CHAPTER2.ppsx

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Chapter Two
Strategy, Organization Design,
and Effectiveness

Organization Direction, Design,
and Effectiveness
• An organization is created and designed to
achieve a certain goal.
• The structure and organizational design are a
result of the search for this objective.
• The main responsibility of top management
are:
• To determine the objectives;
• To determine the strategy;
• To determine the structure of the
organization.
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3
Organization Direction, Design, and
Effectiveness

SWOT ANALYSIS
4

SWOT ANALYSIS
5

6
Organizational Purpose
• Strategic intent - organization’s energies and
resources are directed toward a focused,
unifying, and compelling goal
Operative Goals
• Overall Performance
• Resources
• Market
• Employee Development
• Innovation and Change
• Productivity
• Mission
• Competitive Advantage
• Core Competence

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The Importance of Goals
• Official goals and mission statements
describe a value system
– Legitimize the organization
• Operative goals serve several purposes
– Employee direction and motivation
– Decision guidelines
– Standards of performance

8
Selecting Strategy
• A strategy is a plan for interacting with the
competitive environment
• Managers must select specific strategy
design
• Models exist to aid in formulating strategy:
– Porter’s Five Forces
– Miles and Snow’s Strategy Typology

9
Porter’s Competitive Five Forces
• Managers should understand forces in
industry and environment
– The Threat of New Entrants
– The Power of Suppliers
– The Power of Buyers
– The Threat of Substitutes
– Rivalry among Existing Competitors
• Porter suggests that companies adopt
strategies based on five forces analysis

PORTER’S FIVE FORCES
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Porter’s Competitive Strategies
1 LOW COST LEADERSHIP STRATEGY
• Tries to increase market share by keeping costs low
compared to competitors.
• Whit a Low-cost leadership strategy, the
organization aggressively seeks efficient facilities,
pursues cost reduction, and use tight controls to
produce, products or services more efficiently than
its competitors.
• Emphasis on low costs
• Maximizes the efficiency
• Favors stability
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2 DIFFERENTIATION STRATEGY
• Organizations attempt to distinguish their products
or services from others in the industry.
• An organization may use advertising, distinctive
product features, exceptional service, or new
technology to achieve a product perceived as
unique.
• Emphasis on the differentiation of products/services
(perception of the product as the only)
• Focus on the activities of research and product
development, design and marketing
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3 FOCUS STRATEGY
• The organization concentrates on a specific regional
market or buyer group.
• The company will try to achieve either a low cost
advantage or a differentiation advantage within a
narrowly defined market.
• Choice of a specific market area or group of buyers
• Two types of focus: Cost Leadership -
Differentiation
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Miles and Snow’s
Strategy Typology
• Prospector
– Learning orientation; flexible, fluid, decentralized structure
– Values creativity, risk-taking, and innovation
• Defender
– Efficiency orientation; centralized authority and tight cost control
– Emphasis on production efficiency, low overhead
• Analyzer
– Balances efficiency and learning; tight cost control with flexibility
and adaptability
– Emphasis on creativity, research, risk-taking for innovation
• Reactor
– No clear organizational approach; design characteristics may shift
abruptly depending on current needs
Managers should seek to formulate strategy that matches
the demands of the external environment.

16
How Strategy Affects
Organization Design
Managers must design the
organization to support the
firm’s competitive strategy.
Strategy impacts internal
organization characteristics

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Contingency Factors
Affecting Organization Design

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Assessing Organizational
Effectiveness
→Managers must evaluate goals
→Effectiveness can be difficult to measure
→Managers determine what to measure
Effectiveness takes into consideration a range of
variables at both the organizational and
departmental levels.

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Sample Goals
• Profitability
– The positive gain from business operations or investments
• Market Share
– The proportion of the market the firm is able to capture relative to
competitors
• Growth
– The ability of the organization to increase its sales, profits, or
clients
• Social Responsibility
– How well the organization serves the community
• Product Quality
– The ability of the organization to achieve high quality
products/services

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Resource and Internal
Process Goals
• Resource-based indicators look at the
inputs regarding processes
– The use of tangible and intangible resources
in operations (i.e. supplies, people)
• Internal processes must be measured for
effectiveness
– Operational efficiency
– Growth and development of employees

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Contingency Approaches to the Measurement
of Organizational Effectiveness

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Balance Scorecard Approach

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Design Essentials
 Organization exist for a purpose
 Strategic intent include competitive advantage
and core competence
 Strategies may include many techniques
 There are models to aid in the development of
strategy
 Organizational effectiveness must be assessed
 No approach is suitable for every organization

EXERCISE LEARNING TEST 1
1. Official goals provide _____, while operative goals and strategies provide
______.
• a. measurable objectives, legitimacy
• b. legitimacy, employee direction
• c. employee direction, decision guidelines
• d. decision guidelines, legitimacy
2. Which of the following is true about Porter's competitive strategies:
• A. Differentiation strategies address whether the market scope is broad or
narrow.
• b. Differentiation can be broken down into low cost or broad scope
categories.
• c. An airline using the differentiation strategy would be likely to offer
travelers refreshments at a reasonable price, rather than serve bounteous
meals.
• d. Apple, Inc. is a company that has benefited from a differentiation strategy
and never tried to compete on price because it likes being perceived as an
"elite" brand.
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• 3. The extent to which goals are obtained is a traditional definition
of the degree of _____in the organization.
• a. efficiency
• b. scientific management
• c. Strategy
• d. effectiveness
• 4. The top management role in organization effectiveness involves
examination of internal environment whic includes:
• a. Opportunities
• b. Weaknesses
• c. Uncertainty
• d. Resource avaibility
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• 5. The most common occurrence in setting goals and
selecting a strategy is that:
• a. The environment is ignored to select the ideal mission
• b. Goals are set so high that can rarely be attained
• c. New goals and strategies are selected on the basis of
environmental needs and the organization is redesigned
accordingly
• d. Environment and current structure and goals are considered
simultaneously.
• TRUE / FALSE
• 1. Official goals address issues pertaining to corporate legitimacy
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