STRATEGY

 Goals and strategy are inter-related but are not the

same
 Goals refer to ends - Strategy refers to both means
and end - Goals are a part of organization strategy

 STRATEGY: DETERMINATION OF THE BASIC

LONG_TERM GOALS AND OBJECTIVES OF AN
ENTERPRISE AND THE ADOPTION OF
COURSES OF ACTION AND THE ALLOCATION
OF RESOURCES NECESSARY FOR CARRYING
OUT THESE GOALS
Strategy: Premeditated or it just emerges
 Planning Mode: Earlier view - Strategy a plan –
an explicit statement of guidelines developed in
advance – where organization is going –
systematic/structured plan to get there
 Evolutionary Mode: Current perspective –
evolves over time as a pattern in a stream of
significant decisions – e.g. women’s clothing
manufacturer buying local hotel priced right,
generating high ROI – copes with both
static/dynamic view
 If there is strategy imperative, then strategy
should predict structure - as strategy changes,
whether explicitly planned or implicitly evolving,
structure should follow
The Strategy Imperative

Environmental
Factors
and Structure
Strategy
Organizational
Capabilities
Types of Strategy:
 Corporate level strategy: Organization in more
than one line of business – what set of
businesses to be in - role of each business in
organization – GE: top management’s corporate
level strategy integrates business-level
strategies for multimillion dollar power systems
for hydroelectric systems, consumer products
like microwave ovens and light bulbs
 Business-level strategy: How to compete in each
of our businesses – small organization with one
line or non-diversified large organization:
business level strategy = corporate level
strategy (uniform structure) – in multiple-
business organizations: each division its own
strategy; defines products/services, customers
to reach etc (variety of structural configurations)
 LEVELS OF STRATEGY:
Multi-business
Corporate
Corporation
level

Business
level Business Business Business
Unit 1 Unit 2 Unit 3

Product Product Product

1 2 3
Classifying Strategic Dimensions:
 Traditional focus in strategy-structure
relationship is restricted to narrow degree of
product diversification
 Strategy is much broader than diversification into
various products/services
 For instance decision for a family owned private
firm to go public is a significant change in
strategy – envisages more disclosure to
stakeholders/board approval for larger number
of decisions
 This strategic action leads to more centralization
and increased formalization
Diversity in strategic dimensions
1. Innovation strategy: Extent of introduction of
new products – not simple or cosmetic
changes to existing products but
meaningful/unique innovations – all firms do
not pursue innovation
2. Marketing differentiation strategy: Strives to
create customer loyalty by uniquely meeting a
particular need – not necessarily a higher
quality/more up-to-date product - create
favorable image of product through
advertising, market segmentation, prestige
pricing – e.g. premium beer products, designer
apparel manufacturers
3. Breadth strategy: Refers to scope of the
market to which the business caters: variety of
customers, geographic range, number of
products – grocery chain in a given community
vs. regional, national, multinational level
4. Cost control strategy: Extent to which
organization tightly controls costs, refrains
from incurring unnecessary
innovation/marketing expenses, cuts prices in
selling a basic product – Wal-Mart strategy
Chandler’s strategy-structure thesis:
 ‘A new strategy required a new or at least refashioned
structure if the enlarged organization was to be operated
efficiently…..unless structure follows strategy,
inefficiency results.’
 ‘Unless new structures are developed to meet new
administrative needs which result from an expansion of a
firm’s activities into new areas, functions, or product
lines, the technological, financial, and personnel
economies of growth and size can not be realized.’
 Single product strategy: Simple, high centralization,
low formalization, low complexity
 Single product to expansion within same industry
(vertical integration) to product diversification strategy(
demands structure for efficient allocation of resources,
accountability, coordination between units)
 Chandler’s Thesis

Time t t+1 t+2

Product- low high

Diversification
Strategy
Structure Simple Functional Divisional
Is Chandler right?
 Claim that strategy influences structure well-
supported, but constrained by
limitations/definitions inherent in Chandler’s
work
 Considered only very large, powerful industrial
business firms – small/medium, service firms,
PSUs not considered
 Meant only growth strategy, not profitability
 Definition far from all-inclusive ( concern with
market segmentation, financial strengths,
leverage opportunities, actions of competitors,
assessment of organization’s comparative
advantage vis-à-vis competition etc not
considered)
Contemporary Strategy-Structure
Theory
Miles and Snow’s Four Strategic Types:
 Classified organizations into four strategic types:
defenders, prospectors, analyzers, and reactors – rate
at which they change products or markets – scope:
business firms as well as nonprofit organizations
1. Defenders: Seek stability by producing only a limited
set of products directed at narrow segment of potential
market – competitive pricing, high quality goods –
growth through market penetration – little/no market
scanning – full focus on cost and other efficiency
issues – structure characterized by high horizontal
differentiation, centralized control, elaborate formal
hierarchy for communication
Miles and Snow’s Strategic Typologies
Strategy Goal (s) Environment Structural
Characteristics

Defender Stability and Stable Tight control; extensive

Efficiency division of labor; high
formalization; centralized

Analyzer Stability and Changing Moderately centralized

Flexibility control; tight control over
current activities; looser
control for new undertakings

Prospector Flexibility Dynamic Loose structure; low division

of labor; low formalization;
decentralized
2. Prospectors: Find and exploit new products, market
opportunities – innovation more important than high
profitability – capacity to survey wide environmental
conditions, trends, events – structure flexible – reliance
on multiple technologies that have low routinization,
mechanization – numerous decentralized units, low
formalization – lateral/vertical communications
3. Analyzers: Minimize risk, maximize opportunity for
profit – move into new markets after viability proved by
prospectors – live by imitation – e.g. IBM, Caterpillar
follow smaller competitors after product success –
seek both flexibility, stability – profit margin low
compared to prospectors (low risk, no innovation) –
structure has two parts: First - high standardization,
routinization, mechanization; Second - adaptive to
enhance flexibility
4. Reactors: Residual strategy – describes inconsistent,
unstable patterns when any above strategy pursued
inappropriately – reason: lack of top management
commitment – organization fails to meet change
Environment-Strategy Continuum

Little change Rapid change

And uncertainty and high
uncertainty

Defender Reactor Analyzer Prospector

Porter’s Competitive Strategy
 Select strategy that gives organization a competitive
advantage – choose from three strategies: cost
leadership, differentiation, focus
 Cost leadership: Low cost producer in an industry –
product comparable to rivals’, acceptable to buyers –
operation efficiency, low-cost labor, preferential access
to RMs – Hyundai automobiles
 Differentiation: Seeks to be viewed as unique in ways
widely valued by buyers – emphasis on high-quality,
extraordinary service, innovative design, technological
capability, unusual positive brand image – significant
attribute to justify premium price – Toyota (reliability),
IBM (trained personnel), Ferrari (performance)
 Focus Strategy: Seeks competitive advantage (cost,
differentiation) in a narrow segment – size of segment,
cost of focusing determine strategy feasibility – weekend
MBA classes for working executives
 Stuck in the middle: organizations unable to
gain competitive advantage by one of previous
strategies – no LT success – succeeds only
when in highly favorable industry or rivals are
equally stuck
 Cost leadership strategy: tight controls,
minimization of overheads, scale economies -
best structure is high complexity, high
formalization, centralized
 Differentiation strategy: unique product
development – structure: high flexibility, low
complexity, low formalization, decentralized
decision making
Miller’s Integrative Framework
Strategic Challenge Predicted Structural
Dimension Characteristics
Innovation To understand & Market scanning to discern customer
manage more products, requirements; low formalization;
customer types, decentralization; extensive use of
technologies, and coordinative committees and task
markets forces
Market To understand and Moderate to high complexity; extensive
differentiatio cater to consumer scanning/analysis of customers’
n preferences reactions and competitor strategies;
moderate to high formalization;
moderate decentralization
Breadth: To select the right range High complexity; low formalization;
Breadth- of products, services, decentralization
innovation customers and territory

Breadth- - Same as above - High complexity; high formalization;

stability high centralization
Cost control To produce High formalization; high centralization
standardized products
efficiently
Limitations to the Strategy Imperative
 Impact of strategy greater in early development
phase of organization – personnel, equipment,
procedures, policies tough to change – later on
restrictions on manager’s discretionary latitude
 Capital-to-labor ratio will affect impact of strategy
on structure – ratio low (labor intensive:
managers have more flexibility to exercise
change and influence structure)
 Lag Factor: often no immediate change in
structure following implementation of a new
strategy – followers of strong strategy-structure
relationship say structures respond but slowly
 Less competition an organization faces, less
rapid its structural response – significant lag
Could Strategy follow Structure?
 Does structure determine strategy?
 Logical possibility: “As when a multidivisional
structure is installed because everyone else is
doing it and then an acquisition strategy is
developed to make the structure viable”
 Study of 110 large manufacturing firms, study of
54 firms in Fortune 500 companies reveal
structure influences and constrains strategy
rather than the other way around
 If further such studies emerge; it will further
establish that as a structural determinant,
strategy is of limited importance
 Industry-Structure Relationship
Industry Strategy Structure

Capital Requirements

High Low

Aerospace Computer
Product Hi Large mainframe software
Innovation
Computer manufacturers
Rate
Manufacturers Magazine
publishers B
A

Metals & Mining Retailbuilding

Lo
Appliance materials sales
Manufacturers Bicycle manufacturers

C
D
 Type A industries: high on both
 Type C industries: High on capital, low on product
innovation
 High capital requirements: result in large organizations
and limited number of competitors – firms in A, C highly
structured and standardized – C more decentralized for
rapid response to innovations by competitors
 Type B and D low capital requirements – large number
of small firms
 Type D: more division of labor, more formalization
 Type B: low product innovation – hence greater
standardization
 High product innovation: Less formalization, more
decentralization in decision making