CHAPTER TWO

STRATEGY, ORGANIZATION DESIGN, AND

EFFECTIVENESS
The Role Of Strategic Direction In Organization
Design
• An organizational goal 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.
• The choice of goals and strategy influences
how the organization should be designed.
Top executives decide the end purpose the
organization will strive for and determine the
direction it will take to accomplish it.
• It is 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, therein adapting the organization to a changing
environment.
• Middle managers do much the same thing for major
departments within the guidelines provided by top
management.
• The relationships through which top managers provide
direction and then design. 1st, The direction-setting
process typically begins with an assessment
the external environment (opportunities, threats,
uncertainty, resource availability, and amount of change)
Internal environment ( strengths, weaknesses,
distinctive competence compared with other firms in the
industry, leader style, and past performance).
• The next step is to define and articulate the
organization’s strategic intent. This includes:-
Defining an overall mission
Official goals
Select operational goals and
Competitive strategies based on the correct fit
between external opportunities and internal
strengths.
• Leaders then formulate specific operational
goals and strategies that define how the
organization is to accomplish its overall mission.
Organization design reflects the way goals and
strategies are implemented.
It is the administration and execution of the strategic
plan toward achieving the mission and goals.
• Changes in structure, technology, human resource
policies, culture, and inter-organizational linkages.
• 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
management attempts to redesign the organization to
achieve those ends.
• It is important to note here that performance
measurements feedback into the internal
environment, so that past performance of the
organization is assessed by top management in
setting new goals and strategic direction for the
future.
• The role of top management is important because
managers can interpret the environment differently
and develop different goals.
 ORGANIZATIONAL 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 meet the overall goal, mission, or
purpose of the organization.
 1. Strategic Intent-Official goals

Strategic intent means that all the organization’s

energies and resources are directed toward a focused,
unifying, and compelling overall goal.
• It provides a focus for management action.
• Many types of goals exist in organizations, and each
type performs a different function.
• However, to achieve success, organizational goals
and strategies are focused with strategic intent.
• Three aspects related to strategic intent are the
mission, core competence, and competitive advantage.
1. Mission – official goals-
It is the overall goal for an organization.
• the organization’s reason for existence.
• It describes the organization’s shared values and
beliefs and its reason for being.
• Official goal/mission statement - define business
operations and may focus on values, markets, and
customers that distinguish the organization.
 purposes of a mission statement

To serve as a communication tool with:-

current and prospective employees, customers,
investors, suppliers, and competitors.
legitimacy to internal and external stakeholders.
2. Core Competence:
 It is something the organization does especially well
in comparison to its competitors.
 It may be:-
• superior research and development,
• expert technological know-how,
• process efficiency, or
• exceptional customer service.
3. Competitive Advantage:
• The overall aim of strategic intent is to help the
organization achieve a sustainable competitive
advantage.
• It 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.
• Strategy necessarily changes over time to fit
environmental conditions.
• Managers analyze competitors and the internal and
external environments to find potential competitive
openings and learn what new capabilities
 2. Operative Goals
• specific operative goals- are derived from organization’s mission and
overall goals.
• OG - describe specific measurable outcomes and the short run.
• OG - typically pertain to the primary tasks an organization must
perform.
• SG- provide direction for the day-to-day decisions and activities within
departments.
• OG- includes performance goals, resource goals, market goals,
employee development goals, productivity goals, and goals for
innovation and change.
 3. Overall Performance
It refers and includes to :-
Profitability (net income, earnings per share, or return on
investment) -for-profit organizations.
• 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.
• Expanding their services to new clients- for social service
agencies.
 4. Resources
• 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, or hiring
top-quality technology graduates. EX- RG -
• For Stanford University - attracting top-notch professors and
students.
• Auto manufacturers such as Honda Motor Company and Toyota
Motor Corporation - obtaining high-quality auto parts at low cost.
• For nonprofit organizations - recruiting dedicated volunteers and
expanding the organization’s funding base.
 5. Employee Development

• It includes both managers and workers

• ED - pertains to the training, promotion, safety, and
growth of employees.
• EDG-are critical for helping to maintain a motivated,
committed workforce.
•
 6. Productivity
• It concern the amount of output achieved from available
resources.
• They typically describe the amount of resource inputs
required to reach desired outputs and are thus stated in terms
of
 “cost for a unit of production,”
“units produced per employee,” or
 “resource cost per employee.”
 7. Innovation and Change

• I & C - to internal flexibility and readiness to adapt to unexpected

changes in the environment.
• defined with respect to the development of specific new services,
products, or production processes.
 The Importance of Goals
Both official goals and operative goals are important for the organization.
Official goals and mission statements:-
 describe a value system for the organization and set an overall purpose and
vision.
legitimize the organization.
Operative goals:-
represent the primary tasks of the organization.
are more explicit and well defined.
serve several specific purposes- provide employees with a sense of direction,
to act as guidelines for employee behavior and
decision making.
set of constraints on individual behavior and actions-
to behave within boundaries that are acceptable to the
organization and larger society.
Helps to define the appropriate decisions concerning
organization structure, innovation, employee welfare,
or growth.
provide a standard for assessment.
A Framework For Selecting Strategy And Design

• Within its competitive environment managers have to

select specific strategy and design options that
support and accomplish/ achieve the organization’s
strategic intent and keep people focused in the
direction determined by organizational mission, vision,
and operative goals.
 Strategies and goals
• A S- is a plan for interacting with the competitive
environment to achieve organizational goals.
• S- define how it will get there.
• S- can include any number of techniques to achieve
the goal.
• G- define where the organization wants to go.
 Cont…
We examine a couple of practical
approaches to selecting strategy and design.
These are :-
1. Porter model of competitive strategies
and
2. Miles and Snow’s strategy typology.
 1. Porter model of competitive strategies
The threat of new
1. The Threat of New Entrants:
entrants to an industry can create pressure for
established organizations, which might need to
hold down prices or increase their level of
investment. The threat of entry in an industry
depends largely on the amount and extent of
potential barriers.
2. The Power of Suppliers: Large, powerful suppliers
can charge higher prices, limit services or quality, and
shift costs to their customers, keeping more of the value
for themselves.
 The sole supplier of materials or information to a
company will have great power,
3. The Power of Buyers: Powerful customers, the flip
side of powerful suppliers, can force down prices,
demand better quality or service, and drive up costs for
the supplying organization.
4. The Threat of Substitutes: The power of alternatives
and substitutes for a company’s product or service may be
affected by changes in cost, new technologies, social
trends that will deflect buyer loyalty, and other
environmental changes.
5. Rivalry among Existing Competitors: influenced
by the preceding four forces, as well as by cost and
product differentiation.
In finding its competitive edge within these five
forces, Porter suggests that a company can adopt one
of three strategies: differentiation, low-cost
leadership, or focus.
1. Differentiation: In a differentiation strategy,
organizations attempt to distinguish their products or
services from others in the industry.
It can reduce rivalry with competitors and fight off the
threat of substitute products because customers are loyal
to the company’s brand.
• It require a number of costly activities. Such as
product research and design and extensive advertising
2. Low-Cost Leadership: try to increase market share
by keeping costs low compared to competitors.
LC leaders- provides goods and services to customers
at cheaper prices.
LCL- concerned primarily with stability rather than
taking risks or seeking new opportunities for
innovation and growth.
3. Focus: the organization concentrates on a specific
regional market or buyer group.
The company will try to achieve either a low-cost
advantage or a differentiation advantage within a
narrowly defined market.
 2. Miles and Snow’s Strategy Typology
• based on the idea that managers seek to formulate
strategies that will be congruent/fit with the external
environment.
• Organizations strive for a fit among internal
organization characteristics, strategy with the external
environment.
• The four strategies that can be developed are the
prospector, the defender, the analyzer, and the
reactor.
1. Prospector: The prospector strategy is to innovate,
take risks, seek out new opportunities, and grow.
It is suited to a dynamic, growing environment, where
creativity is more important than efficiency.
2. Defender: is almost the opposite of the prospector.,
it concerned with stability or even retrenchment rather
than taking risks and seeking out new opportunities.
seeks to hold on to current customers, but it
neither innovates nor seeks to grow.
3. Analyzer: The analyzer tries to maintain a
stable business while innovating on the periphery.
It seems to lies on midway between the prospector
and the defender.
4. Reactor: not really a strategy at all. Rather, reactors
respond to environmental threats and opportunities in
an ad hoc fashion.-(situational).
How Strategies Affect Organization Design
• Choice of strategy affects internal organization
characteristics.
• Organization design characteristics need to
support the firm’s competitive approach.
• With a low-cost leadership strategy, managers
take an efficiency approach to organization
design, whereas a differentiation strategy calls
for a learning approach.
• A low-cost leadership strategy (efficiency) is associated
with
strong centralized authority and tight control,
standard-/identical operating procedures, and
emphasis on efficient procurement and distribution
systems.
1. The prospector strategy requires characteristics similar
to a differentiation strategy
2. The defender strategy takes an efficiency approach
similar to low-cost leadership.
3. 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.
4. A reactor strategy, managers have left the organization
with no direction and no clear approach to design.
 Assessing Organizational Effectiveness
• Effectiveness evaluates the extent to which
multiple goals—whether official or operative—
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 inputs to outputs.
 I. Traditional Effectiveness Approaches

• Organizations bring resources in from the environment,

and those resources are transformed into outputs
delivered back into the environment.
• Traditional approaches to measuring effectiveness look at
different parts of the organization and measure indicators
connected with outputs, inputs, or internal activities.
• It includes:-
 1. Goal Indicators

• The goal approach to effectiveness consists of

identifying an organization’s output goals and
assessing how well the organization has attained
those goals.
• The important goals to consider are operative
goals.
 Cont.
Indicators tracked with the goal approach include:
• Profitability—the positive gain from business operations or
investments after expenses are subtracted
• Market share—the proportion of the market the firm is able to
capture relative to competitors
• Growth—the ability of the organization to increase its sales,
profits, or 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
 2. Resource-based Indicators
• It looks at the input side of the transformation process.
• It assumes organizations must be successful in
obtaining and managing valued resources in order to
be effective.
 Bargaining position: the ability of the organization to
obtain from its environment scarce and valued
resources, including:- financial resources, raw
materials, human resources, knowledge, and technology
 3. Internal Process Indicators
• IPA- effectiveness is measured as internal organizational
health and efficiency.
• An effective organization has a smooth, well-oiled internal
process.
• Employees are happy and satisfied.
• Department activities mesh with one another to ensure high
productivity.
• It doesn’t consider the external environment.
• The best-known proponents of an internal process model are
from the human relations approach to organizations.
II. The Balanced Scorecard Approach To
Effectiveness (modern)
• The balanced scorecard combines several indicators of
effectiveness into a single framework, balancing
traditional financial measures with operational measures
relating to a company’s critical success factors.
• Within each area of effectiveness—financial
performance, customer service, internal business
processes, and the organization’s capacity for
learning and growth
1. The financial perspective reflects a concern that the
organization’s activities contribute to improving
short- and long-term financial performance.
It includes: net income and return on investment.
2. Customer service indicators measure such things as
how customers view the organization, as well as
customer retention and satisfaction.
3. Business process indicators focus on production and
operating statistics,
such as speed of order fulfillment and cost per order. and
4. the organizations potential for learning and growth,
focusing on how well resources and human capital are being
managed for the company’s future.
Measurements include - employee satisfaction and retention,
amount of training people receive, business process
improvements, and the introduction of new products.
These all BSC approach's, can reinforce one another and
link short-term actions with long-term strategic goals.
 T E R T W O
O F C H A P
E N D

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