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/7587004/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 Production

Diversified Quality

Production

Discontinuous Innovation

Examples Some cars, consumer

electronics, call centres

Some advertising agencies,

consultancies

Some cars, mechanical engineering

Biotechnology, some software

developers

Primary basis of market competition

Price Quality Quality Innovation

Production volumes Very large Limited Medium/High Medium/High

Standardisation of outputs

High Limited Medium Medium/High

Differentiation and change of products

Low Medium Medium High

Ability to respond quickly to competence destructive changes

Low Limited Limited High

Models of Competition and Coordination II

Characteristics Fordism Customised Production

Diversified Quality

Production

Discontinuous Innovation

Flexibility of work processes

Low Medium Medium High

Inter-firm relations Adversarial Cooperation with competition

Cooperation with competition

Adversarial but some narrowly

focused partnerships

Key organizational and managerial capabilities

Coordination and control

Integrating skills and adapting to

changing demands

Coordination and

organisational learning

Reconfiguring assets rapidly in

response to technical and

market opportunities

Organizational and Managerial Capabilities

Characteristics Coordinating Learning Reconfigurational

Competitive Focus Realise economies of scale and scope through systematic integration of work activities

Continual improvement of processes and products to meet changing conditions

Fast adaptation to rapidly changing market and technical contexts

Key Processes Establishing routines for controlling work and integrating activities

Continual collective problem solving and knowledge development

Rapid adaptation of work processes, skills and other assets to meet changing conditions

Involvement of Employees and Business Partners in Developing Capabilities

Varies High Considerable

Longevity of Employer-employee Commitment

Considerable for managers

Considerable for skilled workers

Limited

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 of scale and scope through systematic integration of work activities

Search for economies of scale by centralizing purchasing, expanding into new geographical markets (different cities etc, formats) at home and abroad (Poland, Czech Republic, Thailand, US) and product markets (finance)

Key Processes Establishing routines for controlling work and integrating activities

Most of the above activities would have clear routines.

Involvement of Employees and Business Partners in Developing Capabilities

Varies Probably limited in most cases, though there may be some scope for involving certain business partners.

Longevity of Employer-employee Commitment

Considerable for managers

Probably limited to managers.

Tesco’s Capabilities?Characteristics Learning Probably strong focus on learning, too, but

more or less than co-ordination?

Competitive Focus Continual improvement of processes and products to meet changing conditions

Learning about product demand – Clubcard? Enables Tesco to learn about changing consumer choices.

Key Processes Continual collective problem solving and knowledge development

Collective? Probably limited to management and those involved in Clubcard scheme

Involvement of Employees and Business Partners in Developing Capabilities

High Probably quite limited for most employees and business partners

Longevity of Employer-employee Commitment

Considerable for skilled workers

For certain groups directly attached to learning (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 rapidly changing market and technical contexts

Adapt to product market changes, but how radical are these?

Key Processes Rapid adaptation of work processes, skills and other assets to meet changing conditions

Assets probably unchanged most of the time (although there has been a logistics revolution)

Involvement of Employees and Business Partners in Developing Capabilities

Considerable Some as noted above

Longevity of Employer-employee Commitment

Limited Considerable for some groups.

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).