Summary of Chapter



Summary of Chapter

1. Implementing a company’s business model and strategies successfully depends on organizational design, the process of selecting the right combination of organizational structure, control systems, and culture. Companies need to monitor and oversee the organizational design process to achieve superior profitability.

2. Effective organizational design can increase profitability in two ways. First, it economizes on bureaucratic costs and helps a company lower its cost structure. Second, it enhances the ability of a company’s value creation functions to achieve superior efficiency, quality, innovativeness, and customer responsiveness and to obtain the advantages of differentiation.

3. The main issues in designing organizational structure are how to group tasks, functions, and divisions; how to allocate authority and responsibility (whether to have a tall or flat organization, or to have a centralized or decentralized structure); and how to use integrating mechanisms to improve coordination between functions (such as direct contacts, liaison roles, and teams).

4. Strategic control provides the monitoring and incentive systems necessary to make an organizational structure work as intended and extends corporate governance down to all levels inside the company. The main kinds of strategic control systems are personal control, output control, and behavior control. Information technology is an aid to output and behavior control, and reward systems are linked to every control system.

5. Organizational culture is the set of values, norms, beliefs, and attitudes that help to energize and motivate employees and control their behavior. Culture is a way of doing something, and a company’s founder and top managers help determine which kinds of values emerge in an organization.

6. At the functional level, each function requires a different combination of structure and control system to achieve its functional objectives.

7. To successfully implement a company’s business model, structure, control, and culture must be combined in ways that increase the relationships among all functions to build distinctive competencies.

8. Cost leadership and differentiation each require a structure and control system that strengthens the business model that is the source of their competitive advantage. Managers have to use organizational design in a way that balances pressures to increase differentiation against pressures to lower the cost structure.

9. Other specialized kinds of structures include the product, market, geographic, matrix, and product-team structures. Each has a specialized use and is implemented as a company’s strategy warrants.

10. Restructuring and reengineering are two ways of implementing a company’s business model more effectively.

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