Contingency Factors
Affecting Organization Design
Organization Direction, Design, and
Effectiveness
Strategy
What is Strategy?
From where has the word come?
Why have a Strategy? Strategy to do what?
Strategy
Goals & Strategies……same?
Goals = Ends
Strategy = Means + Ends
Goals – Long Term Objectives
Strategy – LTO + course of action + resource allocation
Environmen
tal Factors
Organizatio
nal
Capabilities
Strategy
Structure
Strategy
Organizational Strategy:
the specific pattern of decisions and actions
that managers take to use core competences
to achieve a competitive advantage and
outperform competitors
Core competences:
the skills and abilities in value creation
activities that allow a company to achieve
superior efficiency, quality, innovation, or
customer responsiveness
HLL = Branding, Distribution; Asian Paints = Supply Chain; Airtel
= Retailing; TATA Steel = Primary Steel Making
The Value Creation Cycle
Sources of Core Competences
Specialized Resources
Functional
Resources
(Skills, People)
Organizational
Resources
(Brand, Captive
Sources, Top
Management)
Coordination Abilities
Functional
Resources
Organizational
Resources
Coordination Abilities
An organization’s ability to coordinate its functional and
organizational resources to create maximal value
–
Effective coordination of resources leads to competitive advantage
by means of:
Control systems
Centralization or decentralization of authority
Development and promotion of shared cultural values
Basically, design and management of structure and culture
Different Levels
Functional Level: Develop Core Competence
Business Level: Combine functional Core Competence to
position for competitive advantage in domain
Corporate Level: Leverage core competence not only to
protect and develop core competence in existing domain
but expand into new domains
Global Level (Or, Global Expansion)
Functional-level Strategy
The strategic goal of each function

Create a core competence
That will lead to a

Competitive advantage
To gain a competitive advantage:


Functional activities at a cost lower than that of its
rivals, or
Functional activities in a way that clearly differentiates
its goods and services from those of its rivals
Low-Cost and Differentiation Advantages Resulting from
Functional Level Strategy
Value Creation Function
Source of Low-Cost
Advantage
Source of Differentiation
Advantage
Manufacturing
Development of skills in
low cost manufacturing
technology
Increase in product quality
and reliability
Human Resource
Management
Reduction of turnover and
absenteism
Hiring of highly skilled
personnel
Development of innovative
training programmes
Materials Management
Use of JIT inventory
system/warehousing
Development of long term
relationships with suppliers
and customers
Use of company reputation
with suppliers and
customers to provide high
quality inputs and efficient
distribution systems
Low-Cost and Differentiation Advantages Resulting from
Functional Level Strategy (Cont’d)
Value Creation Function
Source of Low-Cost
Advantage
Source of Differentiation
Advantage
Sales and Marketing
Increased demand and
lower production costs
Targeting of customer
groups
Tailoring products to
customers
Promoting brand names
R&D
Improve efficiency of
manufacturing technology
Creation of new products
Improvement of existing
products
Functional-level strategy and structure


The strength of a function’s core competence =
fn(function’s resources AND ability to coordinate the
use of these resources)
Each function should develop a structure that suits its
skills and resources (contingency theory)
Structural Characteristics Associated with
Development of Core Competences
Functional-level Strategy and Culture
Product Development at 3M?
If culture is embedded in day to day work….difficult to
imitate
Property Rights, Ethics, People, Structure
Business-level Strategy
The business-level strategy involves:
Selection: of domain in which to compete
Positioning: to manage its specific and general
environments in order to protect and enlarge that
domain
Porter’s Competitive Strategies
Miles and Snow’s
Strategy Typology
Managers should seek to formulate strategy that matches the
demands of the external environment.
• Prospector
– Learning orientation; flexible, fluid, decentralized structure
– Values creativity, risk-taking, and innovation (Apple, Google)
• Defender
– Efficiency orientation; centralized authority and tight cost control
– Emphasis on production efficiency, low overhead (Continental Can)
• Analyzer
– Balances efficiency and learning; tight cost control with flexibility and
adaptability
– Emphasis on both efficiency, costs, creativity, research, risk-taking for
innovation (Micromax?)
• Reactor
– No clear organizational approach; design characteristics may shift
abruptly depending on current needs
How Strategy Affects
Organization Design
Strategy impacts internal
organization characteristics
Managers must design the
organization to support the firm’s
competitive strategy.
Characteristics of Structure Associated with Business-Level
Differentiation and Low-Cost Strategy
Business Level Strategy - Culture
Low Cost Strategy – Values of economy and frugality
(Acme, Continental Can)
Differentiators – Values of innovation, quality,
excellence, and uniqueness (3M, Apple, Google,
Maruti?, Indigo?)
Corporate-level Strategy
 Involves a search for new domains in which to exploit and
defend the ability to create value from its core
competences
 Vertical integration: a strategy in which an organization
takes over and owns its suppliers (backward vertical
integration) or its distributors (forward vertical
integration)
 May be more profitable
 May lead to production cost savings
 May differentiate its products
 May avoid opportunistic behavior of suppliers
 Related diversification: the entry into a new domain in
which it can exploit one or more of its existing
competences
 Unrelated diversification: the entry into new domains
that have nothing in common with its core domain
Corporate-Level Strategies for Entering New Domains
Corporate-level Strategy and Structure
For organizations operating in more than one domain, a
multidivisional structure is appropriate
Conglomerate structure and unrelated diversification
Conglomerate structure: a structure in which each
business is placed in a self-contained division and there
is no contact between divisions
Corporate-level Strategy and Structure
 Structures for related diversification
 Related diversification creates value by sharing
resources or transferring skills from one division to
another
 Requires lateral communication between divisions as
well as vertical communication between divisions and
headquarters
 Integrating roles and teams of functional experts are
needed to coordinate skills and resource transfers
Motivations for Global Expansion
Economic, technological, and competitive
forces have combined to push companies
from a domestic to a global focus.
Motivation to Expand:
 Economies of Scale
 Economies of Scope
 Low-Cost Production Factors
Global Expansion and Core Competences
 Transferring core competences abroad
 Microsoft, Macdonald’s
 Establishing a global network
 value creation activities in countries where economic,
political, and cultural conditions are likely to enhance
its low-cost or differentiation advantage
 Nike, TATA Steel, Auto Manufacturing
Global Expansion and Core Competences
 Gaining access to global resources and skills
 Design competence in India, Lean Manufacturing in
Japan, Low cost manufacturing in China
 Using global learning to enhance core competences
 Japanese Auto Makers, learn-enhance-transfer
Creation of value through global expansion
1. Transfer of core
competences abroad
2. Establishment of
Global Network
4. Use of global
learning to enhance
core competences
3. Gaining access to
global skills and
resources
Stages of International Evolution
 Domestic
 International
 Multinational
 Global
Global Organization Structure
 International Division
 Global Product Division
 Global Geographic Division
 Global Matrix Structure
Model for Global vs. Local Opportunities
 Global standardization versus national responsiveness
 Globalization or multidomestic strategy
 Globalization strategy - products are standardized
throughout the world
 Multidomestic - competition is handled in each country
independently
Fitting Organization Structure to International
Advantages
Strategy-Structure Relationship
Strategy
Export
Multi-domestic Globalisation
Lo
Need for Coordination
MD+Global
Hi
Vertical
Differentiation
Choices
Levels in VH
Lo
Lo
Hi
Lo
Centralisation
Hi
Lo
Hi
Lo
Horizontal
Differentiation
Functional
Global
Geographic
Global Product
Group
Global Matrix
Need for
sophisticated
integrating
mechanisms like
CFT/Task forces
Lo
Lo
Medium
Hi
Strategy-Structure Relationship
Strategy
Export
Multi-domestic Globalisation
MD+Global
Need for electronic
integration
management
networks
Lo
Medium
Hi
Very Hi
Need for integration
through
international
organisational
culture
Lo
Medium
Hi
Very Hi
Lo
Bureaucratic Cost
Hi
Four Stages of International Evolution
Strategic
Orientation
Domestic
International
Multinational Global
Domestically
oriented
Export
oriented
multi
domestic
Multinational Global
Stage of
Initial Foreign Competitive
Development Involvement positioning
Explosion
Structure
Domestic
structure,
plus export
department
Domestic
Worldwide
Structure plus geographical,
international product
division
Market
Potential
Moderate,
mostly
domestic
Large, multidomestic
Global
Matrix,
transnational
Very large,
Whole world
Multinational
The Global Organizational Challenge
Bosch Group in India: Transition to a Transnational
Organisation




What was the ‘core competence’ of Bosch at the beginning?
Examples of diversification in early days?
Related or unrelated?
What share of business of the Bosch Group comes outside of
Germany?
 R&D cost is what % of sales?
 What are some of the ‘stories’ that you could find in the case?
Bosch Group in India: Transition to a Transnational
Organisation
 What is ‘verticalisation’? What are ‘verticals’?
 What is a ‘transnational’ strategy?
 What was the imperative for changing the structure of Bosch
in India?
 What benefits could Indian units derive from new
structure/strategy?
 What were some of the challenges faced by Bosch units in
India consequent upon structure/strategy changes?
Phases of Growth
 Phase 1:
 Craft business
 Size = 40
 Simple (informal) structure (entrepreneurial), no need to differentiate
or integrate
 Core Competence?
 Phase 2: ‘Magneto Ignition’







Magneto Ignition – fast growing automotive supplier
Two factories
Size = 1000
From ‘craft’ to ‘industrial’ production
Formalisation
Mainly a functional structure (single product – magneto ignitions)
Early ‘internationalisation’ (Functional Structure + International Sales
Division)
Phases of Growth
 Phase 3:




Diversification (reduce dependence on Automotive business)
Related and unrelated products
A multinational electrical engineering group
Gradual movement from a functional structure to a geographical
division structure
 Phase 4:
 Restructuring into divisions along product lines (Power Tools,
Packaging Technology, Automation Technology) in Europe
 Elsewhere, Geographic Divisions
Phases of Growth
 Phase 5:
 Eastern Europe, Asian Growth, Global networking
 A matrix structure with more power to geographical divisions
 Phase 6:




Blur the distinction of national markets – one global market
Transnational strategy
Cost & Differentiation?
Differentiation: Products, Regions, Markets….functions




Global Divisions
Corporate Departments
Regional Organisations
Global Sales & Marketing organisation
Challenges of Integration
Phases of Growth
 Phase 6:
Challenges of Integration:
Targets
Discipline
Functional Coordination
A three way Global Matrix, with more power to Products over RBUs
Matrix 1
Region 1
Region 2
Region 3
Automotive
Technology
Industrial
Technology
Consumer Goods &
Building Technology
Bosch Limited;
Robert Bosch
Chassis Systems
India Ltd;
Bosch Automotive
Electronics
Bosch Rexroth;
Bosch Electrical
Drives
MHB Filter India
Matrix 2 (Sales)
Key Customer
Group 1
(Mercedez)
Key Customer
Group 2
(Industrial
Drives)
Japan and Korea
Auto
Manufacturers)
Automotive
Technology
Industrial
Technology
Consumer Goods &
Building Technology
Bosch Limited;
Robert Bosch
Chassis Systems
India Ltd;
Bosch
Automotive
Electronics
Bosch Rexroth;
Bosch Electrical
Drives
MHB Filter India