Advance Topics in Change

Management

Lecture 2: Organizational Design and

Capabilities in Changing Markets
 Objectives
• To understand how organizational design
helps to explain organizational capabilities
– and hence competitive advantages and
the ability of firms to achieve their strategic
objectives.
 Concepts
• Resources
– Firm specific, valuable, rare, difficult to imitate and
non-substitutable
– They are the foundations of:
• Capabilities
– At an abstract level, these can be thought of as the
ability to co-ordinate activities, learn within an
organization, and re-configure resources
• Routines
– Help to build resources and capabilities
PROBLEM OF LOCK-IN
 Illustrations of Lock-In 1
• Northern Rock:
• Baker [a senior manager at Northern Rock]
could not allow that [analysts to get worried] to
happen. Northern Rock's rampant growth in the
years before its nationalisation was delivered on
the back of two things: cheap wholesale funding
and an industry-beating risk profile. Northern
Rock may have been the pioneer of 125pc
mortgages, but its arrears rate was half the
industry average. Jeopardise that and cheap
funding might not have been so readily
available.
• The Daily Telegraph,
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7587
004/Northern-Rocks-hairline-crack-hid-chasm-of-bad-debt.html
 Illustrations of Lock-In 2
• Christensen (1997), The Innovators
Dilemma.
– Disk drives
– Incumbents versus new comers (with
disruptive innovations)
– Sony Playstation and Microsoft’s X-Box
versus Nintendo Wii
 CHARACTERISTICS OF FORDISM
• PRODUCTION SYSTEMS
– Dedicated specialised machinery
– Standardised products in long production runs
– Standardised work processes
– Infrequent and expensive product and process changes
• MARKETS
– Stable mass consumption of standardised goods
– Price based competition
– Adversarial links with suppliers
– Oligopolistic
• ORGANISATIONS
– Mechanistic and bureaucratic
– Inflexible with high fixed costs
– Focused on efficiency and cost reduction
– Narrow tasks and skills
– Little or no task autonomy by workers
Fordism
The application of Fordist principles
becomes counterproductive
An alternative production system to
Fordism: Toyotaism
 Models of Competition and Coordination I
Characteristics Fordism Customised Diversified Discontinuous
Production Quality Innovation
Production

Examples Some cars, Some Some cars, Biotechnology,

consumer advertising mechanical some software
electronics, agencies, engineering developers
call centres consultancies
Primary basis of Price Quality Quality Innovation
market competition
Production volumes Very large Limited Medium/High Medium/High
Standardisation of High Limited Medium Medium/High
outputs
Differentiation and Low Medium Medium High
change of products
Ability to respond Low Limited Limited High
quickly to
competence
destructive changes
 Models of Competition and Coordination II
Characteristics Fordism Customised Diversified Discontinuous
Production Quality Innovation
Production

Flexibility of work Low Medium Medium High

processes

Inter-firm relations Adversarial Cooperation with Cooperation Adversarial but

competition with competition some narrowly
focused
partnerships

Key organizational Coordination Integrating skills Coordination Reconfiguring

and managerial and control and adapting to and assets rapidly in
capabilities changing organisational response to
demands learning technical and
market
opportunities
 Organizational and Managerial
Capabilities
Characteristics Coordinating Learning Reconfigurational

Competitive Focus Realise economies Continual Fast adaptation to

of scale and scope improvement of rapidly changing
through systematic processes and market and
integration of work products to meet technical contexts
activities changing conditions

Key Processes Establishing Continual collective Rapid adaptation of

routines for problem solving and work processes,
controlling work knowledge skills and other
and integrating development assets to meet
activities changing conditions

Involvement of Varies High Considerable

Employees and
Business Partners in
Developing
Capabilities
Longevity of Considerable for Considerable for Limited
Employer-employee managers skilled workers
Commitment
 Questions about Tecso
• Think about all of the activities that Tesco
carries out.
• In terms of ‘co-ordinating’, ‘learning’ and
‘re-configurational’, what organizational
and managerial capabilities are needed to
perform these activities successfully?
• How would you justify your selections?
 Tesco’s Capabilities?
Characteristics Coordinating Many of their activities (buying, selling,
transporting products)
Competitive Focus Realise economies Search for economies of scale by centralizing
of scale and scope purchasing, expanding into new geographical
through systematic markets (different cities etc, formats) at home
integration of work and abroad (Poland, Czech Republic,
activities Thailand, US) and product markets (finance)

Key Processes Establishing Most of the above activities would have clear
routines for routines.
controlling work
and integrating
activities

Involvement of Varies Probably limited in most cases, though there

Employees and may be some scope for involving certain
Business Partners in business partners.
Developing
Capabilities
Longevity of Considerable for Probably limited to managers.
Employer-employee managers
Commitment
 Tesco’s Capabilities?
Characteristics Learning Probably strong focus on learning, too, but
more or less than co-ordination?
Competitive Focus Continual Learning about product demand – Clubcard?
improvement of Enables Tesco to learn about changing
processes and consumer choices.
products to meet
changing conditions

Key Processes Continual collective Collective? Probably limited to management

problem solving and and those involved in Clubcard scheme
knowledge
development

Involvement of High Probably quite limited for most employees and

Employees and business partners
Business Partners in
Developing Capabilities
Longevity of Employer- Considerable for For certain groups directly attached to learning
employee Commitment skilled workers (managers and those involved in Clubcard)
there is likely to be a need for high levels of
commitment.
 Tesco’s Capabilities?
Characteristics Reconfigurational No - if reconfigurational is in the sense of
changing rapidly to product market
changes
Competitive Focus Fast adaptation to Adapt to product market changes, but how
rapidly changing radical are these?
market and
technical contexts

Key Processes Rapid adaptation of Assets probably unchanged most of the time
work processes, (although there has been a logistics revolution)
skills and other
assets to meet
changing conditions

Involvement of Considerable Some as noted above

Employees and
Business Partners in
Developing Capabilities
Longevity of Employer- Limited Considerable for some groups.
employee Commitment
 Tesco’s Capabilities
• Main capabilities are co-ordination and
learning. The ability to radically
reconfigure its capabilities is less
important – probably completely
unimportant in most instances.
 Conclusion
• Strategies are closely linked to capabilities
• The ability of firms to develop those capabilities
(and the necessary resources to support those
capabilities) is, in turn, shaped by key features of
organizational design that affect routines within
companies.
• But don’t forget the external environment that
influences other contingencies (other ‘things’ that
a particular strategy or capability depend upon).