scanning of the various board level • analysis of existing business committees? • realizing synergy Is good corporate governance a function Which of these functions are best of right structure or right processes ? carried at the centre and which at the business units ? © S Mukherji
  13. 13. 13FOUR STRATEGIES FOR COMPETING IN GLOBAL MARKETSCentralizedproduction High Global Transnational Increasing needs for coordination • centralized production of • centralized production of & integration standardized product customized product • lowest cost global location • low cost and differentiation • learning at global scale Pressures for global integration International Multidomestic • decentralized production of • decentralized production of standardized product customized product • transfer of skills and products • near autonomous facilities at Low from parent to local market different global locationsDecentralized Pressure for localproduction Low High responsiveness Standardized product Customized product © S Mukherji
  14. 14. MULTIDOMESTIC STRUCTURE FOR DECENTRALIZED OPERATIONS14 MNC - HO • duplication of value creation activities N America Europe Asia Pacific • decentralized decision making • low needs for coordination Foreign divisions in regions of operation • less integrating mechanisms • low bureaucratic costs • HO uses market andDecentralized production of customized products output controls for performance• transfer skills and products from parent to evaluation local market • no experience curve effects• customization for achieving local responsiveness • less leverage of international• have end to end value creation activities in local presence markets• Suitable for services industry © S Mukherji
  15. 15. 15INTERNATIONAL DIVISION FOR LOW-DIVERSITY OPERATIONS MNC - HO International • duplication of value creation Division 1 Division 2 division activities leading to high costs • strategic decisions centralized operational decisions decentralized • moderate needs for coordination China India Japan • moderate integrating mechanisms • moderate bureaucratic costs • bureaucratic controls for Decentralized production of standardized products monitoring by corporate HO • transfer skills and products from parent to • control rests with managers of local market international division • minimum customization • no local competition for similar products • centralize product development, decentralize manufacturing , marketing , sales © S Mukherji
  16. 16. GLOBAL PRODUCT GROUPS FOR GREATER 16ALIGNMENT WITH PARENT MNC - HO • Incurs high coordination and communication costs in order to gain advantage from scale Product 2 Product 1 Product 3 economies and global learning • structure to facilitate transfer of resources • centralized controls for c coordination China India Japan • product group managers take strategic decisions, location Centralized production of standardized products managers deal with operational • distinctive value creation activities at least decisions cost locations • high need for integration • minimum customization • in a truly global organization, all • low cost producer leveraging global scale and product heads need not be location economies in the same location • ideal for products having global standards e.g., industrial products , semiconductors © S Mukherji
  17. 17. GLOBAL MATRIX: AN IDEAL STRUCTURE 17Inputs for global economies Inputs for localizationof scale and scope N American European Asia Pacific SBU SBU SBU • global matrix structure that reduces cost and Product differentiates Group 1 • matrix allows knowledge and Product experience to be shared Group 2 across regions and c divisions • high needs for Individual operating coordination and organizations integration • complex and expensive Centralized production of customized products structure • simultaneous achievement of low cost and differentiation • mutual adjustments and • exploit location and experience based cost economies collaboration necessary to • transfer distinctive competencies both from parent to local make the structure work country and back – learning at global scale • customize offering to cater to local demands • Centralized manufacturing with localized assembly plants • Leverage manufacturing innovations and information technology © S Mukherji

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