Strategy, Organizational

Design, and Effectiveness

Chapter No.02
Organization Theory and Design
BY:- Israr K. Raja
Preston University, Islamabad, Pakistan.
Strategy, Organizational Design, and
Effectiveness
Organizations exist to attain goals and top managers
give direction to organizations. This chapter explores
strategic direction in organizations in terms of the
types of goals and strategies that top management
develops, as well as two frameworks for determining
strategic action. Several approaches are then explored
for measuring organizational effectiveness.
The Role of Strategic Direction in
Organizational Design
The Role of Strategic Direction in
Organizational Design
The primary responsibility of top management is to determine an organization’s goals,
strategy, and design, therein adapting the organization to a changing environment.
Direction setting begins with an assessment of opportunities and threats in the
environment and an evaluation of internal strengths and weaknesses.
Then the company can determine its mission, goals and strategies.
 Organizational design reflects the way goals and strategies are implemented.
This is the role of organization theory.
Consider how organization design is affected by The choice of goals and strategy. New
goals and strategy are often selected based upon environmental needs, and then top
management attempts to redesign the organization to achieve those ends.
Performance measurements feed back into the internal environment, so that past
performance of the organization assessed by top management in setting new goals and
strategies for the future.
Choices that top management make about goals, strategy and organizational design
have a huge impact on organizational effectiveness.
Organizational Purpose
Purpose may be referred to as the overall goal or
mission.
Different parts of the organization establish their own
goals to help the organization achieve its overall
purpose.
Purpose refers to why you do what you do, not what
you do or how you do it but why you do it.
Purpose has been shown to positively impact
employee engagement and commitment to an
organization thereby impacting organizational
effectiveness.
 Mission
The official overall goal for an organization is its
mission.
The mission describes the organization's vision, its
shared values and aspirations, and its reason for
existence.
 Operative goals
Refer to the ends sought through operating procedures and describe specific
measurable outcomes in the short run. These goals concern overall performance,
boundary spanning, and maintenance, adaptation, and production activities.
Overall performance goals may be expressed in terms of profitability, delivery of
service, growth, or volume.
Resource goals pertain to the acquisition of needed material and financial
resources.
Market goals relate to the market share or market standing desired.
Employee development goals pertain to the training, promotion, safety, and
growth.
Innovation and change goals pertain to internal flexibility and readiness to adapt
to unexpected changes in the environment.
Productivity goals concern the amount of output achieved from available
resources.
Organizational Operating Goals
The Importance of Goals
The mission or official goals provide legitimacy to
stakeholders and overall direction for the company.
In contrast, operative goals provide employee
direction and motivation, decision guidelines, and
criteria of performance.
An increasing number of companies are now using
triple- bottom-line accounting - a system which
assesses their environmental and social performance
as well as their financial performance.
A Framework for Selecting Strategy and
Design
A strategy is a plan for interacting with the
competitive environment to achieve organizational
goals. Goals define where the organization wants to go
and strategies define how the organization will get
there.
A Framework for Selecting Strategy and
Design
A Framework for Selecting Strategy and
Design
Porter’s Competitive Strategies
Michael Porter introduced a framework describing four
competitive strategies. To use this model, managers evaluate two
factors: competitive advantage and competitive scope.
Whether the organization competes on a broad or narrow scope
determines the selection of strategies.
Low-cost leadership strategy involves techniques for excelling at
cost reduction and efficiency, with broad competitive scope.
Differentiation strategy strives to create and market unique
products by innovative product characteristics and advertising.
Focus strategies concentrate on a narrow market or buyer group.
The company tries to achieve either a focused low-cost or a focused
differentiation advantage within a narrowly defined market.
Porter’s Competitive Strategies
Miles and Snow’s Strategy Typology
Raymond Miles and Charles Snow assume that managers create strategies
congruent with the external environment. Organizations strive to fit
internal organization characteristics and strategy to the external
environment.
The prospector strategy involves innovation, taking risks, seeking out
new opportunities and growth.
The defender strategy involves retrenchment, focusing on stability and
seeking to keep current customers without innovation or growth.
The analyzer strategy lies between the prospector and defender by
efficiently maintaining a stable business for current product lines, while
innovating on the periphery.
The reactor approach is really just responding in an ad hoc manner to
environmental threats and opportunities, without a real long-range plan.
How Strategies Affect Organizational
Design?
Design must support the firm’s competitive approach.
For example, if the organization uses the low-cost
leadership or defender strategy, the design should be
focused on efficiency, whereas if the organization uses
the differentiation or prospector strategy, the design
calls for a learning organizational structure with
strong horizontal coordination mechanisms to
increase collaboration and teamwork
How Strategies Affect Organizational Design?
Assessing Organizational Effectiveness
It is important to differentiate organizational
effectiveness from efficiency.
Effectiveness is the degree to which an organization
realizes its multiple goals.
Efficiency refers to the resources used to produce outputs
(ratio of inputs to outputs).
Effectiveness is often difficult to measure in
organizations, especially those that are large, diverse,
fragmented and those that have multiple goals and
measures of effectiveness like not-for profit organizations.
Contingency Effectiveness Approaches
Contingency effectiveness approaches are based on an
examination of specific parts of the organization that
are considered to be the most important to measure,
in contrast to balanced effectiveness approaches that
integrate several parts of the organization in an effort
to measure effectiveness.
Contingency Effectiveness Approaches
Contingency Effectiveness Approaches
Resource-Based Approach
The resource-based approach evaluates the ability of the
organization to obtain valued resources from the
environment. Thus it looks at the input side of the
transformation process. This approach is useful when other
indicators of performance are difficult to obtain. Indicators
of system resource effectiveness include dimensions such as
bargaining position, ability to correctly interpret properties
of the environment, maintenance of internal day-to-day
activities, and ability to respond to environmental changes.
A shortcoming can be overemphasis on acquisition of
resources rather than on their utilization.
Internal Process Approach
The internal process approach evaluates effectiveness
by examining internal organizational health and
economic efficiency. An evaluation of human
resources and their effectiveness is important.
Indicators of effectiveness include strong corporate
culture, team spirit, trustful communication, decision
making near sources of information, undistorted
communication, managerial rewards for performance,
and interaction between the organization and its parts
Goal Approach
The goal approach measures effectiveness by
evaluating the extent to which operative goals are
achieved. It is more productive to measure
effectiveness using operative goals than using official
goals which are more abstract and difficult to measure.
The goal approach is used because output goals can be
readily measured, after issues of multiple goals and
subjective indicators of goal attainment are resolved.
Managing multiple and conflicting goals is
necessary when different managers champion
different goals, or when it is necessary to
serve different environmental demands.
Therefore, effectiveness has to be measured by
several factors and often cannot be assessed
by a single indicator.
An Integrated Effectiveness Model
The competing values approach, recognizes that managers may emphasize different
indicators of performance and tries to balance a concern with various parts of the
organization rather than focusing on one part.
Two values can be used to categorize four models of effectiveness.
Organizational focus is whether issues internal or external to the firm are valued.
Organization structure is the emphasis on either flexibility or stability.
The four resulting areas of management emphasis reflect the two values:
The open systems emphasis combines an external focus and flexible structure, with
management's primary goals being resource acquisition and growth;
The rational goal emphasis focuses on stable structure and external environment
with management's primary goals being productivity, efficiency, and profit;
The internal process emphasis reflects the values of internal focus and stability, with
management's primary goal being to maintain the status quo;
The human relations emphasis combines internal focus and flexible structure with
management's primary goal being employee development.
Four Approaches to Effective Values
Effectiveness Values for Two Organizations
New Directions!!!!!
There are many ‘big’ questions that strategy
researchers try to answer such as
(1) why so many organizations look similar and why
they are alike, and
(2) what are the effects social-political institutions on
organizations?