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Strategic Management and
Organizational Effectiveness
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What is Strategy
Determination of the basic long-
term goals and objectives of an
enterprise and the adoption of
courses of action and allocation of
resources necessary for carrying
out these goals
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Types of Goals
Official Goals / mission
Reason for existence
Describes organizations vision, its shared value
and beliefs, and its reason for beingTypically defines business operations, focus on
values, markets, and customers that distinguish
the organization
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Types of Goals
Operative goals:
Designate ends sought through actual operatingprocedures of the organization and explain whatorganization is actually trying to do
Describe specific measurable outcomes and often areconcerned with short term
Specific goals for each primary task each organizationmust perform
a. Overall performance: profitability
b. Resources
c. Market
d. Employee Developmente. Innovation and change
f. productivity
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Importance of Goals
Type of Goals Purpose of Goals
Official Goals, mission: Legitimacy
Operative goals: Employee direction and motivation
Decision guidelines
Standard of performance
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Top Management Role in Organization
Direction, Design, and Effectiveness
CEO, Top
Management
Team
External Environment
Opportunities
Threats
Uncertainty
Resource Availability
Internal Situation
Strengths
Weaknesses
Distinctive Competence
Leadership Style
Past Performance
Strategic Direction
Organization
Design
Effectiveness
Outcomes
Define
mission,
official
goals
Select
operational
goals,
competitive
strategies
Resources
Efficiency
Goal attainment
Competing values
Structural Form
learning vs.efficiency
Information and
control systems
Production
technology
Human resource
policies,
incentives
Organizationalculture
Interorganizational
linkages
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The Strategy Imperative
Environment
Factors andOrganization
capabilities
Strategy Structure
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Chandlers Strategy Structure Thesis
Studied close to hundred of Americas largestcorporations tracing their development from 1909 -
1960
Conclusion : Unless strategy follows structureinefficiency would result
Stage 1:
Organizations typically begin with a single product orline ( do only one thing, manufacturing, sales, or warehousing)
The simplicity of this strategy is compatible withsimple structure
Decisions can be centralized in the hands of singlemanager
Concluded that single product strategy requires highcentralization, low complexity and low formalization
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Stage 2: Vertical integration
Organizations typically expand their activities
within the same industry Vertical integration strategy makes increased
interdependence among organizational units andcreates a need for more complex coordination
The desired complexity is achieved is achievedby redesigning the structure to form specializedunits based on functional grouping
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Stage 3: Diversification
Growth proceeds into product diversification
A product diversification strategy demand astructural form that allows for efficient allocationof resources, accountability for performance, andcoordination between units
This can be achieved through multiple set ofindependent divisions, each responsible for aspecified product line
Following Chandlers theory successfulorganizations that diversify should have a
different structure from that of a successful firmthat follow a single product strategy
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Chandlers Thesis
Time t t + 1 t + 2
Product
diversificationStrategy Low High
StructureSimple Functional Divisional
Th R h
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The Research
Additional studies that duplicated Chandlers work concludesthat the theory has validity but some distinct restrictions
Criticism
1. Chandlers Sample of organization
Sample was not a cross section of organizations in general
Looked only at very large and powerful industrial business firms
Whether his findings would be applicable to small medium sizedorganizations, service firms or those in public sector could not beanswered from the sample
2. Definition of strategy
When he used the term strategy he meant growth strategy.
Growth was his major concern not profitability
In organization effectiveness terms, a proper strategy in a laChandler is more likely to lead to a growth than increasedprofitability
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Contemporary Strategy Structure
Theory
Contemporary important research on strategystructure relationship has been under taken by
1. Miles and Snow
2. Michael Porter
3. Danny Miller
Mil d S F St t i T
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Miles and Sow Four Strategic Types
Classify organization based on the rate at
which they change their products or markets Identified four strategic types
1. Defenders
2. Prospectors
3. Analyzers
4. Reactors
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Defenders
Seek stability by producing only a limited set ofproducts directed at narrow segment of total potential
market Strives aggressively to prevent competitors entering
their turf
This is achieved through competitive pricing orproduction of high quality products
Ignore developments and trends outside theirdomains
Grow through market penetration or limited productdevelopment
Little or no scanning of environment to find newopportunities
Intensive planning oriented toward cost and otherefficiency issues
Structure is high on horizontal differentiation,centralized control, and elaborate formal hierarchy forcommunication
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Prospectors Their strength is in finding and exploiting new-product
and market opportunities
Innovating may be more important than high profitability
Their success depends on developing and maintainingthe capacity to survey a wide range of environmentalconditions, trends, and events
Invest heavily in personnel who can scan a wide rangeof environment for potential opportunities
Since flexibility is critical the structure is also flexible
Rely on multiple technologies that have a low degree ofroutinization and mechanization
Numerous decentralized units Structure will be low in formalization and have
decentralized control with lateral as well as verticalcommunication
Prospectors can not maximize profitability of its inherent
inefficiency
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Analyzers
Capitalize on the best of both the preceding types
They seek to minimize risk and maximize opportunity forprofit
Move into new products or markets only after viability hasbeen proved by prospectors
Analyzers live by imitation
They essentially follow their smaller and more innovativecompetitors superior products, but only after theircompetitors have demonstrated that the market is there
Seek both flexibility and stability.
They achieve these goals by developing structure made up
of dual components Parts of these organizations have high levels of
standardization, routinization, mechanization for efficiency
Other parts are adaptive to flexibility
In this way they seek structure to accommodate both
stable and dynamic areas of operations
R t
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Reactors
Represents a residual strategy
Describe the inconsistent and unstable patterns thatarise when one of the three strategies is pursuedimproperly
In general reactors respond inappropriately, performpoorly, and as result are reluctant to commit
themselves aggressively to a specific strategy for thefuture
Reasons
- Top management may have failed to make theorganization strategy clear
- Management may not have fully shaped theorganizations structure to fit the chosen strategy
- Management may have maintained its currentstrategystructure relationship despite overwhelming
changes in environmental conditions
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Strategy Goals Environment Structural
CharacteristicsDefender Stability and
efficiency
stable Tight control, extensive
division of labor, high
degree of formalization,
centralized
Analyzer Stability and
flexibility
changing Moderately centralized
control, tight control over
current activities, looser
control for new
undertakings
Prospector Flexibility Dynamic Loose structure, low
division of labor, low
degree of formalization,
decentralized
Miles and Snow Strategic Typologies
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Environment Strategy Continuum
Little change
and uncertaintyRapid change and
uncertainty
Defender Reactor Analyzer Prospector
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Porters Competitive Strategies
1. Low cost leadership
Organization be the low cost leader and not merelybe the contender for that position
The product and service be offered must beperceived as comparable to that offered by rivals oratleast acceptable to buyers
Structural characteristics Strong central authority; tight controls
Standard operating procedures
Easy to use manufacturing technologies
Highly efficient procurement and distributionsystem
Close supervision; limited employee empowerment
Frequent, detailed controlled reports
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Differentiation Firm seeks to be unique in the industry in ways that
are widely valued by the buyers
May emphasize high quality, extraordinary services,innovative design, technological capability, positivebrand image
The key is that the attribute chosen must be differentfrom those offered by rivals and significant enough to
justify premium that exceeds the cost of differentiation Structural Characteristics
Acts in an organic, loosely knit way, with strongcoordination
Creative flair, thinks out of the box
Strong capability in basic research
Strong marketing abilities
Rewards employee innovation
Corporate reputation for quality or technological
leadership
Focus
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Focus
Either a cost advantage (cost focus) or
differentiation ( differentiation focus) in anarrow segmentStructural CharacteristicsCombination of above policies directed at
specific strategic targetsValues and rewards flexibility and customer
intimacyMeasures cost of providing service and
maintaining customer loyalty
Pushes empowerment to employees withcustomer contact
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Millers integrative Framework
Developed the four strategy dimensions ofinnovation, marketing, differentiation, breadth andcost control
1. Innovation:
To what degree does an organization introducemajor new products or services
Does not mean a strategy merely for simple orcosmetic changes from previous offerings butrather a meaningful and unique innovations
2. Market differentiation
Strives to create customer loyalty by uniquely
meeting a particular need It does not necessarily mean the organization is
producing a higher quality or more up-to-dateproduct
The organization seeks to create favorable image
for its product through advertising, marketsegmentation, and prestige pricing
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Li it ti t t t i ti
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Limitations to strategy imperative
2. The lag factor:
When management implements a new strategy there is often no
change in structure- Does this suggest that structures do not follow strategy ?
Proponents of strategy-structure imperative points out thatstructures respond to changes in strategy but slowly
At the extreme this lag argument can be considered as a copout
More realistically this lag is not a purely a random phenomena
- some organizations are slower to adapt their structures tochanges in strategy than others
The major factor affecting response is the degree of competitivepressures
- the less competition an organization faces the less rapid itsstructural response?
- without competition the concern for efficiency is reduced
Where the organization faces minimal competition, there is likelyto be significant lag between changes in strategy andmodifications in structure
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Could Strategy Follow Structure
Structures can motivate or impede strategic activity
as well as simply constrain strategic choices- strategic decisions made in centralized structure aretypically going to have less diversity of ideas and aremore likely to be consistent over time
- in decentralized organization, where input is likely to
be diverse, and the people providing that inputchange, depending on situation
The notion that structure has some preliminarysupport
- a study of 110 large manufacturing firms found thatstrategy followed structure
- another study of 54 firms found that structureinfluences and constraints strategy rather than otherway around
I d t St t R l ti hi
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Industry Structure Relationship
Industry Strategy Structure
Distinguishing characteristics of the industry affect the strategies the companies
would chooseStrategy may be intermediate step between the unique characteristics of the industry in
which the organization operates and strategy it implements to achieve the alignment
Industries differ in terms of growth possibilities, regulatory constraints, barriers to
entry and mobility, etc.
Knowing the industry in which the organization operates allows one to know about,
product life cycles, required capital investments, long term prospects, type of
production technologies, etc
Take two variables that tend to differ by industry category: (a) capital requirements for
entry and product innovation
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Capital requirements
Product
innovation
Low
High
High Low
low
a b
c d
Example
Aerospace
Example
Computersoftware
Example
Metals andMining
Example
Bicyclemanufacturers
High capital requirement tend to result in large organization, and a limited number of competitors
Type A and C industries will be highly structured and standardized. Type A being more decentralized to
facilitate rapid response to innovations
Type B and D because of low capital investment requirements will make up large number of small firms,
Type D will likely to have more division of labor, and more formalization
Type B organization will tend to have low formalization and more decentralization
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Other Factors affecting
Organizational Design
Strategy is one factor that affects organizationDesign
Organizational Design is a result of numerous
contingencies
The emphasis placed on efficiency and control
versus flexibility and learning is determined by
contingencies of
StrategyEnvironment
Technology
Size
Life cycle and culture
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Assessing Organizational
Effectiveness
Overall effectiveness is difficult to measure inorganizations
Organizations are large, diverse, and fragmented
They perform many activities simultaneously,
pursue multiple goals, generate many outcomes
some intended and some unintended
Managers determine which indicators to measure
in order to gauge effectivenessA number of approaches to measuring
effectiveness look at which measures
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Resource Based Approach
Looks at the input side of transformation process It assumes organizations must be structured in
obtaining and managing valued resources in order tobe effective
Organizational effectiveness is defined as the ability
of the organization, either in absolute or relative termsto obtain scarce and valued resources andsuccessfully integrate and manage them
Indicators:
Bargaining Position: The ability of an organization to
obtain from its environment scarce and valued resources,including financial resources, raw materials, humanresources, knowledge and technology
The abilities of the organizations decision makers toperceive and correctly interpret the real properties of theexternal environment
The abilities of managers to use tangible and intangibleresources in day-to-day organizational activities to achievesu erior erformance
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Resource Based Approach
Usefulness:Useful when other indicators of performance is
difficult to obtain In many not-for profit and social welfare
organization it is hard to measure output goals orinternal efficiency
Number of PhD's is one example Shortcomings:Only vaguely considers the organizational link to
the needs of the customers in externalenvironment
A superior ability to acquire and use resources isimportant only if resources and capabilities areused to achieve something that meets the need inthe environment
Critics have challenged that approach assumesstability in the market place and fails toadequately consider the changing value of
various resources as the competitive environmentand customer needs chan e
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Internal Process Approach
Effectiveness is measured as internalorganizational health and efficiency
An effective organization has a smooth well oiled
internal processes
Does not consider the external environment
The important element in effectiveness is what
the organization does with the resources it has,
as reflected in internal health and efficiency
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Internal Process Approach
Indicators:1. Strong corporate culture and positive workenvironment
2. Team sprit, group loyalty, and team work3. Confidence, trust, and communication between
workers and management
4. Decision making near the source ofinformation, regardless of where sources onthe organizational chart
5. Undistorted horizontal and verticalcommunication, sharing of relevant facts andfeelings
6. Rewards to managers for performance, growth,and development of subordinates, and forcreating an effective work group
7. Interaction between the organization and itsparts, with conflicts that incur over projectsresolved in the interest of the organization
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Internal Process Approach
UsefulnessMost managers believe that happy, committed,
actively involved employees and a positive corporateculture are important measure of effectiveness
Shortcomings
Total output and organizations relationship withexternal environment are not evaluated
Evaluation of internal health and functioning aresubjective, because many aspects of inputs andinternal processes are not quantifiable
Represents a limited view organizationaleffectiveness
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Goal Approach
Identifying output goals and assessing how well theorganization have attained these goals
This is a logical approach because organizations do try toattain certain levels output profit or client satisfaction
The goal approach measures progress towards attainment
of these goalsIndicators:
The important goals to consider are operative goals
Efforts to measure effectiveness have been more moreproductive using operating goals than using official goals
Official goals tend to be abstract and difficult to measure,operative goals reflect activities the organization is actuallyperforming
Organizations have multiple (and conflicting ) operating
goals
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Reported Goals
of U.S. Corporations
Goal
Corporations
Profitability 89
Growth 82
Market Share 66Social Responsibility 65
Employee welfare 62
Product quality and service 60
Research and development 54
Diversification 51
Efficiency 50
Financial stability 49
Resource conservation 39
Management development 35
Source: Adapted from Y. K. Shetty, New Look at Corporate Goals,California Management Review 22, no. 2 (1979), pp. 71-19.
e oa pproac
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e oa pproac
Assumptions:
Assumes that organizations are deliberate, rational,
goal seeking entities. As such, successful goalaccomplishment becomes an appropriate measure ofeffectiveness.
Use of goal approach implies other assumptions if it isto be valid
1. Organizations must have ultimate goals
2. These goals must be identified and defined wellenough to be understood
3. These goals must be few enough to be manageable
4. There must be general consensus or agreement onthese goals
5. Progress towards these goals must be measurable
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Goals Approach
Making Goals Operative The key decision makers would be the group from
which goals would be obtained
They would be asked to state the specific
organizational goals
Develop some measurement device to see how
well the goals are being met
Most explicit is Management by Objectives
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Goals approach
Problems: Whose goals? Top Management goals? Who is
included who is excluded?
Official goals does not always reflect organizationsactual goals. Official goals tend to be influencedstrongly by standard of social desirability
An organization short-term goals are frequentlydifferent from its long term goals. Which goals short-term or long-term should be used
Organizations have multiple goals. They can competewith each other and some times are evenincompatible ( high product quality and low unit cost
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Goals Approach
Value to managers:1. Ensuring that input is received from all those
having a major influence on formulating eventhough if they are not the part of seniormanagement
2. Including actual goals by observing behavior oforganization members
3. Recognizing that organization pursue both short-term and long-term goals
4. Insisting on tangible, verifiable, and measurablegoals
5. Viewing goals as a dynamic entities that changeover time rather than as rigid or fixed statements ofpurpose
The strategic constituencies approach
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The strategic constituencies approach
An effective organization is one that satisfies the
demands of those constituencies in its
environment ( stakeholders) from whom it
requires support for its continued existence
This approach is similar to systems view, yet it
has a different emphasis. Both consider interdependencies, but the
strategic constituencies view is not concerned
with all organizations environment. It seeks to
appease only those in the environment who canthreaten the organizations survival
The strategic constituencies approach
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The strategic constituencies approach
Assumptions:
Organizations are assumed to be political arenaswhere vested interest compete for control over
resources.1. OE becomes an assessment of how successful the
organization has been in satisfying those criticalconstituencies, upon whom the future survival oforganization depends
2. Organization has number of constituencies withdifferent degrees of power, each trying to satisfy itsdemands. Each constituency has a unique set ofvalues, so it is unlikely that their preferences will be inagreement
3. Assumes that managers pursue a number of goals andthe goals represent a response to those interestgroups that control the resources necessary fororganization to survive
Making strategic constituencies operative
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g g p
1. Dominant coalition to identify the constituenciescritical for organizations survival
2. Evaluate the list to determine the relative power ofeach
3. Identifying expectations that these constituencieshold for the organization
4. Comparing the various expectations, determiningcommon expectations, and those that areincompatible, assigning relative weights, andformulating preference order of these variousgoals for the organization as a whole
5. This preference order represents the relativepower of the various strategic constituents
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Typical OE criteria of selected strategic constituents
Constituent Typical of criteria
Owners
Employees
Customers
Suppliers
CreditorsGovernment
agencies
ROI, growth in earnings
Compensation, fringe benefits,
satisfaction with working conditions
Satisfaction with price, quality, serviceSatisfaction with payments, future sales
potential,
Ability to pay indebt-ness
Compliance with laws, avoidance of
penalties and reprimands
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Strategic constituencies Approach
Problems The Task of separating the strategic constituents is
easy to say but difficult to do in practice What separates strategic constituencies from
almost strategic constituencies/ where do you cutthe set? Wont the interests of each member in thedominant coalition strongly affect what he/sheperceives as strategic
Identifying the expectations that the strategicconstituencies hold for the organization present aproblem
An Integrated Approach ( Competing
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An Integrated Approach ( Competing
values)
The three approachesgoal, resource, and internal process toorganizational effectiveness offers a limited view of O.E
The competing values model tries to balance a concern with variousparts of the organization rather than focusing on one part
This approach acknowledges that organizations do many things andhave many outcomes
It combines many indicators of effectiveness into a single framework
The model is based on the assumption that there are disagreementsand competing viewpoints about what constitutes effectiveness
Managers sometimes agree over which are the moist important goals topursue and measure
Stakeholders have competing claims on what they want fromorganization
The competing values model takes into account these complexities Using a comprehensive list of performance indicators a panel of experts
rated the indicators for similarity
Thr analysis produced underlyingof effectiveness criteria thatrepresented management values in organizations
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Competingvalues approach
The criteria you value and use in assessingan organization effectiveness depend onwho you are and the interest you represent
Assumption:
1. There is no best criterion for evaluatingan organizations effectiveness
2. There are common elements underlying anycomprehensive list of OE criteria and that
these elements can be combined in such away as to create basic set of competingvalues
Competing values approach
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Competing values approach
Indicators:
1. Focus: whether dominant values concern issues that
are external or internal to the firm. Internal focus reflects management concern for well
being and efficiency of employees
External focus represent an emphasis on well being of
the organization itself with respect to the environment2. Structure: Whether stability versus flexibility is the
dominant structural consideration
Stability: reflects a management value for top downcontrol
Flexibility: represents a value for adaptation andchange
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Open Systems Emphasis
A combination of external focus and flexiblestructure
Managements primary goals are growth and
resource acquisition
The organization accomplishes these goals
through sub goals of flexibility, readiness, and a
positive external evaluation
The dominant value is establishing a good
relationship with the environment to acquire
resources and grow
The emphasis is similar in some ways to the
resource based approach
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Competing Values Model
The rational Goal ModelRepresents management management values of
structural control and external focus
The primary goals are productivity, efficiency and
profit
The organization wants to achieve output goals in
controlled way
The sub goals that facilitate this outcome areplanning and goal setting
This emphasis is similar in some ways to the
goal approach
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The Internal Process Emphasis
It reflects the values of internal focus and structuralcontrol
The primary outcome is a stable organizational
setting that maintains itself in orderly manner
Organizations that are well established inenvironment and simply wants to maintain their
current position reflect this emphasis
Sub goals include mechanism for efficient information
management and communication Although this part of competing value model is similar
in some ways to internal process approach it is less
concerned with human resources than with other
internal processes that lead to efficiency
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The Human Relations Emphasis
Incorporates the values of an internal focus andflexible structure
Man agent concern is for the development of
human resources
Employees are given opportunities for autonomy,and development
Management works toward the subgoals of
cohesion, morale, and training opportunities
Organizations adopting this emphasis are more
concerned with employees than with the
environment
Competing values and Organization life cycle
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Competing values and Organization life cycle
1. Entrepreneurial stage:
Organization is typified by innovation, creativity, and
marshalling resources. Getting external support iscrucial. The open system model emphasizes thesecriteria
2. Collective stage:
Strategic constituents are likely to include union,
employees. Management needs to create a sense offamily within the organization and develop membercommitment. This is consistent with the criteriaarticulated in human relations model
3. Formalization stage and control stage:
Efficiency and orderliness are sought. The organizationis becoming mature and the strategic constituents atthis pointemployees, leaders, suppliers, andcustomers evaluate the organization in terms of itsstability and productivity. Such constituencies will lookto internal processes and rational goal model
C ti l d O i ti lif
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Competing values and Organization life
cycle
4. Elaboration of structure stage: Emphasis is onmonitoring the external environment. Strategicconstituents emphasize flexibility, ability to acquireresources and growth rate. These criteria are bestmet in the open systems model
5. Decline stage: strategic constituencies tend to besimilar to those found when organization is justbeginning. The concern is again with the ability ofthe organization to innovate and acquire resources.Open system model should dominate in guiding
effectiveness evaluation
Effectiveness Values
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ORGANIZATION
B
ORGANIZATIONA
Effectiveness Values
for Two Organizations
Human
Relations
Emphasis
Internal ProcessEmphasis
Rational GoalEmphasis
Open Systems
Emphasis
STRUCTURE
F
OC
U
S
FLEXIBILITY
CONTROL
INTERNAL EXTERNAL
Value to Managers
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Value to Managers
Competing values acknowledges that multiplecriteria and conflicting interests underlie any effort atdefining and assessing OE
By reducing large number of effectiveness criteria
into four conceptually clear organizational modelsthe C.V approach can guide managers in identifyingthe appropriateness of different criteria to differentconstituents and in different life cycle stages
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Definition
The degree to which an organization attains itsshort-term (ends) and long-term (means) goals,
the selection of which reflects strategic
constituencies, the self interest of the evaluator,
and life stage of the organization.
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