Chapter # 2

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Strategy Direction and
Organization Design
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Strategic intent - organization’s energies and resources are
directed toward a focused, unifying, and compelling goal
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Organizational Purpose
Operating Goals
• Overall Performance
• Resources
• Market
• Employee Development
• Innovation and Change
• Productivity
•Mission
•Competitive Advantage
•Core Competence

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Mission Statement for Machias Savings Bank

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Organizational Operating Goals

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A strategy is a plan for interacting with the competitive environment
Managers must select specific strategy design
Models exist to aid in formulating strategy:
Porter’s Five Forces
Miles and Snow’s Strategy Typology
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Selecting Strategy and Design

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Selecting Strategy and Design
(Porter’s Five Forces)

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Porter’s Competitive Strategies
Differentiation strategy – to distinguish products or
services from others in the industry
Low-Cost Leadership – increase market share by keeping
costs low compared to competitors
Organizations may choose to focus broad or narrow in
reaching multiple markets.

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Selecting Strategy and Design
(Porter’s Five Forces)

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Porter’s Competitive Strategies

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 Prospector
 Learning orientation; flexible, fluid, decentralized structure
 Values creativity, risk-taking, and innovation
 Defender
 Efficiency orientation; centralized authority and tight cost control
 Emphasis on production efficiency, low overhead
 Analyzer
 Balances efficiency and learning; tight cost control with flexibility and adaptability
 Emphasis on creativity, research, risk-taking for innovation
 Reactor
 No clear organizational approach; design characteristics may shift abruptly depending on
current needs
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Miles and Snow’s Strategy Typology
Managers should seek to formulate strategy that matches the demands of the
external environment

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Managers must design the organization
to support the firm’s competitive strategy
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How Strategy Affects
Organization Design
Strategy impacts internal
organization characteristics

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Organization
Design
Outcomes of
Strategy
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Contingency Factors
Affecting Organization Design
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Measuring Effectiveness:
→ The Goal Approach
→ The Resource-Based Approach
→ The Internal Process Approach
→ The Strategic Constituents Approach
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Assessing Organizational Effectiveness
Effectiveness takes into consideration a range of variables at both
the organizational and departmental levels.
Efficiency relates to the working of the organization and amount
of resources used to produce output.

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 Profitability—the positive gain from business operations or investments after
expenses are subtracted
 Market share—the proportion of the market the firm is able to capture relative to
competitors
 Growth—the ability of the organization to increase its sales, profits, or client base
over time
 Social responsibility—how well the organization serves the interests of society as
well as itself
 Product quality—the ability of the organization to achieve high quality in its
products or services
The Goal Approach

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 The resource-based approach looks at the input side of the transformation
process .
 It assumes organizations must be successful in obtaining and managing valued
resources in order to be effective.
 From a resource-based perspective, organizational effectiveness is defined as
the ability of the organization, in either absolute or relative terms, to obtain
scarce and valued resources and successfully integrate and manage them.
 The resource-based approach is valuable when other indicators of performance
are difficult to obtain.
 (Non profit and Social Sector)
The Resource-Based Approach

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 Bargaining position—the ability of the organization to obtain from its
environment scarce and valued resources, including financial resources, raw
materials, human resources, knowledge, and technology
 The abilities of the organization’s decision makers to perceive and correctly
interpret the real properties of the external environment
 The abilities of managers to use tangible (e.g., supplies, people) and intangible
(e.g., knowledge, corporate culture) resources in day-to-day organizational
activities to achieve superior performance
 The ability of the organization to respond to changes in the environment
The Resource-Based Approach

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In the internal process approach (HRM), effectiveness is measured as
internal organizational health and efficiency.
An effective organization has a smooth, well-oiled internal process.
Employees are happy and satisfied. Department activities mesh with
one another to ensure high productivity.
This approach does not consider the external environment.
The important element in effectiveness is what the organization does
with the resources it has, as reflected in internal health and efficiency.
The Internal Process Approach

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Internal process indicators include:
A strong, adaptive corporate culture and positive work climate
Operational efficiency, such as using minimal resources to
achieve outcomes
Undistorted horizontal and vertical communication
Growth and development of employees
The Internal Process Approach

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 Combines several indicators of effectiveness into a single
framework, balancing traditional financial measures with
operational measures relating to a company’s critical success
factors.
The Strategic Constituents Approach

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Indicators of Organizational Effectiveness

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Approaches to Measuring Organizational Effectiveness
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Competing values model tries to balance concern
with various parts of the organization
The human relations emphasis incorporates the
values of an internal focus and flexible structure
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An Integrated Effectiveness Model

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Four Approaches to Effectiveness Values

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Effectiveness Values for Two Organizations

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 Organization exist for a purpose
 Strategic intent includes competitive advantage and core
competence
 Strategies may include many techniques
 There are models to aid in the development of strategy
 Organizational effectiveness must be assessed
 No approach is suitable for every organization
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Design Essentials