The Role of Strategic Direction in Organizational Design
An organization is designed to meet some goals and management needs to figure out what they are and some strategy to reach them. The process starts with looking at the opportunities and threats in the external environment but the internal environment is looked at as well. To accomplish these goals the design of an organization needs to be reviewed and changed as necessary. As feedback is given the design can be modified. Top level management often sees things differently so it is there job to get the design right so that the company can flourish.
Organizational Purpose
All organizations are created to do something and this is the goal or mission. Some parts of the organization can have their own individual goals.
Mission
The organization usually has a mission, an official goal that they are to reach, sometimes referred to as a mission statement. This mission statement communicates to stakeholders what the company is to be and give it legitimacy.
Operative Goals
Operative goals deal with the day to day goals that are needed to run the organization.
Overall Performance
For a profit organization the general gauge for performance is profitability. For a non-profit or a government other gauges need to be used like if they have provided a desirable level of service to the clients they want to reach within a set cost level.
Resources
Resource goals deal with getting what is needed from the environment, (finance, raw materials, etc.) so that the organization can so what he needs to do.
Market
Market goals deal with the market share needed to maintain profitability.
Employee Development
Employee development goals deal with the general training that will help the employee do his job better for the customer. It also deals with training in safety for the employee.
Innovation and Change
Innovation goals deal with the ability to be flexible and innovative internally.
Productivity
Productivity goals deal with the amount of output from the available resources. They can be measured in many different ways. While in general profitability is the major goal, it is better for an organization to have a balanced set of goals even if it means a decrease in profits.
The Importance of Goals
Both official and operative goals are important to an organization. Official goals state what the organization is. Operative goals let the employees know what is expected of them so there can be some motivation for them. The goals need to be appropriate and reachable.
A Framework for Selecting Strategy and Design
To reach these goals a strategy is needed. Since a strategy deals with how to reach goals, goals and strategies are not the same. There are two models for strategies: Porter’s and Snow’s.
Porter’s Competitive Strategies
Porter studied many businesses and determined there were three strategies; low-cost leadership, differentiation and focus with focus being divided into focused low cost and focused differentiation. To determine where a firm is, they must analyze if they want to have an advantage of low-cost or uniqueness as well as determine if the competitive scope will be broad or narrow.
Differentiation
Differentiation strategy means that the organization tries to distinguish it self in some way from other organizations in their industry. Rivastrlries are reduced due to customer loyalty.
Low-Cost Leadership
Low-cost strategy means that the organization will do what ever it can to keep costs down. It helps because they are in a better position to survive new entrants because they can keep their market share.
Focus
In a focus strategy the organization decides on a regional or a buyers group to focus on. They also decide if they want to focus on a low-cost or a differentiation strategy.
Miles and Snow’s Strategy Typology
Miles and Snow’s ideas are based on the idea that managers will formulate strategies that will be similar to what the external environment allows. There are four categories: prospector, defender, analyzer and reactor.
Prospector
The prospector strategy is to innovate, and is used in dynamic growing organizations.
Defender
Rather than take risks the defender digs in where they are in an effort to keep its customers and does not seek to grow or innovate. It is not necessarily a bad strategy.
Analyzer
The analyzer strategy is a cross between the protector and the defender. They will innovate but on the peripheral areas.
Reactor
The reactor strategy is not a strategy at all. As the environment presents threats to them they will react to what is happening. Often large well established companies will fall into this strategy.
How Strategies Affect Organizational Design
The strategy that a company chooses will affect its internal design. Low-cost leadership leads to a central authority with high standardization. Differentiation leads to a more fluid and flexible structure. The prospector strategy leads to a mix of the two. Lastly the reactor has no strategy at all.
Other Factors Affecting Organizational Design
While strategy affects the organizations design it is the not the only component that does. If the external environment is fairly stable, the environment would have a more traditional structure. Size and life cycle of the product will also affect the design. Technology also has its influence. It is up to the management to come up with a proper fit for all the factors that affect their company.
Assessing Organization Effectiveness
These things are the first steps in understanding how an organization can be effective. Effectiveness evaluates if goals, official or operative, are attained. Efficiency can lead to effectiveness but it does not necessarily mean that it will. Effectiveness can be very hard to measure in an organization that is large and diverse.
Contingency Effectiveness Approaches
Organizations bring resources in from the environment, transform them, and then release them into the environment again. The contingency effectiveness approach divides approaches into three types: goal approach, resource-based approach, and the internal process approach.
Goal Approach
In the goal approach, an organization looks at its output goals and determines how to reach them. Measurements are then put into place to see if they reach their goals.
Indicators
In the goal approach operative goals are the ones that are considered.
Usefulness
This approach is often used because output goals can be easily measured. But identifying operative goals and measuring performance are not easily done. Multiple goals can be conflicting and hard to measure with just one measurement. Department goals can also be involved. Organizations need to figure out what operative goals it wants to maintain and how to measure them. Subjective goals as well as objective goals may need to be looked at.
Resource-based Approach
Resource-based approach looks at the input side of the transformation process.
Indicators
In order to measure this we need to look at four things:
- Bargaining position – the ability to get scarce and valued resources
- The ability of the organization to interpret the external environment
- The ability of managers to use resources to achieve superior results
- The ability to respond to changes in the environment
Usefulness
It is useful to use this approach when performance indicators are hard to obtain. It is commonly used in non-profit organizations. It has one shortcoming in that it does not link output side of the environment.
Internal Process Approach
In this approach effectiveness is measured as internal organizational health and efficiency. It is not concerned with the external environment at all.
Indicators
There are seven indicators:
- Strong corporate culture an positive work climate
- Team spirit, group loyalty, and teamwork
- Confidence, trust and communications between workers and management
- Decision making near source of information no matter where it is on the organizational chart
- Undistorted horizontal and vertical communications
- Rewards to managers for performance, growth, and development of subordinates and for creating an effective workgroup
- Interaction between the organization and its parts, with conflict that occurs over projects resolved in the interest of the organization
Usefulness
Benefits of the internal approach are that happy employees serve their customers better. Shortcomings include the fact that these subjective goals are hard to measure and that it does not deal with the external environment at all.
An Integrated Effectiveness Model
Each of these approaches only tells part of the story. The competing values model tries to balance a concern with the various parts of the organization.
Indicators
The first value that we look at is the focus, internal (employee) or external (environment), that the firm has. The second looks at the structure, stability (top-down) versus flexibility.
External focus and flexible structure lead to an open system emphasis. Structured control and external focus leads to rational goal emphasis. Internal process control deals with internal focus and structural control. Lastly a human relations focus emphasis internal focus and flexibility.
Usefulness
This is useful because it incorporates much of the goals of the organization and also because it calls attention to the effectiveness management uses to measure things as well as the opposing values. These values can change over time.
Summary and Interpretation
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