value insights

Strategy Implementation with Organizational Design- Valutrics

Strategy implementation involves the use of organizational design, the process of
deciding how a company should create, use, and combine organizational structure,
control systems,and culture to pursue a business model successfully. Organizational
structure assigns employees to specific value creation tasks and roles, and specifies
how these tasks and roles are to be linked together in a way that increases efficiency,
quality, innovation, and responsiveness to customers—the distinctive competencies
that build competitive advantage.The purpose of organizational structure is to coordinate and integrate the efforts of employees at all levels—corporate, business, and
functional—and across a company’s functions and business units so that they work
together in the way that will allow it to achieve the specific set of strategies in its business model.
Organizational structure does not,by itself,provide the set of incentives through
which people can be motivated to make it work. Hence, there is a need for control
systems. The purpose of a control system is to provide managers with (1) a set of
incentives to motivate employees to work toward increasing efficiency, quality, innovation, and responsiveness to customers and (2) specific feedback on how well an
organization and its members are performing and building competitive advantage
so that managers can constantly take action to strengthen a company’s business
model. Structure provides an organization with a skeleton; control gives it the muscles, sinews, nerves, and sensations that allow managers to regulate and govern its
Organizational culture, the third element of organizational design, is the specific collection of values, norms, beliefs, and attitudes that are shared by people and
groups in an organization and that control the way they interact with each other
and with stakeholders outside the organization.5Organizational culture is a company’s way of doing something: it describes the characteristic ways in which members of an organization get the job done, such as the way Nokia uses teams to speed
innovation. As we discuss in detail below, top managers, because they can influence
which kinds of beliefs and values develop in an organization, are an important determinant of how organizational members will work toward achieving organizational goals.

Organizational structure, control, and
culture are the means by which an organization motivates and coordinates its members to work toward achieving the building blocks of competitive advantage.
Top managers who wish to find out why it takes a long time for people to make
decisions in a company, why there is a lack of cooperation between sales and manufacturing, or why product innovations are few and far between, need to understand
how the design of a company’s structure and control system and the values and
norms in its culture affect employee motivation and behavior. Organizational structure, control, and culture shape people’s behaviors, values, and attitudes and determine
how they will implement an organization’s business model and strategies.On the basis
of such an analysis, top managers can devise a plan to restructure or change their
company’s structure, control systems, and culture to improve coordination and motivation. Effective organizational design allows a company to obtain a competitive
advantage and achieve above-average profitability.

After formulating a company’s business model and strategies, managers must make
designing an organizational structure their next priority.The value creation activities
of organizational members are meaningless unless some type of structure is used to
assign people to tasks and connect the activities of different people and functions.

Managers must make three basic choices:
1. How best to group tasks into functions and to group functions into business units
or divisions to create distinctive competencies and pursue a particular strategy
2. How to allocate authority and responsibility to these functions and divisions
3. How to increase the level of coordination or integration between functions and
divisions as a structure evolves and becomes more complex
For now,it is important to note that managers group tasks into functions and then
group functions into a business unit or division to reduce bureaucratic costs. For ex-
ample, as Dell started to produce different kinds of products, it created separate divisions,each with its own marketing,sales,and accounting functions.A division is a way
of grouping functions to allow an organization to better produce and transfer its
goods and services to customers.In developing an organizational structure,managers
must decide how to group an organization’s activities by function and division in a
way that achieves organizational goals effectively,which is what happened at Dell.
Top managers can choose from among many kinds of structures to group their
activities. The choice is made on the basis of the structure’s ability to implement the
company’s business models and strategies successfully.
As organizations grow and produce a wider range of goods and services, the size
and number of their functions and divisions increase. The number of handoffs or
transfers between employees also increases, and to economize on bureaucratic
costs and effectively coordinate the activities of people, functions, and divisions,
managers must develop a clear and unambiguous hierarchy of authority, or chain
of command, that defines each manager’s relative authority, from the CEO down
through the middle managers and first-line managers, to the non managerial employees who actually make goods or provide services.15Every manager, at every
level of the hierarchy, supervises one or more subordinates. The term span of control refers to the number of subordinates who report directly to a manager. When
managers know exactly what their authority and responsibility are, information
distortion problems that promote managerial inefficiencies are kept to a mini-
mum, and handoffs or transfers can be negotiated and monitored to economize on
bureaucratic costs. For example, managers are less likely to risk invading another
manager’s turf and thus can avoid the costly fights and conflicts that inevitably result from such encroachments.

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