Advance Topics in Change
Management
Lecture 2: Organizational Design and
Capabilities in Changing Markets
Objectives
• To understand how organizational design
helps to explain organizational capabilities
– and hence competitive advantages and
the ability of firms to achieve their strategic
objectives.
Concepts
• Resources
– Firm specific, valuable, rare, difficult to imitate and
non-substitutable
– They are the foundations of:
• Capabilities
– At an abstract level, these can be thought of as the
ability to co-ordinate activities, learn within an
organization, and re-configure resources
• Routines
– Help to build resources and capabilities
PROBLEM OF LOCK-IN
Illustrations of Lock-In 1
• Northern Rock:
• Baker [a senior manager at Northern Rock]
could not allow that [analysts to get worried] to
happen. Northern Rock's rampant growth in the
years before its nationalisation was delivered on
the back of two things: cheap wholesale funding
and an industry-beating risk profile. Northern
Rock may have been the pioneer of 125pc
mortgages, but its arrears rate was half the
industry average. Jeopardise that and cheap
funding might not have been so readily
available.
• The Daily Telegraph,
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7587
004/Northern-Rocks-hairline-crack-hid-chasm-of-bad-debt.html
Illustrations of Lock-In 2
• Christensen (1997), The Innovators
Dilemma.
– Disk drives
– Incumbents versus new comers (with
disruptive innovations)
– Sony Playstation and Microsoft’s X-Box
versus Nintendo Wii
CHARACTERISTICS OF FORDISM
• PRODUCTION SYSTEMS
–
–
–
–
Dedicated specialised machinery
Standardised products in long production runs
Standardised work processes
Infrequent and expensive product and process changes
• MARKETS
–
–
–
–
Stable mass consumption of standardised goods
Price based competition
Adversarial links with suppliers
Oligopolistic
• ORGANISATIONS
–
–
–
–
–
Mechanistic and bureaucratic
Inflexible with high fixed costs
Focused on efficiency and cost reduction
Narrow tasks and skills
Little or no task autonomy by workers
Fordism
The application of Fordist principles
becomes counterproductive
An alternative production system to
Fordism: Toyotaism
Models of Competition and Coordination I
Characteristics
Fordism
Customised
Production
Diversified
Quality
Production
Discontinuous
Innovation
Some cars,
consumer
electronics,
call centres
Some
advertising
agencies,
consultancies
Some cars,
mechanical
engineering
Biotechnology,
some software
developers
Primary basis of
market competition
Price
Quality
Quality
Innovation
Production volumes
Very large
Limited
Medium/High
Medium/High
Standardisation of
outputs
High
Limited
Medium
Medium/High
Differentiation and
change of products
Low
Medium
Medium
High
Ability to respond
quickly to
competence
destructive changes
Low
Limited
Limited
High
Examples
Models of Competition and Coordination II
Characteristics
Fordism
Customised
Production
Diversified
Quality
Production
Discontinuous
Innovation
Flexibility of work
processes
Low
Medium
Medium
High
Inter-firm relations
Adversarial
Cooperation with
competition
Cooperation
with competition
Adversarial but
some narrowly
focused
partnerships
Key organizational
and managerial
capabilities
Coordination
and control
Integrating skills
and adapting to
changing
demands
Coordination
and
organisational
learning
Reconfiguring
assets rapidly in
response to
technical and
market
opportunities
Organizational and Managerial
Capabilities
Characteristics
Coordinating
Learning
Reconfigurational
Competitive Focus
Realise economies
of scale and scope
through systematic
integration of work
activities
Continual
improvement of
processes and
products to meet
changing conditions
Fast adaptation to
rapidly changing
market and
technical contexts
Key Processes
Establishing
routines for
controlling work
and integrating
activities
Continual collective
problem solving and
knowledge
development
Rapid adaptation of
work processes,
skills and other
assets to meet
changing conditions
Involvement of
Employees and
Business Partners in
Developing
Capabilities
Varies
High
Considerable
Longevity of
Employer-employee
Commitment
Considerable for
managers
Considerable for
skilled workers
Limited
Questions about Tecso
• Think about all of the activities that Tesco
carries out.
• In terms of ‘co-ordinating’, ‘learning’ and
‘re-configurational’, what organizational
and managerial capabilities are needed to
perform these activities successfully?
• How would you justify your selections?
Tesco’s Capabilities?
Characteristics
Coordinating
Many of their activities (buying, selling,
transporting products)
Competitive Focus
Realise economies
of scale and scope
through systematic
integration of work
activities
Search for economies of scale by centralizing
purchasing, expanding into new geographical
markets (different cities etc, formats) at home
and abroad (Poland, Czech Republic,
Thailand, US) and product markets (finance)
Key Processes
Establishing
routines for
controlling work
and integrating
activities
Most of the above activities would have clear
routines.
Involvement of
Employees and
Business Partners in
Developing
Capabilities
Varies
Probably limited in most cases, though there
may be some scope for involving certain
business partners.
Longevity of
Employer-employee
Commitment
Considerable for
managers
Probably limited to managers.
Tesco’s Capabilities?
Characteristics
Learning
Probably strong focus on learning, too, but
more or less than co-ordination?
Learning about product demand – Clubcard?
Enables Tesco to learn about changing
consumer choices.
Competitive Focus
Continual
improvement of
processes and
products to meet
changing conditions
Key Processes
Continual collective Collective? Probably limited to management
problem solving and and those involved in Clubcard scheme
knowledge
development
Involvement of
High
Employees and
Business Partners in
Developing Capabilities
Probably quite limited for most employees and
business partners
Longevity of Employeremployee Commitment
For certain groups directly attached to learning
(managers and those involved in Clubcard)
there is likely to be a need for high levels of
commitment.
Considerable for
skilled workers
Tesco’s Capabilities?
Characteristics
Reconfigurational
No - if reconfigurational is in the sense of
changing rapidly to product market
changes
Competitive Focus
Fast adaptation to
rapidly changing
market and
technical contexts
Adapt to product market changes, but how
radical are these?
Key Processes
Rapid adaptation of
work processes,
skills and other
assets to meet
changing conditions
Assets probably unchanged most of the time
(although there has been a logistics revolution)
Involvement of
Employees and
Business Partners in
Developing Capabilities
Considerable
Some as noted above
Longevity of Employeremployee Commitment
Limited
Considerable for some groups.
Tesco’s Capabilities
• Main capabilities are co-ordination and
learning. The ability to radically
reconfigure its capabilities is less
important – probably completely
unimportant in most instances.
Conclusion
• Strategies are closely linked to capabilities
• The ability of firms to develop those capabilities
(and the necessary resources to support those
capabilities) is, in turn, shaped by key features of
organizational design that affect routines within
companies.
• But don’t forget the external environment that
influences other contingencies (other ‘things’ that
a particular strategy or capability depend upon).