MODUL PERKULIAHAN
Organization
Theory and
Design
Strategy, Organization Design,
and Effectiveness
Fakultas
Program Studi
Ekonomi
Magister
Management
TatapMuka
03
Kode MK
DisusunOleh
35008
Dr. M. Ali Iqbal, M.Sc
Abstract
Kompetensi
Peran arahanstrategi dalam mendisain
suatu organisasi, tujuan-tujuan
organisasi yang merujuk kepada
seluruh sasaran dan misi dan suatu
kerangka untuk memilih strategi dan
disain struktur organisasi
Mahasiswa dapat memahami peran
arahan strategi dalam mendisain suatu
organisasi, tujuan-tujuan organisasi
yang merujuk kepada seluruh sasaran
dan misi dan suatu kerangka untuk
memilih strategi dan disain struktur
organisasi
Pembahasan
The Role of Strategic Direction in Organization Design
Top Management Role in Organization
Direction, Design, and Effectiveness
External Environment
Organization
Design
Opportunities
Threats
Uncertainty
Resource Availability
Strategic Direction
CEO, Top
Management
Team
Define
mission,
official
goals
Internal Situation
Strengths
Weaknesses
Distinctive Competence
Leadership Style
Past Performance
Select
operational
goals,
competitive
strategies
Structural Form –
learning vs.
efficiency
Information and
control systems
Production
technology
Human resource
policies,
incentives
Organizational
culture
Interorganizational
linkages
Effectiveness
Outcomes
Resources
Efficiency
Goal attainment
Competing values
5
Organizational Purpose
1. Mission
The organization’s reason for existence, the overall goal of a company. It describes the
organization’s visions, its shared values and beliefs, and its reason for being. It is
sometimes called the official goals, which are the formally stated definitions of business
scope and outcomes the organization is trying to achieve. The official goal statement
defines business operations and may focus on values, markets, and customers that
distinguish the organization. A mission statement communicates to current and
prospective employees, customers, investors, suppliers, and competitors what the
organization stands for and what it is trying to achieve
2. Operative Goals
Defined: descriptions of the ends sought through the actual operating procedures of the
organization; these explain what the organization is trying to accomplish. They typically
pertain to the primary tasks an organization must perform
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Organization Theory And Design
M. Ali Iqbal, M.Sc
PusatBahan Ajar dan eLearning
http://www.mercubuana.ac.id

Overall performance
Profitability reflects the overall performance in for-profit organizations, and can be
expressed in terms of net income, EPS, or ROI Other overall performance goals are
growth and output volume. Government and nonprofit organizations don’t have goals
of profitability, but they have goals that attempt to specify the delivery of services to
people within specified expense levels

Resources
These 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.

Market
These goals relate to the market share or market standing desired by an
organization. Market goals are the responsibility of marketing, sales, and advertising
departments. For example, Honda could have a goal of overtaking Toyota Motor
Company as the number-one seller of cars in Japan market standing – desired
position of the company in the future.

Employee Development
Pertains to the training, promotion, safety, and growth of employees, and includes
both managers and workers For example, Wegmans Food Markets was on Fortune
magazine’s list of “100 best companies to work for” because of its motto “Employees
First, Customers Second”

Innovation and Change
These 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
For
example, 3M has a goal that 30% of sales come from products that are less than 4
years old change readiness.
A framework for selecting strategy and design
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Organization Theory And Design
M. Ali Iqbal, M.Sc
PusatBahan Ajar dan eLearning
http://www.mercubuana.ac.id
A. Michael Porter’s “Generic Strategies”
Porter’s five-forces model describes strategy as taking actions that create defendable
positions in an industry. In general, the strategy can be offensive or defensive with respect to
competitive forces. Defensive strategies take the structure of the industry as given, and
position the company to match its strengths and weaknesses to it. In contrast, offensive
strategies are designed to do more than simply cope with each of the competitive forces;
they are meant to alter the underlying cause of such forces, thereby altering the competitive
environment itself.
There are, of course, many specific strategies of each type (offensive or defensive), and
identifying which is best depends on the circumstances. But Porter suggests 3 broad or
generic strategies for creating a defendable position in the long-run and outperforming
competitors.
1) Cost Leadership
Cost leadership means having the lowest per-unit (i.e., average) cost in the industry – that is,
lowest cost relative to your rivals. This could mean having the lowest per-unit cost among
rivals in highly competitive industries, in which case returns or profits will be low but
nonetheless higher than competitors. Or, this could mean having lowest cost among a few
rivals where each firm enjoys pricing power and high profits. Notice that cost leadership is
defined independently of market structure. Cost leadership is a defendable strategy
because:
I. It defends the firm against powerful buyers. Buyers can drive price down only to the
level of the next most efficient producer.
II. It defends against powerful suppliers. Cost leadership provides flexibility to absorb an
increase in input costs, whereas competitors may not have this flexibility.
III. The factors that lead to cost leadership also provide entry barriers in many instances.
Economies of scale require potential rivals to enter the industry with substantial capacity to
produce, and this means the cost of entry may be prohibitive to many potential competitors.
Achieving a low cost position usually requires the following resources and skills:
I. Large up-front capital investment in new technology, which hopefully leads to large
market share in the long-run, but may lead to losses in the short-run.
2015
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Organization Theory And Design
M. Ali Iqbal, M.Sc
PusatBahan Ajar dan eLearning
http://www.mercubuana.ac.id
II. Continued capital investment to maintain cost advantage through economies of scale
and market share.
III. Process innovation – developing cheaper ways to produce existing products.
IV. Intensive monitoring of labor, where workers frequently have an incentive-based pay
structure (i.e., a contract which includes some combination of a fixed-wage plus piece-rate
pay).
V. Tight control of overhead.
2) Differentiation
Differentiating the product offering of a firm means creating something that is perceived
industry wide as being unique. It is a means of creating your own market to some extent.
There are several approaches to differentiation: ¾ Different design ¾ Brand image ¾
Number of features ¾ New technology A differentiation strategy may mean differentiating
along 2 or more of these dimensions. Differentiation is a defendable strategy for earning
above average returns because:
I. It insulates a firm from competitive rivalry by creating brand loyalty; it lowers the price
elasticity of demand by making customers less sensitive to price changes in your products.
II. Uniqueness, almost by definition, creates barriers and reduces substitutes. This leads
to higher margins, which reduces the need for a low-cost advantage.
III. Higher margins give the firm room to deal with powerful suppliers.
IV. Differentiation also mitigates buyer power since buyers now have fewer alternatives.
Achieving a successful strategy of differentiation usually requires the following:
I. Exclusivity, which unfortunately also precludes market share and low cost advantage.
II. Strong marketing skills.
III. Product innovation as opposed to process innovation.
IV. Applied R&D.
V. Customer support.
VI. Less emphasis on incentive based pay structure.
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Organization Theory And Design
M. Ali Iqbal, M.Sc
PusatBahan Ajar dan eLearning
http://www.mercubuana.ac.id
3) Focus or Niche Strategy
Here we focus on a particular buyer group, product segment, or geographical market.
Whereas low cost and differentiation are aimed at achieving their objectives industry wide,
the focus or niche strategy is built on serving a particular target (customer, product, or
location) very well. Note, however, that a focus strategy means achieving either a low cost
advantage or differentiation in a narrow part of the market. For reasons discussed above,
this creates a defendable position within that part of the market.
Stuck in the Middle: Failure to develop a strategy in one of these 3 directions is a firm that is
“stuck in the middle.” This means you lack the market share, capital, and overhead control to
be a cost leader, and lack the industry wide differentiation necessary to create margins
which obviate the need for a low-cost position. Being “stuck” implies low profits as a rule:
profits are bid away to compete with low cost producers; or, the firm loses high margin
business to firms who achieve better differentiation. Classic examples of this problem are
large, international airline companies, many of which are now bankrupt. Depending on a
firm’s capabilities and resources, a “stuck” firm must gravitate toward either low cost (usually
by buying market share) or focus or differentiation (which may mean decreasing market
share).
Risks of each Strategy: Each generic strategy is based on erecting different kinds of
defences against the competitive forces, and hence they involve different risks.

Cost Leadership: Maintaining cost leadership can be risky because:
i. Innovations nullify past inventions and learning, and hence cost leadership requires
continual capital investment to maintain cost advantage.
ii. Exclusive attention to cost can blind firms to changes in product requirements. iii. Cost
increases narrow price differentials and reduce ability to compete with competitors’ brand
loyalty.

Differentiation: Risks are:
i. Cost differentiation between low cost firms and differentiating firms becomes too large
to hold customer loyalty. Buyers trade-off features, service, or image for price.
ii. Buyers need for differentiation falls. iii. Imitation decreases perceived differentiation.
2015
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Organization Theory And Design
M. Ali Iqbal, M.Sc
PusatBahan Ajar dan eLearning
http://www.mercubuana.ac.id
B. Miles and Snow’s typology Strategy
Miles and Snow’s typology, based on empirical studies, according Gimenez (1998), ranks
companies or business units into four distinct adaptive strategies categories, namely:
prospectors; defenders; analyzers and reactors.
1) Prospectors
Prospectors are the group of companies that maintain a competitive position aggressively,
continually looking for new market opportunities and expanding its line of products and
services. They tend to be the pioneer, so its focus is on innovation, not efficiency. These
companies solve the business problem continually by expanding productmarket through
differentiation or low cost. The technology is diverse, flexible and less standardized. The
solution to the administrative problem is through non-centralized control, Research &
Development and Marketing departments are strong, extensive in planning and there are
higher costs and lower efficiency due to lack of the experience curve. The performance is
assessed in terms of market share and sales volume, among others. The risk of this strategy
is high because the non-acceptance of a new product can mean significant losses.
2) Defenders
Defenders are companies seeking to locate and maintain a line of products or services with
a very narrow focus, protecting its domain with competitive prices or quality products /
services. They usually operate in stable industries, not bothering to seek new opportunities
in the environment, but having efficiency and technology directed to its restricted focus. They
usually adopt limited, targeted and more profitable line of products (Zahra & Pearce II,
1990). They reach the solution of engineering with the use of a core technology, resulting in
low cost production. For this, significant investments in R & D are critical. The administration
tends to be rigorously controlled, centralized, focused on costs and outcomes when
comparing financial and production indicators of the current year with previous years. While
this strategy can be applied to various industries, the authors conclude that they are more
likely to be found in stable industries. This strategy faces the risk of being unable to adapt to
more drastic changes in the competitive environment, since the focus impedes
diversification, essential for monitoring changes.
3) Analysers
Analysers are between the defensive and prospects strategies. These companies operate
on the basis of products / services that are already established, looking to add new products
and services that have been successful in other companies in the industry. These
2015
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Organization Theory And Design
M. Ali Iqbal, M.Sc
PusatBahan Ajar dan eLearning
http://www.mercubuana.ac.id
companies are also called "creative imitators" (Slater and Narver, 1993), by absorbing and
improving innovations of competitors. This strategy allows the company to guarantee the
viability of products before releasing them, avoiding high investments in Research &
Development. So, companies need to maintain a constant monitoring of the successes and
failures of other competing companies - prospectors. The technology adopted is stable and
standardized, even though there is some degree of flexibility. This combination creates a
certain ambiguity that results in a lack of efficiency on the part of analyzers, which, in turn,
tend to adopt differentiation as competitive advantage. The analyzers typically organize their
structure in a matrix form and the product engineering and marketing are the major focus of
attention and investment. The biggest risk to these companies is not to achieve the
necessary efficiency and effectiveness, which are the indicators used to measure the
performance of these companies.
4) Reactors
Reactors cannot be considered a kind of strategy, they have no coherent plan to compete in
the industry or mechanisms and processes to adapt to the market. The typical approach of
this group is to see and respond only when forced by competitive pressures to prevent loss
of important customers and / or maintain profitability. This group of companies 6 is usually in
disadvantage because it is attacked by prospectors and cannot reach the market protected
by the defenders and analyzers. Reactors usually come to this situation because they fail in
defining a specific strategy due to a centralized leader; or a contradiction between the
chosen strategy and organizational structure; or by not adapting to the new competitive
environment. Once you have chosen the posture you are going to adopt facing the
competitive environment, the company should adapt its production process, distribution
network and logistics, policies, price, promotion and marketing efforts and other processes
involved in order to support the position selected
C. The Balance Scorecard Approach
The balanced scorecard is not a “metrics” project: it is a change project. Initially, the
focus is on mobilization and creating momentum to get the process launched. Once the
organization is mobilized, the focus shifts to governance, with emphasis on fluid, team-based
approaches to deal with the unstructured nature of the transition to a new performance tool.
It provides a framework to look at the strategy used for value creation from four different
perspectives:
1. Financial:
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Organization Theory And Design
M. Ali Iqbal, M.Sc
PusatBahan Ajar dan eLearning
http://www.mercubuana.ac.id
What is the organization’s strategy for growth, profitability, and risk viewed from the
perspective of the shareholder? While CHAO is not a publicly traded commodity, it is
dependent on member association fees for ongoing financial viability.
2. Customer:
How do we create value and differentiation from the perspective of the customer? This
perspective answers three critical questions:
a. Who are our target customers?
b. What is our value proposition in serving them?
c. What do our customers expect or demand from us?
3. Internal business processes.
What are the strategic priorities for various business processes which create customer
and shareholder satisfaction? The organization identifies processes from which the best
possible objectives and measures can be developed. I would suggest that this is where the
major work of the CHAO board will be focused in the creation of the organization’s balanced
scorecard.
4. Employee Learning and Growth:
What [board] or employee priorities are needed to create a climate that supports
organizational change, innovation, and growth? Niven suggests that this is the foundation on
which balanced scorecards are built, noting that once you have identified objectives and
measures related to customer and internal process perspectives, you can be certain of
discovering some gaps between your current organizational infrastructure of employee skills,
information systems, and environment required to maintain success. He suggests we think
of the employee [and board] learning and growth perspective as the roots of the tree that will
ultimately lead through the trunk of internal processes to the branches of customer results
and finally to the leaves of financial return
2015
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Organization Theory And Design
M. Ali Iqbal, M.Sc
PusatBahan Ajar dan eLearning
http://www.mercubuana.ac.id
DaftarPustaka
Daft RL. 2010. Understanding the Theory and Design of Organization. Thompson.
Southwesyern
Jones, Gareth. 2004. Organization Theory, Design, and Change. Upper Saddle River (New
Jersey). Pearson Education Inc.
Robbins, S.P, (2008): Organizational behavior, Upper saddle (NJ): Prentice-Hall Inc. (RSP)
2015
10
Organization Theory And Design
M. Ali Iqbal, M.Sc
PusatBahan Ajar dan eLearning
http://www.mercubuana.ac.id