Strategy and Effectiveness Understanding the Theory & Design of Organizations Eleventh Edition Richard L. DaftPurpose of This Chapter ‘Top managers set organizational goals and plans, guiding their direction. This chapter explores organizational goal types and competitive strategies. It provides an overview of strategic management, frameworks for strategic action, and their impact on organization design. The chapter discusses popular approaches to measuring organizational effectiveness. Effective. management.requires a.clear understanding ofThe Role of Strategy Direction in Organization Design is a desired state of affairs that the organization attempts to reach. A goal represents a result or end point toward which organizational efforts are directed. Top executives determine the organization's purpose and direction, shaping its design. Top management's primary responsibility is setting goals, strategy, and adapting to change. Middle managers align departmental goals with top management's guidance.Top Management Role in Organization Direction, Design & Effectiveness — Stal fom-—henire === me erat soo & Define Salt ss yer) ceri Pes trcgy sy ote a te goals compet ‘incontves cr ( Ongena tie ~ J terentsitution | ‘rtroganicationalickages Stoogts| Wesinsses Distinctive competence 4 Lescer sloTop Management Role in Organization Direction, Design & Effectiveness — involves defining the mission, goals, and operational strategies based on external opportunities and internal strengths executes the strategic plan encompassing structural form, technology, policies, culture, linkages and also determines organization success. The choices top managers make about goals, strategies, and organization design have a tremendous impact on Performance measurements feedback intoOrganizational Purpose — Strategic Intent Strategic Intent means that all the organization’s energies and resources are directed toward a focused, unifying, and compelling goal Operating Goals + Overall Performance + Resources + Market + Employee Development + Innovation and Change + ProductivityOrganizational Purpose Mission Mission represents an organization's overall goal and reason for existence, formally defining the business scope and outcomes. Mission statements or official goals are often documented in policy manuals or annual reports. A mission statement serves as a communication tool to convey the organization's purpose, values, and vision. It establishes legitimacy and helps align stakeholders with the organization's broader objectives, beyond financial goals.Mission Statement for Machias Savings Bank: Exhibit 3.2 Mission To be exceptional in every relationship, in every product developed, in every service rendered and every promise made. Vision To provide the most exceptional banking experience in the state of Maine. Principles Driven to Be the Best To be the best, we must look through the lens of the customer to deliver the best products and services in a costetfective way. Build a Winning Performance Culture To create a Winning Performance Culture we need to first operate with the highest standards of integrity. Execute as One Together, we will focus on a consistent strong financial performance during good times and bad.Organizational Purpose Competitive Advantage Competitive advantage refers to what sets the organization apart from others and provides it with a distinctive edge for meeting customer or client needs in the marketplace. Strategic intent aims to secure a sustainable competitive advantage for the organization. Strategies must adapt to changing environmental conditions. Managers conduct competitive analyses, assessing internal and external factors to identify opportunities.Organizational Purpose Core Competence Core competence is something the organization does especially well in comparison to its competitors. It may be in superior research and development, expert technological know-how, process efficiency, or exceptional customer service. It may include R&D, technological expertise, process efficiency, or outstanding customer service. excels in diverse sectors, such as petrochemicals and retail. is known for its automotive engineering and innovation.Operating Goals are specific, measurable outcomes derived from an organization's mission and overall goals. They focus on short-term objectives, guiding day-to-day decisions and activities within departments. These goals can encompass areas like performance. resources, markets, employee development, productivity, innovation, and change. Operative goals help translate the organization's broader mission into actionable tasks and priorities. Thev nrovide a framework for alianina denartmental effortsTypical Operating Goals for an Organization Exhibit 3.3 Overall ced en Resource Dec Goals ae br L Productivity Goals oryOperating Goals Overall performance for for-profit organizations is typically measured by profitability, growth, and output volume Profitability is assessed through metrics like net income, eamings per share, and return on investment. Other overall performance goals are growth and output volume. Resource goals involve acquiring necessary material and financial resources, including securing financing, sourcing cost-effective raw materials, and hiring skilled talent. Market goals relate to the market share or market standing desired by the organization, largely the responsibility of marketing, sales, and advertising departments.Operating Goals " Productivity goals concern the amount of output achieved from available resources and describe the amount of resource inputs required to reach desired outputs. = E.g., “Cost for a unit of production,” “units produced per employee,” or “resource cost per employee.” = Innovation and 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.The Importance of Goals Goals act as guidelines for employee behavior and decision-making, defining acceptable boundaries. They help assess organizational performance, serving as standards for measurement in various areas. and mission statements establish the organization's value system, purpose, and vision, while operative goals define primary tasks and are more explicit. motivate employees, providing direction and specific targets to enhance performance.Goal Types and Purposes — ¢ Communicate organization's purpose and values + Bestow legitimacy PE RCL) ¢ Provide employee direction and motivation * Offer decision guidelines ¢ Define a standard of performanceA Framework for Selecting Strategy and Design Strategy is a plan for interacting with the competitive environment to achieve organizational goals. Goals define where the organization wants to go, and strategies define how it will get there. Example: To achieve 15 percent annual sales growth Aggressive advertising to attract new customers, motivating salespeople to increase the average size of customer purchases, and acquiring other businesses that produce similar products.Porter’s Competitive Strategies Competitive advantage Lower cost Differentiation 1 2 Cost leadership Differentiation Competitive scope 3b Differentiation focus Narrow 3a target Cost focus Source: Adapted from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter. Copyright © 1985, 1988 by Michael E. Porter.Porter’s Competitive Strategies = A company's competitive advantage and profit depend on the linked activities within its value chain, focusing on customer-desired products or services. Competitive advantage is created by choosing and configuring activities differently based on cost or differentiation strategies. Competitive advantage is determined by how effectively a firm's selected strategy generates value, with three genetic strategies to choose from. = Cost LeadershipPorter’s Competitive Strategies aims to become the lowest-cost competitor by leveraging economies of scale, technology, and other factors. While cost advantages are crucial, firms must also ensure product quality and differentiation to avoid price pressure. involves offering superior value through unique product or service attributes, but it requires the ability to charge premium prices. To succeed with differentiation, a company must manage costs effectively while delivering the desired unique attributes that customers value.Porter’s Competitive Strategies Firms become when they fail to select and stick to a particular strategy. For e.g., Laker Airways started out with a price-sensitive strategy. However, it lost its focus and ended up bankrupt. Generally, adopting more than one of these three strategies is quite difficult, unless your company assigns different strategies to different business units. In some cases, however, cost and differentiating strategies may be compatible, such as when: Competitors have not made clear strategic choices and are mired in trying to decide;Miles and Snow’s Strategy Typology 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, by developing either of the four strategies i.e., is to innovate, take risks, seek out new opportunities, growth and suits a dynamic, growing environment, where creativity is more important than efficiency. Learning orientation; flexible, fluid, decentralized structure Values creativity, risk-taking, and innovationMiles and Snow’s Strategy Typology does not take risks and seeks new opportunities, but is concerned with stability, holding on to current customers, does not innovate nor seeks to grow. Efficiency orientation; centralized authority and tight cost control Emphasis on production efficiency, low overhead Tata Motors's focus on the domestic automotive market and its portfolio of reliable and durable vehicles, has employed a defender strategy to protect its market share and maintain stability, maintains stability while innovating on the periphery, targeting both stable and dynamic environments for product development. Balances efficiency and learning; tight cost control with flexibility and adaptabilityMiles and Snow’s Strategy Typology = Reactor strategy lacks defined long-term plans or explicit goals. resulting in ad hoc responses to environmental changes. = No clear organizational approach; design characteristics may shift abruptly depending on current needs * Air India faced challenges in adapting to market changes and global competition, often responding reactively to crises.How Strategies Affect Organization Design Choice of Strategy and Organization Design: The chosen strategy significantly influences an organization's internal design. Different strategies demand specific organizational characteristics that align with the strategic approach. Efficiency vs. Learning: A emphasizes efficiency and is associated with centralized authority, strict control, and standardized processes. In contrast, a prioritizes learning, promoting flexibility, creativity, and innovation. Prospector and Defender Strategies: The , focused on innovation and growth, shares characteristics with the differentiation strategy. Meanwhile,How Strategies Affect Organization Design Analyzer Strategy: The analyzer strategy attempts to strike a balance between efficiency for existing products and learning for new products. This strategy involves a mix of organizational characteristics to support both aspects. Reactor Strategy: A reactor strategy lacks a clear direction and organizational approach, often resulting in an ad hoc response to environmental changes without a well-defined design. These organization design characteristics are crucial for aligning the internal structure with the chosen competitive strategy, ensuring that the organization can effectively execute its strateaic obiectives.Strategy Differentiation Organization Design: + Leeming oentation; acts in a feb, loosely it way, with strong Suong capability in esearch Values and builds in mechanisms for + Rewards employee ereatvty, tsk taking, and innovati Stratogy: Low ost Leadership Organization Design: + Effclency orientation: strong central utr tit cost control with frequent, cetalied contol reports Standard operating procedures Highly effcient procurement and distribution systems + Close supension; routine tasks ited employee empowerment Strategy: Prospector Organization Desig + Leaming oietation; flexible, id, ecentvaized structure + Strong capably in research Stratogy: Dtondor Organization Desig: + flencyorertaion; centralized suey, it cost cont + Emphasis on production eeiney Organization Scsiesa ee een toes Design cmennel Outcomes of strategy: Anayzer Organization Design: + Balances eiciency Strategy tight cost contol wit lexblty and adaptability + ficient production for stable prouct ines; emphasis on creatvy, esearch, rsktaking fr innovation Strategy: Reacto Organization Design: + No clear organtzational apr design characteristics may shit abruptly, depending onContingency Factors Affecting Organization Design pra “J The Right Mix of Design Characteristics Fits the Contingency FactorsContingency Factors Affecting Organization Design Strategy plays a crucial role in shaping organization design. However, design results from various contingencies, including strategy, environment, size, technology, and culture. Environment, which is stable, may lead to a traditional structure with vertical control, efficiency, and centralization. A dynamic environment may require a more flexible structure with horizontal coordination and teamwork. Technology: Workflow technology also dictates design, with mass production favoring efficiency and e-businesses needing flexibility. Size/Life Cycle: Small, young organizations tend to be informal with mir imal division of labor, while large organizations haveAssessing Organizational Effectiveness Effectiveness 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 operative—are attained. Efficiency is the amount of resources used to produce a unit of output and can be measured as the ratio of inputs to outputs. The Goal Approach The Resource-Based ApproachExhibit 3.8: Indicators of Organizational Effectiveness . Meeting deadlines; on-time delivery Timely material and equipment acquisition . Quality of product or service . Customer satisfaction/complaints .. Market share compared to competitors Employee training and development (number of hours) Staying within budget . Shareholder satisfaction . Reduction in costs . Supply chain delays or improvements Productivity; dollars spent for each unit of output . Employee engagement . Achieving sales targets . Product development cycle time (reduction in cycle time) . Number of hours/days/etc. to complete tasksExhibit 3.9: Four Approaches to Measuring Organizational Effectiveness d Product and Service Inputs Activities and Outputs Processes ——) Organization Resource Internal Resource-Based ApproachEffectiveness: assesses organizational effectiveness by evaluating its achievement of output goals, such as profit, market share, growth, social responsibility, and product quality. Operative goals, as opposed to abstract official goals (mission), are vital for measurement because they are concrete and quantifiable. Measuring profitability involves assessing the positive financial gain from business operations or investments after deducting expenses It evaluates the organization's ability to capture a proportion of the market share relative to competitors. Growth indicator examines the organization's capacity to increase its sales, profits, or client base over time.Effectiveness: focuses on the acquisition and management of valuable resources as essential for organizational effectiveness. Organizational effectiveness, according to the resource-based approach, is the organization's capacity to obtain and efficiently manage scarce and valued resources, whether absolutely or relatively. The resource-based approach is beneficial when traditional performance indicators are challenging to measure, as seen in nonprofit and social welfare organizations. Effectiveness is evaluated through dimensions such as the organization's ability to secure valuable resources, managers’ capability to interpret the external environment, and the utilization of lo and intanaihla racoureac in daihs anaratiEffectiveness: evaluates organizational effectiveness by examining internal health and efficiency. Effective Organization: An effective organization is characterized by well-coordinated internal processes, satisfied employees, and high productivity, regardless of external factors. Excludes External Environment: Unlike other approaches, the internal process approach doesn't consider the external environment as a major factor in effectiveness. Key Elements: Internal health and efficiency, along with a strong corporate culture, operational efficiency, effective communication, and employee growth, are key indicators.Effectiveness: assesses organizational effectiveness by focusing on the satisfaction of critical stakeholders. Key Stakeholders: It considers those essential to the organization's survival and prosperity as indicators of performance. Broad View: This approach looks at both external and internal factors, including inputs, processes, and outputs. Multidimensional: Recognizes that effectiveness is complex and multidimensional, with no single measure to gauge it accurately.Competing Values Framework (CVF): An Integrated Effectiveness Model Flexibility Open systems model ‘Asapation andinnovaton Human relations model + ‘Cooperative teamwork Open system en \ Monitor cute “ot Support culture | Nr : Internal Focus | « External Focus and aiterentaton rmessurement and dccumentaton x Stable hierarchy zi “Rational firm rruecuture “MOM Objective culture. Groce Rational goal model Productivity and prott Internal process model Stability and contro! Source: Fig. 1 - Competing Values Framework of Quinn (1988).An Integrated Effectiveness Model was developed to improve organizational effectiveness and promote value creation by characterizing organizations in two dimensions Human Relations Model: Organizations with an intemal focus and emphasis on flexibility, labelled , encourage participation by employees, teamwork, empowerment, and human resource development. Open Systems Model: Organizations with an external focus and emphasis on flexibility, labelled exhibit creativity and innovativeness; they focus on growth and expanding resources Internal Process Model: which prioritize internal control, centralize authority, adhere to formal hierarchy and rules, emphasizing stability and predictabilityDesign Essentials Organization exist for a purpose. Strategic intent includes competitive advantage and core competence. Strategies may include many techniques. There are models to aid in the development of strategy. Organizational effectiveness must be assessed. No:approachis:suitable-for-every organization: