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April 2, 2022Organization Design: Creating Strategic and Agile Organizations
Donald L. Anderson
Chapter 3
Strategy
Why Strategy Is Important For Organization Design
Strategic clarity and agreement are required for effective design
Different strategies require different designs
Organization design can be a strategic advantage
Organization design can facilitate strategy execution
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LO 3-1: What strategy is important for organization design
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What is Strategy?
Strategy is a
Plan
Ploy
Pattern
Position
Perspective
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Plan: A planning activity that occurs before actions take place
Ploy: A threat of a proposed move
Pattern: May develop in the absence of intentions
Position: Defined in relationship to other competitors
Perspective: A worldview or a company’s internal identity
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Sustainable Competitive Advantage
“Competitive advantage grows fundamentally out of value a firm is able to create for its buyers that exceeds the firm’s cost of creating it. Value is what buyers are willing to pay, and superior value stems from offering lower prices than competitors for equivalent benefits or providing unique benefits that more than offset a higher price.” (Porter, 1985).
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Activity Systems and Strategic Tradeoffs
Two key principles:
Strategy rests on unique activities
Strategy requires tradeoffs
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LO 3-2: Definition of strategy and types of generic strategies
Sustainable advantage comes from organizing a series of activities into a system that is difficult for competitors to copy
A strategic position is not sustainable without tradeoffs
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Activity Systems and Strategic Tradeoffs
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Types of Strategy
Porter’s Generic Strategies:
Cost Leadership: Operating at a lower cost than competitors
Differentiation: Gaining advantage by offering something unique
Focus: Targeting a specific market niche or customer type
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LO 3-3: Key concepts in strategy
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Porter’s Generic Strategies
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Treacy and Wiersema’s Value Disciplines
Operational Excellence:
Product Leadership
Customer Intimacy
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Operational Excellence: Providing customers with reliable products or services at competitive prices and delivered with minimal difficult or inconvenience
Product Leadership: Offering customers leading-edge products and services that consistently enhance the customer’s use or application of the product
Customer Intimacy: Segmenting and targeting markets precisely and then tailoring offerings to match exactly the demands of those niches
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Treacy and Wiersema’s Value Disciplines
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Miles and Snow’s Strategy Typology
Defenders
Presume a narrow and relatively stable market
Seek to improve efficiency of their operations
Prospectors
Sees a flexible and dynamic environment
Defines their market broadly
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LO 3-4: New perspectives on strategy that are important for a design practitioner to know
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Miles and Snow’s Strategy Typology
Analyzers
Seek growth in depth of market penetration and through product development
Find right mix of new and existing products and customers
Reactors
See the need for change
Unable to take necessary actions to adapt successfully
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Global Strategies
Multinational organization
Global organization
Transnational organization
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Stuck in the Middle
Porter: “The firm failing to develop its strategy in at least one of the three directions—a firm that is ‘stuck in the middle’—is in an extremely poor strategy situation”
Treacy and Wiersema: “Not choosing means ending up in a middle…steering a rudderless ship, with no clear way to resolve conflicts or set priorities”
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Porter’s Five Forces Model
Threat of new entrants
Bargaining power of buyers
Bargaining power of suppliers
Threat of substitute products or services
Rivalry among existing competitors
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Porter’s Five Forces Model
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Core Competencies
A core competency should pass three tests:
Provides potential access to a wide variety of markets
Makes a significant contribution to the perceived customer benefits of the end product
Difficult for competitors to imitate
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Blue Ocean Strategies and the Strategy Canvas
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Tests of Strategy Formulation
Principles of Strategy (Markides, 2004)
Strategy must decide on a few parameters
Strategy must put all our choices together to create a reinforcing mosaic
Strategy must achieve fit without losing flexibility
Strategy needs to be supported by the appropriate organizational context
No strategy remains unique forever
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Elements of a Strategy
Arenas: where will we be active?
Vehicles: how will we get there?
Differentiators: how will we win in the marketplace?
Staging: what will be our speed and sequence of moves?
Economic logic: how will we obtain our returns?
(Hambrich & Frederickson, 2001)
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Questions to Ask to Test Strategy
Does your strategy fit with what’s going on in the environment?
Does your strategy exploit your key resources?
Will your envisioned differentiators be sustainable?
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Are the elements of your strategy internally consistent?
Do you have enough resources to pursue this strategy?
Is your strategy implementable?
(Hambrick & Fredrickson, 2001)
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Questions to Ask to Test Strategy
