| Strategy, Organization a a » | Design, and Effectiveness Learning Objectives After reading this chapter you should be able to: 1. Describe the importance of strategy and the strategy proces Understand strategic purpose and operating goals. 3, Explain why goal conflict occurs in organizations and how managers deal with conflicting goals. 4, Know Porter's strategy model and Miles and Snow's strategy typology. 5. Explain how strategy affects organization design, 6. Discuss the goal, resource, internal process, and strategic constituents approaches to measuring effectiveness. 7. Explain the competing values model and how it relates to effectiveness. 46 The Role of Strategic Direction in Organization Design '(Chapter 2: Strategy, Organization Design, and Elfectiveness Before reading this chapter, please check whether you agree or disagree with each of the following statements: A company's strategic intent or direction reflects managers’ systematic analysis, of organizational and environmental factors. (AGREE __ | DISAGREE The best business strategy is to make products and services as distinctive as possible to gain an edge in the marketplace. TAGREE I DISAGREE The best measures of business performance are financial. T AGREE | DISAGREE One of the primary responsibilities of managers is to position their organizations for success by establishing go.tly and strategies thar can keep the organization competi tive, Consider the situation at Instagram, where director of operations Emily White has been leading the charge to turn che popular online app into a real business. Instagram, which Facebook acquired for around a billion dollars, hasn't made a cent so far. One problem, White believes, is the lack of a clear mission and goals to guide staff and sell the service to future advertisers, She spent her first ewo weeks working with co. founder and CEO Kevin Systrom to come up with a short, lofty mission statement: “To capture and share the world’s moments.” White, Systrom, and the rest of the Instagram team are now formulating a strategy and goals to bring in marketing dollars without alienating loyal Instagram users. Parenerships with other companies are likely to be a big part of the strategy. For example, Levi Strauss & Co. recently kicked off a market- ing campaign in which a group of artists on a cross-country train ride will create music and art as they active in major cities and upload photos and videos to Instagram.) Instagram probably has a long way to go before it is profitable, but managers know that establishing mission, goals, and steategy is the first step for any business to achieve its purpose. Managers have to know where they want the organization to go before they can take it here. When managers don’t have clear goals, or have conflicting, goals, the organization finds itself in a difficult position and achieving anything may seem improbable. Consider the faulty early implementation of the Affordable Care Act (ObamaCare}. Staff building the federally run insurance exchange HealthCare.gov struggled to develop different parts ofthe exchange under sometimes conflicting directives from different bosses in different agencies with wildly divergent goals. One person familiar with the development captured the confusion when he said, “It was like bi ilding a bridge by starting from both sides of the rivet You hoped they met in the middle."? Purpose of This Chapter Top managers give direction to organizations. They set goals and develop the plans for their organization to attain them. The purpose of this chapter isto help you un- derstand the types of goals that organizations pursue and some of the competitive strategies managers use to reach those goals. We provide an overview of strategic MANAGING BY DESIGN * QUESTIONSamet er enter: er Part 2: Organization Purpose and Structural Design ’ management, examine two significant frameworks for determining strategic action, and look at how strategies affect organization design. The chapter also describes the most popular approaches to measuring the effectiveness of organizational efforts. ‘To manage organizations well, managers need a clear way to measure how effective ‘ the organization is in attaining its goals. : The Role of Strategic Direction in Organization Design ‘The choice of goals and strategy influences how an organization should be designed. An cuganizational goat is a desired state of affairs that che organization attempts to reach.> |A goal represents a result or end point toward which organizational efforts are directed Top executives decide the end purpose the organization will strive for and de~ termine the direction it will take to accomplish it. Iris this purpose and direction that shapes how the organization is designed and managed. Indeed, the primary responsibility of top management is to determine an organization's goals, strategy, and design, thereby adapting the organization to a changing environment.‘ Middle managers do much the same thing for major departments within the guidelines pro- vided by top management. Exhibit 2.1 illustrates the relationships through which top managers provide direction and then design ‘Top Management Role in Organization Direction, Design, and Effectiveness Aesoure availabilty era CEO, Top poate Define Select pany aa ‘operational goals = compete strategies Distinctive competence oe nader style Past perfomance Source: Adapted fom hve . Lewin and Catal U, Stephens, Indidvel Properties ofthe CEO as Determinants of Organization Desi,” Unpublished manuseipt, Duke Unwersity 1990; and fle. Lenin ané Caro, Stephens, “CEO Atibutes as Determinants oF ‘Organization Design: An Integrated Mode," Orgprization Studies 15, no, 2 (3994), 189-212.mere lla nll iin caitlin eats i AE tli, aie te ‘Chapter 2: Stratogy, Organization Design, and Effectiveness The direction-setting process typically begins with an assessment of the oppor tunities and threats in the external environment, including the amount of change, uncertainty, and resource availability, which we discuss in more detail in Chapter 4) Top managers also assess internal strengths and weaknesses to define the company’s distinctive competence compared with other firms in the industry. This competitive analysis of the internal and external environments is one of the central concepts in strategic management.5 A company's strategic intent or direction reflects managers’ systematic analysis of organizational and environmental factors. ANSWER: Agree. The best strategies come from systematic analysis of organizational strengths and weaknesses combined with analysis of ‘opportunities and threats in the environment, Careful study combined with experience enable top managers to decide on specific goals and strategies. p is te define and articulate the organization's strategic irtent, which nicludes defining an overall mission anc! official goals based on the correct fit be ‘oween external opportunities and internal strengths. Leaders then formulate specific operational goals and strategies that define how the organization is to accomplish its overall mission, In Exhibit 2.1, organization design reflects the way goals and strategies are implemented so that the organization's attention and resources are consistently focused toward achieving the mission and goals. Organization design is the administration and execution of the strategic plan. Managers make decisions about structural form, including whether the organiza- tion will be designed primarily for learning and innovation (an organic approach) or to achieve efficiency {a mechanistic approach), as discussed in Chapter 1. Other choices are made about information and control systems, the type of production technology, human resource policies, culture, and linkages to other organizations, Changes in structure, technology, human resource policies, culture, and interorga- nizational linkages will be discussed in subsequent chapters. Also note the arrow in Exhibit 2.1 running from organization design back to strategie intent. This means that strategies are often made within the current structure of the organization so that current design constrains, or puts limits on, goals and strategy. More often than not, however, the new goals and strategy are selected based on environmental needs and then top managers attempt to redesign the organization to achieve those ends. Finally, Exhibit 2.1 illustrates how managers evaluate the effectiveness of organiza- tional efforts—that is, the extent to which the organization realizes its goals. This chart reflects the most popular ways of measuring performance, each of which is discussed lacer in this chapter. Iris important co note here that performance measurements feed back into the internal environment so that past performance of the organization is as- sessed by top managers in seiting new goals and strategic direction for the future. Procter & Gamble (P&G) provides an example of how these ideas translate into organization practice. CEO A. G. Lafley wanted to provide a framework for organizing the discussion about goals and strategic direction so he used the OGSM (Objectives, Goals, Strategies, and Measures) tool illustrated in Exhibit 2.2. Note that a broad objective such as “Be the operating TSR (total shareholder recurn) leader in North American tissue/towel and value creator for P&G” is translated into more specific goals and strategies, such as “Grow Bounty and Charmin margin.”$ _ eat 49 | ASSESS ; YOUR ANSWERmae % Part 2: Organization Purpose and Structural Design ies Procter & Gamble’ Framework for Strategy Discussion pes Peas Improve the lives of families by WHERE TO PLAY: ‘+ Operating TSR progress providing consumer prefered paper * Win in North America ‘+ Share and sales growth progress | yodus khan a atom ee eee + Grow Bounty and Charmin margin _* Profit growth progress | Be he operating TSR fader north * Semoun Aercan tssuetowel valve. ann superman and mass__Eficiney measures Sisonterannels * Gant flency + Bult perrmance sensory and Inventory tus value consumer segments Consumer preference measures: GOALS How To win: Year-on Year operating TSR> XX% 4. Be lean X% annual share and sales growin * Get plant/equipment capital spend to XX of sales * Weighted purchase intent * Tal, purchase and loyalty, X% annual gross & operating profit Retailer feedback measures: ‘margin improvement ‘+ Reduce inventory by XX% * Key business drivers (distribution, 1X8 return on capital investments in 2. Be the choice of consumers share of shelf, share of plant equipment and inventory + Superior base products, prices merchandising, ett.) rent + Preferred vendor + Preferred product formats and designs ‘+ Manage category growin 3. Be the choice of retailers «+ Improve shelf availabilty anc service * Develop differentiated shopping solutions + Win with the winners Soutce: Adopt fom A.G.Lalley and Roger Matin, lnttuting 8 Company. Wide Stratogic Conversation at Procter & Gamble no. 4 (2013): 4-9; Tobe 6.2. ralegy & Leadership 21, In addition, the chart lists measures that managers will use to determine the success cof their efforts. This is the essence of strategic management: setting goals, defining strategies for achieving the goals, and measuring the effectiveness of efforts. The role of top management is important because managers can interpret the environment differently and develop different goals and strategies. Several years ago, in the midst of a U.S. sales slump, top executives at Walmart tried a new direc- tion, Instead of sticking with goals of strict operational efficiency and everyday low prices, they decided to court upscale customers with remodeled, less cluttered stores, organic foods, and trendy merchandise. Instead of offering everyday low prices, the retailer raised prices on many items and promoted price cuts on select merchan- dise, Walmart succeeded in meeting its goal of attracting more upscale clientele, but many of its core customers decided they'd start shopping at other discount and dol- lar store chains. Walmart’s sales took a sharp downturn, “I think we tried to stretch the brand a little too far,” said William Simon, head of the U.S. division. Now, man- agers are rethinking goals to try to recapture a winning formula.” The choices top managers make about goals, strategies, and organization design have a tremendous impact on organizational effectiveness. Remember that goals and strategy are not fixed or taken for granted. Top managers and middle managers tahiti chillin ae In A tite erin le te ee i trdiel dielinenlattninne diese entries il stint “in le wie Chapter 2: Strategy, Organization Design, and Etfectiveness: must select goals for their respective units, and the ability to make good choices largely determines a firm’s success. Organization design is used to implement goals and strategy and also determines organization success. Organizational Purnose All organizations, including Walmart, Procter & Gamble, Instagram, Google, Harvard University, the Catholic Church, the U.S. Department of Agriculture, the local laundry, and the neighborhood deli, exist for a purpose. This purpose may be referred to as the overall goal, or mission. Different parts of the organization establish their own goals and objectives to help mect the overall goal, mission, or purpose of the organization. gic intent Many c pes of goals exist in organizations, and each type performs a different fune- hieve success, however, organizational goals and strategies are focused hala vwith strategie intent, Sivacre)s se. means that all the organization's energies and respurees are directed toward a focused, unifying, and compelling overall goal.* Examples of ambitious goals that demonstrate strategic intent are Microsoft's early goal to “Put a computer on every desk in every home,” Komarsu’s motto, “Encircle Caterpillar,” and Coca-Cola’s goal “To put a Coke within ‘arm's reach’ of every cousumer in the world.”® Serategie intent provides a focus for management action. ‘Three aspects related to strategic intent are the mission, core competence, and com- petitive advantage. Mission. The overall goal for an organization is often called the misslor—the orga- nization’s reason for existence. The mission describes the organization's shared values and beliefs and its reason for being. The mission is sometimes called the affletal goals, which refers to the formally stated definition of business scope and outcomes the organization is trying to achieve. Official goal statements typically define business op- erations and may focus on values, markets, and customers that distinguish the organi- zation, Whether called a mission statement or official goals, che organization's genecal statement of its purpose and philosophy is often written down in a policy manual or the annual report. Exhibit 2.3 shows the new mission statement for CVS Health. CVS defines its mission (or purpose, as shown in the exhibit) as “Helping people on their path to better health.” The statement also defines the company’s core values. One of the primary purposes of a mission statement is to serve as a communication tool.! The mission statement communicates to current and prospective employees, customers, investors, suppliers, and competitors what the organization stands for and whar ir is trying to achieve. A mission statement communicates legitimacy to internal and external stakeholders, who may join and be committed to the organization because they identify with its stated purpose and values, Most top leaders want employees, customers, competitors, suppliers, investors, and the local community to look on the organization in a favorable light, and the concept of legitimacy plays a critical role. CVS Caremark recently changed ime to CVS Health and redefined its purpose to reflect a broader health care commitment and the company’s vision to “drive innovations needed to shape the future of health.”"! In early 2014, CVS, which provides health clinics as well as mr ‘Avan oxgnizaton mance hep theso guidelines in mi mane troronesPart 2: Organization Purpose and Structural Design Mission Statement for CVS Health WeEaRE A pharmacy innovation company PCVSHealth — einventng pnarmacy coun unease Helping people on their ppath to better health Innovation Collaboration Caring Integrity ‘Accountability pharmacy and retail sales, announced that it would stop selling cigarettes and other tobacco products by October of that year. For a company involved in promoting, health and wellness, managers say, selling tobacco products doesn’t make sense and hurts the company’s reputation. The decision is expected to cost an estimated $2 billion in sales. Analysts believe other pharmacies involved in providing health care will follow CVS Health’s lead because of the need to communicate legitimacy. Companies where managers are sincerely guided by mission statements that focus on a larger social purpose, such as Medtronic’s “To restore people to full life and health” or Liberty Mutual’s “Helping people live safer, more secure lives,” typically attract better employees, have better relationships with external parties, and perform better in the marketplace over the long term.!2 Competitive Advantage. The overall aim of strategic intent is to help the organization achieve a sustainable competitive advantage. Competitive advantage refers to what sets the organization apart from others and provides it with a oy in ethic nt ee i i i alam ile indie i ile ceeChapter 2: Strategy, Organization Design, and Effectiveness distinctive edge for meeting customer or client needs in the marketplace. Strategy necessarily changes over time co fit environmental conditions, and good managers pay close attention to trends that might require changes in how the company operates. Managers analyze competitors and the internal and external environments to find potential competitive openings and learn what new capabilities the organization needs to gain the upper hand against other companies in the industry.!> Competitive openings might be thought of as spuces that a company can potentially fill. This chaprer’s BookMark suggests that instead of teying to compete in crowded markers where companies chew each other up for smaller and smaller chunks of market share (red oceans), smart managers steer their organizations toward vast blue oceans where there is more promise and less competition. heen atest Al ARN lee ie lie ee ewe Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irreievant By W. Chan Kim and Renée Mauborgne Almost every book or article you read aout stategy focuses on how to outpace rivals, beat the competition and win at the expense of other companies. That's why there are so many managers and companies out there fighting in the *red ocean” of cutthroat and bloody competition. In their popular book Blue Ocean Strategy, W. Chan Kim and Renée Mauborgne take a different approach: Create a new market where there is less competition. That is the essence of blue aoean strategy, SOME CLASSIC EXAMPLE ‘Kim and Meuborgre's book is based on more than 15 years of research into 150 strategic moves spanning more than 2 huncred years and 30 industries. Here are some classic ex ‘amples of how companies created uncontested market space. + The Nintendo Wil. Rather than battle it out in the red ‘ocean with Sony and Microsoft, Nintendo decided to create a gaming system for a different audience— women, adults, and families. The Wil was low on graphics but high on interactivity, ust rignt for people who didn’t normally play video games. The Nintendo Wil invented a new type of gaming, + Girque du Soleil. This Canavan show cut the expense of a traditional circus—hauling around animals, and 80 on, and amped up the theatricel aspects of the show, enabling the organization to charge higher prices by appealing to a different market segment where there were no competitors eo + The New York Public Library (NYPL). With funding cut by 20 percent and competition intensifying, Paul Holdengraber, Directar of Public Programs, mace the NYPL one of the hottesi venues in town by infusing glamour ang theatre into traditional book readings, He brought in poets, polticians, rack stars, and writ fers to host a dialogue on controversial topics such as obsessions, terrorism, and music downloading, He also moved the events from 6 pus, to 7 eax, when more people were free after work. UW CUMIPANIES ChEATE BLUE UUEANS Blue ocean strategy shifts the focus from winose to win ‘win, Kim and Mauborgne say. “New market spaces create ‘win for companies, societies, employees, and sometimes ‘even for the competition, Thats the essence of blue aoean strategy.” Moreover, any company can create blue ocean strategies by: + Reconstructing market boundaries, Paul Holdengraber at the NYPL created a blue ccesn of new market space by changing the time of events and expanding the topios. + Focusing on the big picture, not the aumbers, Cirque du Soleil could have focused on the huge numbers of audience members they were losing by not having. animals in the show, but that would have ignored the bigger picture. + Reaching beyond existing demand, When Nintendo ‘ofeated the Wii, there was plenty af demand for games targeted toward male teenagers and young, adults, but Nintendo chose to reach beyond that into the blue ocean of untapped customers. Blue Ocean Strategy, by W. Chan Kim and Renée Mauborgn lished by Horvat Busizess Seno Press is pubPart 2: Organization Purpose and Structural Design Core Competence. A company’s sore compatence is something the organization does especially well in comparison to its competitors. A core competence may be in the area of superior research and development, expert cechnological know-how, process efficiency, or exceptional customer service.'* Mimeo, a printing and copying company, for example, excels with core competencies of superb customer service and the application of technology to ensure internal process efficiency. Mimeo can handle rush jobs that larger companies can’t. At Apple, strategy focuses on core competencies of superior design and marketing skills.'* In each case, managers identified what their company does especially well and built the strategy around it. ‘Amazon has developed a core competence in fast shipping that other retailers are now trying to copy. Irs hard to believe Amazon was once a struggling online bookseller. Today, itis “an existential threat" to every retailer, as Fiona Dias, executive vice president of GSI Commerce, put it. Amazon targets customers who want to find good deals and purchase products conveniently over the Internet. Those customers can find just about anything they want on Amazon.com. They will often pay less for it than they would anywhere else. And they can often get it as fast as if they went to the local store. ‘Amazon wants to provide “premium products at nonpremium prices.” To do that, it has developed an extensive network of thité-party merchants—partners with whom it maintains close, mutually beneficial relationships, is constantly honing its operational efficiency, and has created one of the most finely tuned distribution systems around. Amazon capitalizes: on its core competencies of wide selection, cost efficiency, and slick distribution. Amazon is already offering same-day delivery in metropolitan areas, and Walmart is aiming to do the same. “Everybody in retail Is terrified of Amazon, and they'te terrified of losing more wallet share to Amazon," said an analyst with Forrester Research. If Walmart can pull it off, the company would essentially have more than 4,000 Walmart stores as distribution centers, giving it @ strong advantage over Amazon. On the ather hand, Amazon (CEO Jeff Bezos says, “One of the big advantages of Amazon for consumers is that they can get one box with a lot of things in it from different categories.” In retal, the shipping wars have just begun 2° Operating Goals The organization’s mission and overall goals provide a basis for developing more specific operating goals. operating goals designate the ends sought through the actual operating procedures of the organization and explain what the organization is actually trying co do.!” Operating goals describe specific measurable outcomes and are often concerned with the short run. Operating goals typically pertain to the primary tasks an organization must perform."® Specific goals for each primary task provide direction for the day-to-day decisions and activities within departments. Typical operating goals that define what an organization is trying to accomplish include performance goals, resource goals, market goals, employee development goals, productivity goals, and goals for innovation and change, as illustrated in Exhibit 2.4. Overail Performance. Profitability reflects the overall performance of for-profit organizations. Profitability may be expressed in terms of net income, earnings per share, or return on investment. Other overall performance goals are growth and output volume. Growth pertains to increases in sales or profits over time. Volume pertains to total sales or the amount of products or services delivered. For example, aioe tenis tile . eM AGM te CR dolla sie ie le tn a le‘chapter 2: Strategy, Organization Design, and Effectiveness, during the 2013 holiday season, UPS had trouble meeting its performance goals for delivery of packages. While smaller shipping fiers were able to adjust during peak demand times by using rented trucks and temporary drivers, large firms like UPS were stuck with unexpected late orders from Amazon, Kohl's, and other partners and were limited in their options for shipping the goods to customers.” Government and nonprofit organizations such as social service agencies ot labor unions do not have goals of profitability, but they do have goals that attempt ro specify the delivery of services to clients or members within specified expense levels. The Internal Revenue Service has a goal of providing accurate responses to 85 percent of taxpayer questions about new tax laws. Growth and volume goals also may be indicators of overall performance in nonprofit organizations. Expanding their services to new clients is 2 primary goal for many social service agencies, for example. esourees, Resource goals pertain to the acquisition of needed material and financial resources from the environment. They may involve obtaining financing for the construction of new plants, finding less expensive sources for raw materials, ‘op-quality technology graduates. Starbucks recently formed an alliance with India’s Tata Group to obtain Indian premium Arabica coffee beans for use in Sturbucks stores. Eventually, the alliance will also enable Starbucks to find prime locations for outlets in India, which can also be considered valuable resources, for Walmart is to hire every veteran who wants a job, provided he person left the military in the previous year and did not have a dishonorable discharge. “Let's be clear: Hiring a veteran can be one of the best decisions any of us can make,” said William S. Simon, president and CEO of Walmart U.S. hese re leaders with discipline, training, and a passion for service."2! For nonprofit organizations, resource goals might include recruiting dedicated volunteers and expanding the organization’s funding base. Market. Market goals relate to the market share or market standing desired by the organization. Market goals are largely the responsibility of marketing, sales, and advertising departments. L'Oreal SA, the world’s largest cosmetics company, has a | oc | cae | | (ect : | oo ieee \ | See ue RUC | cen | l bexiiat7 2.4] Typical Operating Goals for an OrganizationPart 2: Organization Purpose and Structural Design goal of doubling its current clientele, adding one billion consumers by 2020. As one step to achieve the goal, managers are making changes in marketing and selling approaches designed to win over more customers in Brazil. Women there are some of the biggest spenders on beauty products, but L'Oreal has had trouble adapting to the Brazilian market.22 Market goals can also apply to nonprofit organizations, Cincinnati Children’s Hospital Medical Center, not content with a limited regional role in health care, has gained a growing share of the national market by developing expertise in the niche of treating rare and complex conditions and relentlessly focusing on quality. Employee Development. Employee development pertains to the training, promotion, safety, and growth of employees. It includes both managers and workers. Strong employee development goals are one of the characteristics common co organizations that regularly show up on Fortune magazine’s list of “100 Best Companies to Work For.” Moreover, employee learning goals have been found to be related to higher levels of department performance. Wall Street banks have long been known for encouraging long work hours, but some are now taking a critical look at that hard-charging culture. Bank of America Merrill Lynch, for example, reveutly issued an internal memo saying junior bankers should have two weekends off a month. To expand employee development, the bank also intends to “make certain that junior bankers work on a wider variety of different assignments... and ensure that the development of core skills is an important factor in making staffing assignments.”5 Productivity. Productivity goals concern the amount of output achieved from avail- able resources. They typically describe the amount of resource inputs required to reach desived ourputs and are thus stated in terms of “cost for a unit of produc- tion,” “units produced per employee,” or “resource cost per employee.” Illumina- ion Entertainment, the production company behind the hit movie “Hop,” has productivity goals that help the company make animated films at about half the cost of those made by larger studios. CEO Christopher Meledandri believes strict cost controls and successful animated films are not mutually exclusive, but it means Ilumination’s 30 or so employees have to be highly productive.** imnovation ane Change. Innovation goals pertain to internal flexibility and readiness to adapt to unexpected changes in the environment. Innovation goals are often defined with respect to the development of specific new services, products, or production processes. Procter 8 Gamble started a program called Connect + Develop in 2001, with a goal of getting 50 percent of the company’s innovation through collaboration with people and organizations outside the company by 2010. The ambitious goal was met and exceeded, resulting in innovations such as Swiffer Dusters, Olay Regenerist, and Mr. Clean Magic Eraser.” Successful organizations use a carefully balanced set of operating goals. Although profitability goals are important, some of today’s best companies recognize that a single-minded focus on bottom-line profits may not be the best way to achieve high performance. Innovation and change goals are increasingly important, even though they may initially cause a decrease in profits. Employee development goals are critical for helping to maintain a motivated, committed workforce. i A AN NAR Bi A ie Ie oak a te it ey a Be ete ty A RY ct eea raiininnnree-iivtinetncwewanion dite scene ce: isi ia Chapter 2: Strategy, Organization Design, and Effectiveness Soa! Contin’ and the Hybrid Organization Organizations perform many activities and pursue many goals simultaneously to accomplish an overall mission. But who decides what mission and goals to strive for? Pursuing some goals means that athers have to be delayed aor set aside, which means managers often disagree about priorities. Employee development goals might conflict with productivity goals; goals for innovation might hurt profitability, As one real-life example of goal conflict, Bloomberg News's goals for accurate journalistic reporting sometimes conflice with the business side's goals for sales of financial data terminals. Most newspapers and magazines have a news side and a business sie, andthe two often | Fp sy coexist in uneesy tension. The bsipes sce managers dont want to ua stones oncalat | E&Y"! PRACTICE major advertisers, for instance. At Bloomberg, the two units got along fairly wel inthe eely | years wen the news servic was foo sna to anger cents, but that has changed Bloomberg Bloombere’s core business is seling financial ¢ata terminals, which provice about | LP 85 percent ofthe company’s revenve, However, the company’s journalism brings credibility organization and the news division has more than doubled in size. Users of the data \eiminais mostly want short Titer ike news of marketmoving importance, though, not the | tepth oreles that journalists want t report The potential conflicts are most troubling in China, where financial data revenue has | jen growing about 45 percent a year Sales of Bloomberg's data terminals cropped sit | cantly atte Bloomberg News's tough reporting about events in China prompted officials to | cancel subseritions. One angry Chinese oficial sald Bloomberg should be publishing only finoncial news in China, not political news. Ectors ordered some stoves removed fom the | company’s website, angering Bloomberg journalists. “it’s looking increasingly lke as a media company, you have a choice in China: You either do news or you do business, but its hard {0 do both said James L. MeGregor, a former chief of Dow Jones & Company in China.2* Bloomberg and many other media companies represent what is called a hybrid organization. The hybrid organization is an organization that mixes value systems and behaviors that represent two different sectors of society, which leads to tensions and conflict within che organization over goals and priorities.2? The goals and values of the two sides are sometimes mutually exclusive, so managers have to negotiate and come to some agreement on which direction the company will take. Organizations with a social mission, for example, may have to hire business-minded people co sell the organization's services to provide additional income. The business- minded employees stress goals of sales, revenue, and efficiency while public service- minded employees stress goals of sacrifice and meeting social needs. When social welfare organizations have to achieve their social mission through commercial activities, managers are often caught between competing demands of market and social welfare mindsets. One group may champion for-profit priorities and the other champions the contribution to social needs. Another example of a hybrid organization is a biotechnology company that incorporates goals and mindsets of both bias-free scientific research for the sake of new knowledge versus research to develop and market potentially lucrative products. These differences in goal orientation can trigger manipulation, avoidance, or defiance on the part of one side versus the other unless managers can balance the conflicting demands.Goal Types and Purposes Part 2: Organization Purpose and Structural Design One approach to resolving these conflicts is coalitional management, which involves building an alliance of people who support a manager's goals and can influence other people to accept and work toward them.” Managers talk to people across the organization to find out what challenges and opportunities they face. They learn not only who supports their goals bus also who opposes them and why They don’t let conflict over goals simmer and detract from goal accomplishment Itis the job of managers to break down boundaries and get people to negotiate and cooperate actoss groups and departments to reach agreement and get important goals accomplished. When appropriate, managers may give up on some goals and throw theit support behind other managers. Building relationships, discussion, and negotiation are crucial skills for getting things done in hybrid organizations. The Importance of Goals Both official goals and operating goals are important for the organization, but they serve very different purposes. Official goals and mission statements describe a value system for the organization and set an overall purpose and vision; operating goals represent the primary tasks of the organization. Official goals legitimize the organi- zation; operating goals are more explicit and well defined, Operating goals serve several specific purposes, as outlined in Exhibie 2.5. For one thing, goals provide employees with a sense of direction so that they know what they are working toward, This can help to motivate employees toward specific targets and important outcomes. Numerous studies have shown that specific high goals can significantly increase employee performance." A recent study verified that departments perform significantly better when employees are committed to the goals. People like having a focus for their activities and efforts. Jennifer Dulski, Oreck) I i il Ate lp i Alot i it ete tie denied acral Hite er ole Re ee ae =‘Chapter 2: Strategy. Organization Design, and EHectiveness currently president and COO of Change.org, a web platform for social change, talks about how she motivated people at a previous organization. “One quarter we had three big goals. I said, IF we hit all chree, ies the erifecta and we'se going to all go t0 the horse races.’ And I gave everybody $50 co bet with at che races. I learned as a teacher that everybody has a little kid inside them, and people really love these fun, silly chings. They may not admic they love them, but they do.” Another important purpose of goals is to act as guidelines for employee behavior and decision making, Appropriate goals can act as a set of constraints on individual behavior and actions so that employees behave within boundaries that are acceptable to the organization and larger society. * Gougle uses a system called Objectives and Key Results (OKRs). One manager, for example, established an objective to improve Google Blogger's reputation, and he came up with easily measured results such as “Re-establish leadership by speaking at 3 industry events”; “Regularly participate in Twitter discussions re: Blogger products.” Everyone’s OKRs are public, from the top leaders on down. These aren’t used to determine promotions, but they can be used by employees co keep an eye on what they are accomplishing Goals help to define the appropriate decisions concerning organization structure, innovation, employee welfare, or growth. Finally, goals provide a standard for assessment. The level of organ nal performance, whether in terms of profits, d, degree of employee satisfaction, level of innovation, or number of customer complaints, needs a basis for evaluation. Operating goals provide this standard for measurement units produce IWU FaMIEWUFAS Ui SeieCUinis, Strategy and Desig: To support and accomplish the organization's strategic intent and keep people fo- cused in the direction determined by organizational mission, vision, and operating goals, managers have to select specific strategy and design options that can help the organization achieve its purpose and goals within its competitive environment, In this section, we examine a couple of practical approaches to selecting strategy and design. The questionnaire in this chapter's "How Do You Fit the Design?” box will give you some insight into your own strategic management competencies, A strategy is a plan for interacting with the competitive environment to achieve organizational goals. Some managers think of goals and strategies as interchangeable, but for our purposes goals define where the organization wants to go and strategies define how it will get there. For example, a goal might be to achieve 15 percent annual sales growth; strategies to reach that goal might include aggressive advertising, to attract new customers, motivating salespeople to increase the average size of customer purchases, and acquiring other businesses that produce similar products. ies can include any number of techniques to achieve the goal. The essence of ting strategies is choosing whether the organization will perform different activities than its competitors o will execute similar activities more efficienely than its competitors do. ‘Two models for formulating strategies are the Porter model of competitive strat egies and the Miles and Snow strategy typology. Each provides a framework for competitive action. After describing the two models, we discuss how the choice of strategies affects organization design,‘As an organization ‘manager, keep these guidelines in mind: After goals have been defined, solect strate gies for achieving those goals. Define specific strategies based on Porter's competitive strategies (or Miles and Snow's strategy typology. Porter's Competitive Strategies Part 2: Organization Purpose and Structural Design “petitive Strategies Michael E. Porter studied a number of business organizations and proposed that managers can make the organization more profitable and less vulnerable by adopting either a differentiation strategy or a low-cost leadership strategy." Using a low-cost leadership strategy means managers choose to compete through lower costs, whereas with a differentiation strategy the organization competes through the ability to offer unique or distinctive products and services that can command a premium price. These two basic strategies are illustrated in Exhibit 2.6. Moreover, each steategy can vary in scope from broad to narrow. Differentiation. With a ¢ifferontiation strategy the organization attempts to distin- guish its products or services from others in the industry. Managers may use ad vertising, distinctive product features, exceptional service, or new technology to achieve a product perceived as unique. This strategy usually targets customers who are not particularly concerned with price, so it can be quite profitable. AA differentiation serategy can reduce rivalry with competitors and fight off the threat of substitute products because customers are loyal to the company’s brand. However, managers must reniember that successful differentiation strategies require a number of costly activities, such as product research and design and extensive advertising, Companies that pursue a differentiation strategy need strong market- ing abilities and creative employees who are given the time and resources to seek innovations. One good illustration of a company that benefits from a differentia- tion strategy is Apple. Apple has never tried to compete on price and likes being perceived as an “elite” brand. The company has built a loyal customer base by pro- viding innovative, stylish products and creating a prestigious image. Low-cost Differentiation Frenoricnc = REE | Example (broad © scope): Walmart 4 ‘Managers Choose Which to Emphasize Source: Baged on Michel E. Pot ho Fro Press, 1988), ‘Conetiine Advantage: Creating an Sustaining Superior Performance (Naw York nae cee Sie: ee aChapter 2: Stratogy, Organization Design, and Effective vice firms can use a ferentiation strategy as well. Trader Joe’, started in 1967 asa typical convenience store, was quickly modified by founder Joe Coulombe into a novel business serving unique food and drink and expanded to 17 stores in southern California. Today, there are more than 370 Trader Joe’s nationwide, and people are clamoring for more. But managers are very, very careful about how they expand. TJ's doesn’t carry any national brands, but instead offers innovative, YOUR STRATEGY /PERFORMANCE STRENGTH As a potential manager, what are your strengths concern: ing strategy formulation and implementation? To find out, how yo ges and issues in your ‘school work or job, Then cirele a or b for eact of the fol handle chal your behavior. There are no sight or wrong answers. Re pond to each item as it best describes how you respond 10 work situations 4, When keeping records, | tend to 2, be very careful about documentation. b, ue more haphazard about documentation. 2, If run a group or a project, | ‘a. have the general idea and let others figure out how to do the tasks. b. try to figure out specific goals, time lines, and ex: pected outcomes. 3. My thinking style could be more accurately desctibed as 2. linear thinker, going from A to B to C. b. thinking tke @ grasshopper, hopping fromi one idea! 10 another. 4, In my office or home things are a, here and there in various piles. b. laid out neatly or at least in reasonable order. 5. | take pride in developing a, ways to overcome a barrier to a solution. b. new hypotheses about the underlying cause of a problem, 6. I can best help strategy by making sure there is 1. openness to 2 wide range of assumptions and ideas. ' thoroughness when implementing new ideas. 2. One of my strengths 1s fa. commitment to making things work. 'b. commitment to a dream for the future. 8. | am most effective when | emphasize a. inventing original solutions. b. making practical imorovements, Scoring: For Strategic Formulator strength, score one point fr each “a” answer cicled for questions 2,4, 6 and &, and for each “or answer ecled for questions 1, 35, and 7. For SvategeImplementer stvengh, score one point fr each “b" answer ciced for questions 2,4, 6 and 8, and for each “2” answer ced for questions 1,3, 5, and 7, Which of your two stores fs higher and by how much? The higher score indicates your Strategy Strength, Interpretation: Formulator and Implementer ae two important ways managers bing value to strategie management and effectiveness, Managers with imple renter strengths tend to work on operating goals end petornance to make things rore efficent and lable Managers with the formulator strength push tovard out ofthe-box strategies and lie to thine spout mission vision and dremate reaktnroughs. oth avis are es sential to strategic management ang ortanizatonal et fectveness, Strategie formlators often use thee skis {0 create whole new strategies and aporoaches, and stratege implementers often work with strategic improve rents, implementation ane measurement. ithe aference between your two scores is 2 ores, you have a balanced formulator/implementer style and fork well in both arenas. Ifthe difference is 4-5, you have a moderately strong style and probably work best in the area of your strength. And ithe ference fs 7-8, you have a distinctive strength ang almost certainly would want to contibute inthe area of your strength rather than inthe opposite domain, Source: Adapted trom Dorothy Marcle and Joe Seize, tional Behavior: Experiences and Cases (South-Western, 1998) ‘286-287, and William Mil, Innovation Styles (Global Creatiy Corparation, 1997), enPart 2: Organization Purpose and Structural Design high quality, health-conscious food and beverage products at modest prices. About 80 percent of products carry T[’s private label, and the company is secretive about who makes products for them. Many TJ's stores carry only about 2,500 items, compared to a traditional supermarket that has more than 40,000, and the selection is constantly changing. What keeps people coming back is the novelty and sense of adventure—you never know what you're going to find—and the friendly service you might expect at the mom-and-pop shop around the cornet. Managers evaluate every decision with an eye to how it fits with the goal of maintaining a neighborhood store feel Low-Cost Leadership. The low-cost leadership strategy tries to increase market share by keeping costs low compared to competitors. With a low-cost leadership strategy, the organization aggressively seeks efficient facilities, pursues cost reduc tions, and uses tight controls to produce products or services more efficiently than its competitors. Low cost doesn't necessarily mean low price, but in many cases cost leaders provide goods and services to customers at cheaper prices. For example, the CEO of Irish airline Ryanair said of the company’s strategy: “It’s the oldest, simplest formulla: Pile “em high and sell “em cheap. . .. We want to be the Walmart of the airline business. Nobody will beat us on price. EVER.” Ryanair can offer low fares because it keeps costs at rock bottom, lower than any other airline in Europe. The company’s watchword is cheap tickets, not customer care or unique services,*® The low-cost leadership strategy is concerned primarily with stability rather than taking risks or seeking new opportunities for innovation and growth. A low- cost leadership position means a company can achieve higher profits than competi- tors because of its efficiency and lower operating costs. Cost leaders such as Ryanair can undercut competitors” prices and still earn a reasonable profit. In addition, if substitute products ot potential new competitors enter the picture, the low-cost pro- ducer is in a better position to prevent loss of market share. Porter found that companies that did not consciously adopt a low-cost or differ entiation steazegy achieved below-average profits compared to those that used one of the strategies. Many Internet companies have failed because managers did not develop competitive strategies that would distinguish them in the markeiplace. On the other hand, Google became highly successful with a coherent differentiation strategy that distinguished it from other search engines. ‘The best business strategy Is to make products and services as distinctive as possible to gain an edge In the marketplace. ANSWER: Disagree. Differentiation, making the company's products or services distinctive from others in the market, is one effective strategic approach, A low-cost leadership approach can be equally or even more effective depending on the organization's strengths and the nature of competition in the industry. Competitive Scope Gan Be Broad or Narrow. With either strategy, the scope of competitive action can be either broad or narrow. That is, an organization can choose to compete in many marker and customer segments or to focus on a specific market or buyer group. For example, Walmart uses a low-cost leadership strategy and competes in a broad market, selling to many market segments. A good example of a narrowly focused low-cost leadership strategy is Allegiant Travel Company. sie tlie cai ania eas ie lie it elite ll Re ee Ae te. athens er sor ll, a Ai ' ‘chapter 2: Stcategy, Organization Design, and Effectiveness \We want to be considered the hometown airine of all the Ite cities around the country.” | said Andrew Levy, president of Allegiant Travel Company, Allegiant flies just 64 jets and specializes in fying people from 75 small, underserved cities to 14 warmweather tourist | destinations such a Orlando. Las Vegas, and Honolulu | Allegiant nas achieved the lovest costs, fullest planes, and highest margins inthe in- | dustiy and has been proftable in 39 of its last 41. quarters by serving small cities that | npetitors don’t serve, The focused low-cost leadership strategy means Allegiant faces | competition on just 17 of its 203 routes. Managers believe in “attacking niche opportuni. | ties” For example, Allegiant maved in wnen other airlines left the shrinking cities of the Rust Belt and lures Canadian fliers just across the border to fly out of small U.S. airports. The a its sights on Mexico, Hoping to fy middleclass Mexicans from cities such 2s Zacatecas or Cullacdn to tourist destinations such as Las Vegas in the United States, Allegiant goes to extremes to meet its goals of low cost. It depends largely on word advertising rather than paying travel agents, i offers a no‘fills base fare and charges for nearly everytning else, from carcyon luggage to water. Managers also say trey “only fy make mone.” The older used planes the company fies guzzle gas, so they fy only on peak travel days when the fight is nearly ful, “On Tuesdays, we fook like @ bankrupt avline.” Lexy says, but “who wants to start their vacation on a Tuesday?" i An example of a narrowly focused differentiation strategy is Edward Jones Investments, a St. Louis-based brokerage house. The company concentrates on building its business in rural and small-town America and providing clients with conservative, long-term investment advice. Management scholar and consultant Peter Drncker once said the distincrive safety-first orientation means Edward Jones delivers a product “that no Wall Street house has ever sold before: peace of mind.”*! Miles and Snow's Strategy Typology Another strategy typology was developed from the scudy of business strategies by Raymond Miles and Charles Snow.** The Miles and Snow typology is based on the idea that managers seek to formulate strategies that will be congruent with the external environment. Organizations strive for a fit among internal organization characteristics, strategy, and the external environment. The four strategies that can be developed are the prospector, the defender, the analyzer, and the reactor Prospector. The prospector strategy is to innovate, take risks, seek out new op- portunities, and grow. This strategy is suited co a dynamic, growing environment, where creativity is more important than efficiency. Nike, which innovates in both products and internal processes, exemplifies the prospector strategy. For example, the company has introduced a new line of shoes based on designs that can be pro: duced using recycled materials and limited amounts of toxic chemical-based glues.* China’s Zhejiang Geely Holding Group is setting a prospector strategy for Volvo Car Corporation after acquiring the global automaker from Ford Motor Company. For many years Volvo focused on stability, seeking to hang on to customers who appreciated the brand's reputation for safe, reliable family vehicles. Bur Li Shufu, the company’s new hard-charging Chinese owner, set a new course for the company, aiming to expand aggressively into the luxury car market and compete head-on with the likes of BMW and Mercedes. Li clashed with Volvo's European CEO, Stefan Jacoby, who wanted to move more slowly away from the company’s tradition of modest style, but the two eventually agreed on an ambitious turnaround plan that yy Allegiant Travel CompanyPart 2: Organization Purpose and Structural Design involves $10 billion in investment over a five-year period and a goal of doubling worldwide sales to 800,000 vehicles by 2020. Li says he wants Volvo to offer inno: vative, clecttifying designs chat curn heads and win new customers, Chita sales are a growing part of the auto business, and Li says Volvo has no future unless it eaters to the flashier tastes of emerging rich consumers in that councry.** Li and Jacoby are continuing to work out their differing visions and management styles, but the pros: pector strategy to upgrade the product lineup and expand aggressively is on course, Online companies such as Facebook and Google also reflect a proypector strategy. Defender. The defender strategy is almost the opposite of the prospector. Rather than taking risks and seeking out new opportunities, the defender strategy is concerned with stability or even retrenchment. This strategy seeks to hold on to current customers, but it neither innovates nor seeks to grow. The defender is concerned primarily with internal efficiency and control co produce reliable, high: quality products for steady customers. This strategy can be successful when the organization exists in a declining industry or a stable environment. Paramount Pictures has been using a defender strategy for several years.** Paramount turns out a steady stream of reliable hits but few blockbusters. Managers shun risk and sometimes turn down potentially high-profile films to keep a lid on costs. This has enabled the company to remain highly profitable while other studios have low returns or actually lose money. Analyzer. The analyzer tries to maintain a stable business while innovating on the periphery. It seems to lic midway between the prospector and the defender, Some products will be targeted at stable environments in which an efficiency stcategy designed to keep current customers is used. Others will be targeted at new, more dynamic environments, where growth is possible. The analyzer attempts to balance efficient production for current product or service lines with the creative development ‘of new product lines. Amazon.com provides an example. The company’s current strategy is to defend its core business of selling books and other physical goods over the Internet, but also to build a business in digital media, including initiatives such as a digital book service, an online streaming video business, developing original content, and a digital music store to compete with Apple's iTunes.** Reactor. The reactor strategy is not really a strategy at all. Rather, reactors respond to environmental threats and opportunities in an ad hoc fashion. With a reactor strategy, top management has not defined a long-range plan or given the organiza sion an explicit mission or goal, so the organization takes whatever actions seem to meet immediate needs. Although the reactor strategy can sometimes be successful, it can also lead to failed companies. Some large, once highly successful companies are struggling because managers failed to adopt a strategy consistent with con- sumer trends. In recent years managers at the once successful and profitable book- store Barnes & Noble have been floundering to find the appropriate strategy. The Nook, introduced to compete with the Amazon Kindle, “looked good, worked well, and sold better than Barnes & Noble expected.” The problem was, when Apple introduced the iPad, managers at Barnes & Noble reacted by coming out with a competing multifunction device. It was a mistake. The Nook Media business had an operating loss of $475 million for the fiscal year that ended April 2013. “He drank too much of the digital Kool-Aid,” said one analyst of Barnes & Noble CEO William Lynch, who has since lef the company." in ts RRA entail Ame lle Ole Am Mee Ro aen £ onset dill neiitrvntne Sb tile ie A N e e chapter 2: Strategy, Organization Design, and Etfectiveness ppd 65 Organization Design: + Learning orientation; acts in a flexible, loosely knit way, with strong horizontal coordination ‘+ Strong capability in research? * Values and builds in mecnanisms for cus: tomer intimacy | Rewards empioyee cr | ang innovation ativily, risk-taking, | Strategy: Low-Cost Leadership Organization Design: ‘Efficiency orientation; strong central | autnority;tignt cost control, with frequent, ‘detailed control reports + Standard operating procedures * Highly efficient procurement and distribu tion systems + Close supervision; routine tasks; limited employee empowerment Strategy: Prospector Organization Design: * Learning orientation; flexible, uid, decen: twalized structure * Strong capabiity in research Strategy: Defender Organization Design: * Efficiency orientation; centralized authority tight cost contro! + Emphasis on production efficiency; low overhead © Close supervision: little employee empow: | Sate ce | | control with flexibility and adaptability * ficient production for stable product lines; emphasis on creativity, research, Aight ing for innavation Strategy: Reactor Organization Design: * No clear organizational approach; design cheracteristies may shit abruptly, depend: ing on current needs Source: Based on Wiehse . Porter Competive Strategy Technigues for AnahingInausies and Cmmpetrs (New Yor: The Fee Press, 1880); Michael Teacy and Fes Wersems, “How Mariel Leaders Keep Ther Eee,” Fortune, [February 6, 1995), 88-98; Micnae! Hit, R. Ouana Ireland, and Robert, Hoskison, Strategie Management (St Pa, NMA: West, 1995), 100-113; and Raymond E, Miles, Chaves C. Snow, Ain D. Meyer, and Henry J. Claman, “oreanatianal Stary, Sivcture. and Process” Academy af Management Review 2 (3078), 545-562, The Miles and Snow typology has been widely used, and researchers have tested its validity in a variety of organizations, including hospitals, colleges, banking, institutions, industrial products companies and life insurance firms. In general, researchers have found strong support for the effectiveness of this typology for organization managers in real-world situations."® The ability of managers to devise and maintain a clear competitive strategy is considered one of the defining factors in an organization’s success, but many man: agers struggle with this crucial responsibility. How Strategies Affect Organization Design Choice of strategy affects internal organization characteristics. Organization design characteristics need to support the firm’s competitive approach. For example, a company wai ing to grow and invent new products looks and “feels” different from 2 company that is focused on maintaining market share for long-established products in a stable industry. Exhibit 2.7 summarizes organization design characteristics associated with the Porter and Miles and Snow strategies. Outcomes of Strategy BRS As an organization manager, keep these guidelines in mind: Design the organition to support the frm competitive strategy. With a low-cost lead ership or defender strategy select design characteristics associ. ated with an efficiency ‘orientation, Fora aitfer: entiation or prospector strategy on the other hand, choose charac ‘erlsties that encourage leaning, innovation, ‘and adaptation, Use 2 balanced mixture of characteristics for a9 analyzer stateg. STebay Contingency Factors Affecting Organization Design Part 2: Organization Purpose and Structural Design With a low-cost leadership strategy, managers take a primarily mechanistic, efficiency approach to organization design, whereas a differentiation strategy calls. for a more organic, learning approach. Recall from Chapter 1 that mechanistic ovganizations designed for efficiency have different characteristics from organic organizations designed for learning. A low-cost leadership strategy (efficiency) is associated with strong, centralized authority and tight control, standard operating procedures, and emphasis on efficient procurement and distribution systems. lose supervision and control and Employees generally perform routine tasks un are not empowered t0 make decisions or take action on their own. A differentiation strategy, on the other hand, requites thar employees be constantly experimenting and learning. Structure is fluid and flexible, with strong horizontal coordination. Empowered employees work directly with customers and are rewarded for creativity and risk-taking. The organization values research, creativity, and innovativeness over efficiency and standard procedures The prospector strategy requires characteristics similar to a differentiation strategy, and the defender strategy takes an efficiency approach similar to low-cost leadership. Because the analyzer strategy attempts to balance efficiency for stable product lines with flexibility and learning for new products, it is associated with a mix of characteristics, as lisced in Exhibit 2.7. With a reactor strategy, managers have left the organization with no direction and no clear approach to design. Other Contingency Factors Affecting Organization Design Stcategy is one important factor that affects organization design. Ultimately, however, organization design is a result of numerous contingencies, which will be discussed throughout this book. The emphasis given co efficiency and control (mechanistic) versus learning and flexibility (organic) is determined by the contin- gencies of strategy, environment, size and life cycle, technology, and organizational culture. The organization is designed to “fit” the contingency factors, as illustrated in Exhibit 2.8 In a stable environment, for example, the organization can have a traditional mechanistic structure that emphasizes vertical control, efficiency, specialization, standard procedures, and centralized decision making. However, a rapidly changing | Crag | Th ht Mio Dsge Chracrstes sh Congest cme theremin intent Sle ile inte alien lie ee hm ett Ent Shale atte re ce ec ee Ee ee ee chapter 2: Strategy, Organization Design, and Etfectiveness environment may call for a more flexible, organic steucture, with strong horizontal coordination and collaboration through teams or other mechanisms. Environment will be discussed in detail in Chapter 4 and Chapter 5. In terms of size and life cycle, young, small organizations are generally informal and have little division of labor, few rules and regulations, and ad hoc budgeting and performance systems. Large organizations such as Coca-Cola, Samsung, or General Electric, on the other hand, have an extensive division of labor, numerous rules and regulations, and standard procedures and systems for budgeting, control, rewards, and innovation. Size and stages of the life cyele will be discussed in Chapter 9. Design must also fit the workflow technology of the organization, For example, with mass production technology, such as a traditional automobile assembly line, the organization functions best by emphasizing efficiency, formalization, special- ization, centralized decision making, and tight control. An e-business, on the other hand, would need to be more informal and flexible. Technology's impact on design will be discussed in detail in Chapter 7 and Chapter 8. A final contingency that af- fects organization design is corporate culture. An organizational culture that values teamwork, collaboration, creativity, and open communication, for example, would not function well with a tight, vertical structure and strict rules and regulations. The role of culture is discussed in Chapter 10. One responsibility of managers is 10 design organizations that fit the contin: gettey factors of strategy, environment, size and life cycle, technology, and culture Finding the right fir leads 10 organizational effectiveness, whereas a poor fit can lead to decline or even the demise of the organization. Assessing Organizational Effectiveness Understanding organizational goals and strategies, as well as the concept of fitting design to various contingencies, is a first step toward understanding organizational effectiveness. Organizational goals represent the reason for an organization's ex- istence and the outcomes it seeks to achieve. The rest of this chapter explores the topic of effectiveness and how effectiveness is measured in organizations. Nofinitjon Recall from Chapter | that organizational effectiveness is the degree to which an. organization realizes its goals. Effectiveness is a broad concept. Ic implicitly takes, into consideration a range of variables at both the organizational and departmental levels. Effectiveness evaluates the extent to which multiple goals—whether official or operating—are attained. Efficiency is a more limited concept that pertains to the internal workings of the organization. Organizational efficiency is the amount of resources used to produce a unit of output.” It can be measured as the ratio of in- puts to outputs. If one organization can achieve a given production level with fewer resources than another organization, it would be described as more efficient.°° Somerimes efficiency leads to effectiveness, but in other organizations efficiency and effectiveness are not related. An organization may be highly efficient but fail to achieve its goals because it makes a product for which there is no demand, Likewise, an organization may achieve its profit goals but be inefficient. Efforts to increase efficiency, particularly through severe cost cutting, can also sometimes make the 67aaenbB. art 2; Organization Purpose and Structural Design organisation less effective. For example, one regional fast food chain wanting to increase efficiency decided to reduce food waste by not cooking any food until it was ordered. The move reduced the chain’s costs, but it also led to delayed service, ieritated customers, and lower sales.*! Overall effectiveness is difficult to measure in organizations. Organizations are large, diverse, and fragmented. They pecform many activities simultaneously, pursue multiple goals, and generate many ouscomes, some intended and some unintended. Managers determine what indicators fo measure in order to gauge the effectiveness of their organizations. Four possible approaches to measuring effectiveness are: The Goal Approach The Resource-Based Approach The Internal Process Approach The Strategic Constituents Approach Who Decides? Key people in charge of the organization, such as top managers or board members, have to make a conscious decision about how they will determine the organiza tion's effectiveness. Just as people determine goals, they also determine when the organization is successful. Organizational effectiveness is a social construct, meaning that it is created and defined by an individual or group rather than existing indepen- dently in the external world.5? An analogy from baseball that clarifies the concept is the story of three umpites explaining how they call balls and strikes. The first says, “I call ‘em as they are.” The second says, “I call em as I see em.” The third takes a social construct approach and says, “They ain’t nothin’ “til I call “em.” Similarly, organizational effectiveness is nothing until managers or stakeholders “call it.” An employee might consider the organization is effective if it issues accurate paychecks on time and provides promised benefits. A customer might consider it effective if it provides a good product at a low price. A CEO might consider the organization effective if itis profitable. Effectiveness is always multidimensional, and thus assessments of effectiveness are typically multidimensional as well. Managers in businesses typically use profits and stock performance as indicators of effectiveness, but they also give credence to other measures, such as employee satisfaction, customer loyalty, corporate citizenship, innovativeness, or industry reputation.* Managers often use indicators from more than one of the four approaches (goal, resouce, internal process, strategic constituents) when measuring effectiveness. Exhibit 2.9 lists a sample of 15 indicators that managers of large, multinational organizations reported using to assess effectiveness. As you read the descriptions of the four approaches to measuring effectiveness in the following sections, try to decide which approach each of these 15 indicators falls under.5* As the items in Exhibit 2.9 reveal, indicators of effectiveness are both quantitative and qualitative, tangible and intangible. An indicator such as achieving sales targets or percentage of market share is easy to measure, but indicators such as employee engagement, quality, or customer satisfaction are less clear-cut and often have to be measured qualitatively.” Relying solely on quantitative measurements can give managers a limited or distorted view of effectiveness. Albert Einstein is reported to have kept a sign in his office that read, “Not everything that counts can be counted, and not everything that can be counted counts.” are it. ee A ee ee en nti lt > |r ‘alee thy ee ie oe SS sedlilheeretowerecerwriMirreeseraoren ‘tis stasis Chapter 2: Strategy, Organization Design, and Effectiveness SEE 4. Meeting declines; onstime delivery 2, Timely material and equiement acquisition 3. Quelty of product or service | 4. customer saistaction/complints 5. Market share compared to competitors 6. Emplojee taining and development (number of nous) 7 Staying within budgot 5. Sherehoider satisfaction 9, Recuetion in | ts (0. Supaly chain delays or improvements LA, Produeth iy; dollars spent for each unit of output 2. Employee engagement 13. Achieving sales targets \ 114, Product development cycle time {reduction in cycle time) 15, Number of hours/days and so an to complete tasks sod on Table; nal ems Derive rm intentens,” a Casting B. Gibson, Mary E. Zliner rut, £ Donald. Seiwa, “Team Efleetweness in Muinatonal Organizations: Evaluation Across Contents. Group & ngement 28.1. 4 (December 2003), 444-874, Four Effectiveness Approaches [As open systems, organizations bring in resources from the environment, and those resources are transformed into outputs delivered back into the environment, as, shown in Exhibit 2.10, In addition, recall from Chapter 1 that organizations interact ‘with a number of stakeholder groups inside and outside the organization. Four key approaches to measuring effectiveness look at different parts of the organization and measure indicators connected with outputs, inputs, internal activities, or key stakeholders, also called strategic constituents. Goal Approach ‘The goa! approach to effectiveness consists of identifying an organization’s output goals and assessing how well the organization has attained those goals. This is @ logical approach because organizations do try to attain certain levels of output, profit, or client satisfaction. The goal approach measures progress toward the at Fainment of those goals Indicators. The important goals to consider are operating goals, because official xuoals (mission) cend to be abstract and difficult eo measure, Operating goals reflect activities the organization is actually performing, Indicators tracked with the goal approach include: * Profitability—the positive gain irom business operations or investments after expenses are subtracted © Marker share—the proportion of the market the firm is able to captire relative co competitors Some Indicators of Organizational Effectiveness Reported by Multinational OrganizationsFour Approaches to Measuring Organizational Effectiveness Part 2: Organization Purpose and Structural Design | Swategic | Consents ‘Apsroaeh : Community Product and S Internal Senice | Inputs Actvitos and Outputs Processes fh t} Resource-Based Goal ‘Roproaeh Agproach Internal Process ‘Approach LL + Growth—the ability of the organization to increase its sales, profits, or client base over time * Social responsibility—how well the organization serves the interests of society as well as itself * Product quality—the ability of the organization to achieve high quality in its products or services Useluiness. The goal approach is used in business organizations because output goals can be readily measured. Some nonprofit organizations that aim to solve social problems also find the goal approach useful. For example, Every Child Succeeds is 2 public-private partnership funded primarily by United Way that aims to reduce infant mortality and improve maternal health in the area surrounding Cincinnati, Ohio. In the seven Ohio and Kentucky counties around the city, 8.3 out of every 1,000 newbarns die before they ceach theie fist birthday, on par with countries such as Lithuania and Brunei. Yet among the mothers enrolled in Every Child Succeeds, that statistic is only 2.8 percent, lower than in virtually every industrialized country. Using a rigorous model of performance measurement based on some of the management practices at P&G, social workers and nurses from 15 participating organizations, including two Cincinnati hospitals and several social service agencies, visit at-risk mothers in their homes and help them stop smoking, learn to eat beiter, control their diabetes or high blood pressure, and improve their health in other ways. Unlike many social improvement programs, Every Child Succeeds sets and measures a few narrow and specific goals organized under seven focus areas." In businesses as well as in nonprofit organizations such as Every Child Succeeds, identifying operating goals and measuring effectiveness are not always easy. Two problems that must be resolved are the issues of multiple goals and subjective Sone ei se Me an te ete Le Se ORE Mente A Eea a Wier tiie sbertitimmirensibtibrineeememeinn “il site chapter 2: Strategy, Organization Design, and Effectiveness indicators of goal attainment. Since organizations have multiple and sometimes conflicting goals, effectiveness cannot be assessed by a single indicator. High achievement on one goal might mean low achievement on another, Moreover, there are department goals as well as overall organizational goals. The full assessment of effectiveness should take into consideration sevecal goals simultaneously. The other issue to resolve with the goal approach is how to identify operating goals for an organization and how to measure goal attainment. For business organizations, there are often objective indicators for certain goals, such as profit or growth. Every Child Succeeds can also use objective indicators for some goals, such as tracking how many infants are immunized or how many clients stop smoking during pregnancy. However, subjective assessment is needed for other goals, such as employee welfare, social responsibility, or client satisfaction. Top managers and. other key people on the management team have to clearly identify which goals the organization will measure. Subjective perceptions of goal attainment must be used when quantitative indicators are not available. Managers rely on information from customers, competitors, suppliers, and employees, as well as their own intuition, when considering these goals. Resource-Based Approach The resource-based approach looks at the input side of the transformation process shown in Exhibit 2.10. Irassumtes organizations must be successtul in obraining and managing valued resources in order to be effective because strategically valuabl resources give an organization a competitive edge.** From a resource-based perspective, organizational effectiveness is defined as the ability of the organization, in either absolute or relative terms, to obtain scarce and valued resources and successfully integrate and manage them. * indicators. Obtaining and successfully managing resources is the criterion by which organizational effectiveness is assessed. In.a broad sense, resource indicators of effectiveness encompass the following dimensions: * Bargaining position—the ability of the organization to obtain from its envicon- meat scarce and valued resources, including tangible resources such as a prime location, financing, raw materials, and quality employees, and intangible assets such as a strong brand or superior knowledge © The abilities of the organization's decision makers to perceive and correctly in- terpret the real properties of the external environment and supply forces ® The abilities of managers to use tangible (e.g., supplies, people) and intangible {eg., knowledge, corporate culture) resources and capabilities in day-to-day or- ganizational activities to achieve superior performance © The ability of the organization to respond to changes in resource sectors of the environment Usefulness. The resource-based approach is valuable when other indicators of performance are difficult co obtain. In many nonprofit and social welfare organizations, for example, itis hard to measure ourputgoals or internal efficiency. The Shriners Hospitals for Children (SHC) system provides an example. The 22 Shriners Hospitals provide free treatment co thousands of children with orthopedic conditions, burns, spinal cord injuries, and cleft lip and palette conditions. For most apenny R Part 2: Organlzation Purpose and Structural Design of its history, che SHC was highly successful in obraining donations, the main source of funding for the hospitals’ operations. However, when the federal government —— ‘As an organization _ launched a no-cost health insurance program for children of low-income families, manager, keep these Shriners began losing patients to traditional healthcare providers. With a decline in guidelines in mind: patient registrations, donations began to decline as well. Managers had to search for Use the goal approach, new ways to respond to the increased competition and obtain needed resources. Internal process ap- Many for-profit organizations also use a resource-based approach because resources proach, and resource: bbased approach to obtain specific interpre- are critical to competitive success. For example, the British retail firm Marks & Spencer evaluates its effectiveness partly by looking at the company’s ability to Cran orermctona obtain, manage, and maintain valued resources such as prime locations for stores, a effectiveness inte strong brand, quality employees, and effective supplier relationships.” areas of outputs, internal Although the resource-based approach is valuable when other measures of ef- processes, and inputs. Assess the satisfaction of strategic constituents fectiveness are not available, it does have shortcomings. For one thing, the approach only vaguely considers the organization's link to the needs of customers. A superior Gruse the competing ability to acquire and use resources is important only if resources and capabilities Yolues mode! to obtain are used to achieve something that meets a need in the environment. Critics have ‘a broader picture of challenged that the approach assumes stability in the marketplace and fails to ad- fectieness, equately consider the changing value of various resources as the competitive envi- ~ursmiameanesescinset ronment and customer needs change.** Internal Process Approach In the internat process approach, effectiveness is measured as internal organizational health and efficienc process. Employees are happy and satisfied. Department activities mesh with one another to ensure high productivity. This approach does not consider the external environment. The important element in effectiveness is what the organization does with the resources it has, as reflected in internal health and efficiency. An effective organization has a smooth, well-oiled internal Indicators. One indicator of internal process effectiveness is economic efficiency. However, the best-known proponents of an internal process model are from the human relations approach to organizations. Such writers as Chris Argyris, Warren Bennis, Rensis Likert, and Richard Beckhard have all worked extensively with human resources in organizations and emphasize the connection between human resources and effectiveness.®? Results from a study of nearly 200 secondary schools showed that both human resources and employee-oriented processes were important in explaining and promoting effectiveness in those organizations.” Internal process indicators include:”* oda ie ee er A strong, adaptive corporate culture and positive work climate Confidence and trust between employees and management, Operational efficiency, such as using minimal resources to achieve outcomes Undistorted horizontal and vertical communication Growth and development of employees Coordination among the arganization’s parts, with conflicts resolved in the interest of the larger organization Usefulness. The internal process approach is important because the efficient use of resources and harmonious internal functioning are good ways to assess orga- nizational effectiveness. In the wake of the economic recession, companies such as DuPont, Campbell Soup, and UPS are looking for ways to be more efficient, such eee a tee tie Ras: Sr EAdada steed a ee a Chapter 2: Strategy, Organization Design, and Effectiveness, as using existing technology to accomplish more with fess. At Campbell's Maxton, North Carolina-based factory, hundreds of small changes and improvements, many suggested by employees, have increased operating efficiency to 85 percent of what managers believe is the maximum possible, UPS erucks carry devices that teack how many left-turns against traffic its drivers have to make, By helping drivers optimize their rouces with fewer left turns, the system will save UPS 1.4 million gallons of fuel per year ‘Today, most managers believe that committed, actively involved employees and a positive corporate culture are also important internal measures of effectiveness, The internal process approach also has shortcomings. Total output and the orga nization’s relationship with the external environment are not evaluated. Another problem is that evaluations of internal health and functioning are often subjective because many aspects of inputs and internal processes are not quantifiable. Manag. ery should be aware that this approach alone represents a limited view of organiza tional effectiveness. Following the merger of Burlington Northern Railroad and the Atchison, Topeka, and Sanca Fe Railway, managers at BNSF Railway committed to creating an environment that provided overall organizational effectiveness and they combine an internal process approach to measuring effectiveness with other approaches. When faced with merging two operating systems, management systems, and cultures into tone cohesive organization, managers at BNSF knew they could let the culture develop natu: rally over time or be active participants in creating the culture they wanted. They chose to take a deliberate role in bullding a positive intemal environment. Indicators of internal effectiveness at BNSF are that people take pride in working at the railway and have opportunities for personal growth and development. Shared values » include listening to customers and doing what it takes to meet their expectations. In addi: tion, managers focus employees on continuaus improvement and provide a safe working environment. Managers combine measures of internal process effectiveness with measures of how well BNSF meets goals for 100 percent on-time, damage-free customer service, accurate ‘and timely information about their customer shipments, and giving customers the best value for their transportation dollar. Other goals are for sharehalder returns that exceed other railroads and a return on invested capital that is greater than BNSF's cost of capital Other stakeholders are considered as well. BNSF considers its ethical and legal commit: ments to the communities it serves, and well as its sensitivity to the natural environment in evaluating overall effectiveness.”° As this example illustrates, many organizations use more than one approach to measuring effectiveness because organizations pursue many different types of activities and serve many different interests Strategic Constituents Approach The strategic constituents approach is related to the stakeholder approach described in Chapter 1. Recall from Exhibit 1.6 thar organizations have a variety of internal and external stakeholders that may have competing claims on what they want from the organization, Several important stakeholder groups are also shown at the top of Exhibit 2.10. 73 [SF mt noreren | BNSF | Railway | |Part 2: Organization Purpose and Structural Design In reality, it is unreasonable to assume that all stakeholders can be equally satis fied. The st ‘onoiftuants aparoach measures effectiveness by focusing on the satisfaction of key stakeholders, those who are critical co the organization's ability to survive and thrive, The satisfaction of these strategic constituents can be assessed as an indicator of the organization's performance.” Indicators. The initial work on evaluating effectiveness on the basis of strategic constituents lovked at 97 small businesses and 7 groups relevant to those organiza- tions, Members of each group were surveyed to determine the perception of effec tiveness from cach viewpoint.’ Each constituent group had a different criterion of effectiveness CE Owners Financial return Employees Pay, good supervision, worker satisfaction Customers Quality of goods and services Creaitors Creditworthiness Community Contribution to community afaies Suppliers Satisfactory transactions | Government Obedience to laws and regulations If an organization fails to meet the needs of several constituent groups. it is probably not meeting its effectiveness goals, Although these seven groups reflect constituents that nearly every organization has to satisfy to some degree, each organization might have a different set of strategic constituents. For example, inde- pendent software developers are key to the success of companies such as Facebook even though they are not necessarily customers, suppliers, or owners. CEO Mark Zuckerberg works hard to win over developers. At a developers’ conference, he unveiled a technology that lets websites install a Facebook “Like” button for free. Users can click on it to signal their interest in a piece of content. The user's approval then shows up on his or her Facebook page with a link back to the site. The rechnol- ogy will drive traffic from Facebook to other websites, and in turn drive traffic back to Facebook.”* Usefulness. Research has shown that the assessment of multiple constituents is an accurate reflection of organizational effectiveness, especially with respect to orga- nizational adaptability.”” Moreover, both profit and nonprofit organizations care about their reputations and attempt to shape perceptions of their performance.”* The stcategic constituents approach takes a broad view of effectiveness and exam- ines factors in the environment as well as within the organization. It looks at several criteria simultaneously—inputs, internal processes, and outputs—and acknowledges that there is no single measure of effectiveness. The strategic constituents approach is popular because it is based on the under- standing that effectiveness is a complex, multidimensional concept and has no single measure.” In the following section, we look at anothet popular approach that takes, a multidimensional, integrated approach to measuring effectiveness, i eaeeneeetaeemeerinnienentieniendiedienindicntiee. ote tie ina ek eeChapter 2: Strategy, Organization Design, and Effectiveness ctlveness Model The ss; aieias tries co balance a concern with various parts of the organization rather than focusing on one part. This approach to effectiveness acknowledges that organizations do many things and have many outcomes.*" Ir combines several indicators of effectiveness into a single framework. ‘The model is based on the assumption that there are disagreements and competing viewpoints about what constitutes effectiveness, Managers sometimes disagree over which are the most important goals to pursue and measure. One tragic example of conflicting viewpoints and competing interests comes from NASA, After seven astronauts died in the explosion of the space shuttle Columbia in February 2003, an investigative committee found deep organizational flaws at NASA, including ineffective mechanisms for incorporating dissenting opinions between scheduling managers and safety managers. External pressures to launch on time overrode safety concerns with the Columbia launch." Similarly, Congressional investigations of the 2010 Deepwater Horizon oil rig explosion and oil spill in the Gulf of Mexico found that BP engineers and managers made a number of decisions thac were counter co the advice of key contractors, putting goals of cost control and timeliness ahead of concerns over well safety.*? BP and NASA represent how comples organizations ean be, operating aot only with different viewpoints internally but also from contractors, government regulators, Congress, and the expectations of the American public ‘The competing values model takes into account these complexities. The model \was originally developed by Robert Quinn and John Rohrhaugh to combine the diverse indicators of performance used by managers and researchers.®* Using a comprehensive list of performance indicators, a panel of experts in organizational effectiveness rated the indicators for similarity. Their analysis found underlying dimensions of effectiveness criteria that represented competing management values in organizations, Indicators. The first value dimension pertains to organizational focus, which is whether dominant values concern issues that are internal or external to the firm Internal focus reflects a management concern for the well-being and efficiency of employees, and external focus represents an emphasis on the well-being of the organization itselt with respect to the environment. The second value dimension pertains to organization and whether stability of flexibility is che dominant structural consideration. Stability reflects a management value for efficiency and top-down control, whereas flexibility represents a value for learning and change. The value dimensions of structure and focus are illusteated in Exhibit 2.11. The combination of dimensions provides four approaches to organizational effective: ness, which, though seemingly different, are closely related. In real organizations, these competing values can and often do exist together. Each approach reflects a different management emphasis with respect to structure and focus.*# 4 combination of external focus and flexible structure leads to an apes sysioms is, Management's primary goals are growth and resource acquisition. The organization accomplishes these goals through the subgoals of flexibility, readiness, and a positive external evaluation. The dominant value is establishing a good relationship with the environment to acquire resources and grow. This emphasis is similar in some ways to the resource-based approach described earlier. TS.EI Four Approaches to Effectiveness Values Part 2: Organization Purpose and Structural Design The ratinnai govt snap and external focus. The primary goals are productivity, efficiency, and profi. The organization wants to achieve output goals in a controlled way. Subgoals that facilicate these outcomes are internal planning and goal setting, which are rational management tools. The rational goal emphasis is similar to the goal approach described earlir The internat nincess emphasis is in the lower-left section of Exhibit 2.113 it reflects the values of internal focus and stenctural control, The primary outcome is 1 stable organizational setting that maintains itself in an orderly way. Organizations that are well established in the environment and simply want to maintain theit cur- rent position would reflect this emphasis. Subgoals include mechanisms for efficient communication, information management, and decision making, Although this part of the competing values model is similar in some ways to the internal process ap- proach described earlier, itis less concerned with human resources than with other internal processes that lead to efficiency. ‘The human relations emphasis incorporates the values of an internal focus and a flexible structure. Here, management concern is for the development of human resources. Employees are given opportunities for autonomy and development, Man- agement works toward the subgoals of cohesion, morale, and training opportuni- ties. Organizations adopting this emphasis are mare concerned with employees than with che environment. The four cells in Exhibit 2.11 represent opposing organizational values. Man- agers decide which values will take priority in the organization. The way wo organizations are mapped onto the four approaches is shown in Exhibit 2.12.85 Js represents management values of structural control Organization A is a young organization concerned with finding a niche and hecom- ing established in the external environment. Primary emphasis is given to flexibility, innovation, the acquisition of resources from the environment, and the satisfaction of external strategic constituents. This organization gives moderate emphasis to hu. man relations and even less emphasis to current productivity and profits, Satisfying and adapting to the environment are more important. The attention given to open systems values means that the internal process emphasis is practically nonexistent. Stability and equilibrium are of little concern, STRUCTURE Flexibility fee ay evelopment acquisition ey Subgoas xiii readiness, ° ‘externa evalution 2% | taterat Extomal Focus ts rc ony Pee) Source: Agape om Raver E, Quinn end John Rohrbaugh, “A Spatial Modelo Effectiveness Ctra: Toward @ Corn ting Values Approach to Organizational Anais” Managiment Science 29 (1983), 263-377; and Robert. Quinn and Kim Cameron, “Organizational Lie Cele and Shing Ctra of Efectneness: Some Preliminary Evidenc Management Seance 29 (1983), 32-51 , So lee Slr a a A tt se ier Ae A RRA NE RR Alb ae ih em‘chapter 2: Strategy, Organization Design, and Effectiveness | STRUCTURE | Flexibility urean Rekatons 7 Open Systems Emphasis Emphasis | toternat External | Focus = | \ | | internat Process Fatal Goa Emphasis Emphasis Organization B, in contrast, is an established business in which the dominant value is productivity and profits. This organization is chacacterized by planning and goal setting. Organization B is a large company that is well established in the envi ronment and is primarily concerned with successful production and profits. Flexibil- ity and human resources are not major concerns. This organization prefers stability and equilibrium to learning and innovation because it wants to maximize the value of its established customers. The best measures of business performance are financial. ANSWER: Disagree. If you can have only one type of measure of business performance, it might have to be financial. But diverse views of perfor: mance, such as using the competing vaiues model, have proven to be more effective than financials alone because managers can understand ‘and control the actions that cause business effectiveness. Financial num bers alone provide narrow and limited information, Usefulness. The competing values model makes two contributions. First, it integrates diverse concepts of effectiveness into a single perspective. It incorporates the ideas of output goals, resource acquisition, and human resource development as goals the or ganization tries to accomplish. Second, the model calls attention tw how effectiveness criteria are socially constructed from management values and shows how opposing values exist at the same time. Managers must decide which values they wish to pursue and which values will receive less emphasis. The four competing values exist simulta- neously, but nor all will receive equal priority. For example, a new, small organization that concentrates on establishing itself within a competitive environment will give less emphasis to developing employees than to the external environment. Effecteness Values for Two Organizations | ASSESS | » YOUR | , ANSWERpoops, * eB & Rl Samsung Group ee Part 2: Organization Purpose and Structural Design The dominant values in an organization often change over time as organizations experience new environmental demands, new top leadership, or other changes. For example, when Samsung Group managers shifted the company’s focus from quan- tity of sales to quality of products, it required a shift in dominant values. Samsung once pursued sales of quantity-driven, lowend products as a primary goal. Manag. ers emphasized stability, productivity, and efficiency, That all changed when Samsung Group chairman Kur-hee Lee visited a Los Angeles retailer in the early 1990s and found boxes | of Samsung products gathering dust on back shelves while customers admired the cutting | edge products from other manufacturers, | “Lee returned to Korea, ordered $50 million worth of inventory destroyed, and declares | that quality and innovation would be the new guiding principles. The new approach, which emphasizes employee empowerment and training, creativity, flexibility, and innovative re: sponse to the external environment, has been highly successful. By 2006, the consulting firm Interbrand ranked Samsung as the world’s most valuable electronics brand. By 2013, Samsung smartphones were challenging Apple for style and innovativeness. When Samsung flipped its focus from quantity to quality, it needed a new emphasis on | people. “People Come First” and "A Company Is Its People” are mottos that guide the com pany, and talent management is emphasized to prepare a pool of next-generation leaders, New digital learning facilities and networking spaces have been created to foster creativity ‘and innovation.®° The effectiveness values that guided Samsung in the past reflected a primarily internal process and rational goal emphasis. Managers valued stability, productivity, efficiency, and steady profits. However chairman Kun-hee Lee saw that profitability would not continue for long unless things changed. He shifted the organization to effectiveness values that reflect a primarily human resource and open systems em- phasis. Remember, all organizations are a mix of competing ideas, goals, and values, Goal emphasis and values change over time to meet new needs, Design Essentials Organizations exist for a purpose. Top managers decide the organization's strategic intent, including a specific mission to be accomplished, The mission statement, of official goals, makes explicit che purpose and direction of an organization Operating goals designate specific ends sought through actual operating procedures. Official and operating goals are a key element in organizations because they meet these needs—establishing legitimacy with external groups, providing employees with a sense of direction and motivation, and setting standards of performance. ® Goal conflict is inevitable in organizations and managers sometimes have to negotiate to reach agreement about the important goals to pursue. The hybrid organization means an organization that mixes value systems and behaviors that represent two different sectors of society, which leads to tensions and conflict within the organization over goals and priorities. Two other aspects related to strategic intent are competitive advantage and core ‘competence. Competitive advantage refers to what sets the organization apart from others and provides it with a distinctive edge. A core competence is something the organization docs extremely well compared 10 competitors. Managers look for competitive openings and develop strategies based on their core competencies. a ae aan ie et Aen re es ie tly eee Ale A RN cl eds me tee at a |Pe ea ee ne ee eee oe no ee ‘chapter 2: Strategy, Organization Design, and Effectiveness Strategies may include any number of techniques to achieve the stated goals. Two models for formulating strategies are Porter's competitive strategies and Miles and Snow's strategy typology. Organization design needs to fit che firm’s competitive approach to contribute to organizational effectiveness. ® Assessing organizational effectiveness reflects the complexity of organizations as a topic of study. Effectiveness is a social construct, meaning that effectiveness criteria are created and decided upon by people. Different people will have dif- ferent criteria for what makes the organization “effective.” Managers have t0 decide how they will define and measure organizational effectiveness. No easy, simple, guaranteed measure will provide an unequivocal assessment of effectiveness. Organizations must perform diverse activities well—from ob- taining resource inputs to delivering ourpurs—to be successful. Four approaches ro measuring effectiveness are the goal approach, resource-based approach, in ternal process approach, and strategic constituents approach. Effectiveness is multidimensional, so managers typically use indicators from more than one ap- proach and they use qualitative as well as quantitative measures. i No approach is suitable for every organization, but each offers some advantages that the others may lack. In addition, the competing values model balances a con cern with various parts of the organization rather than focusing on one part. This approach acknowledges different areas of focus (internal, external) and structure pee 79 {flexibility stability) and allows managers to choose the values to emphasize. FT analyzer hybrid organization prospector competing values model competitive advantage core competence defender differentiation strategy official goals focus open systems emphasis goal approach human relations emphasis operating goals ‘organizational goal rm oorenscor sense ennai Ld cbocicitr tte 1. Discuss the role of top management in setting organi- zational direction, 2. How might a company’s goals for employee development bee related to its goals for innovation and change? To ‘goals for productivity? Can you discuss ways these types ‘of goals might conflict in an organization? 3. What is a goal for the class for which you are reading this text? Who established this goal? Discuss how the zoal affects your direction and motivation. 4.Whatis the difference herween a goal and a strategy as defined in the text? Identify both a goal and a strategy for a eampus oF community organization with which you are involved. 5. Discuss the similarities and differences in the strategies described in Porter's competitive strategies and Miles and Snow's typology internal process approach internal process emphasis reactor low-cost leadership strategy rational goal emphasis resource-based approach social construct strategic constituents approach strategic intent strategy structure 6.Do you believe mission statements and official goal statements provide an organization with genuine legitimacy in the external envisonment? When a company such as CVS (discussed in the chapter) makes a decision to stop selling cigarettes because that action conflicts with its mission statement, what do you see as the impact on public opinion? On future business? Discuss 7. Suppose you have been asked to evaluate the effecive- ness of the police department in a medium-sized com- munity. Where would you begin, and how would you proceed? What effectiveness approach would you prefer? 8. What are the advantages and disadvantages of the resource-based approach versus the goal approach for measuring organizational effectiveness? 8 Et Ea 2 RR ER.G ERs: