Module 1 Notes

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British Columbia Institute of Technology *

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4800

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May 30, 2024

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BUSA 4800 Module 1 Notes Table of Contents Chapter 1 ............................................................................................................................................................... Chapter 2 ............................................................................................................................................................... Chapter 3 ...............................................................................................................................................................

BUSA 4800 Module 1 Notes Chapter 1 Strategy = set of both planned and reactive moves taken in pursuit of competitive advantages Natural parity = condition found in most industries; over a long period, performance converges toward a mean Inflection points = extraordinary shifts in the competitive landscape that change the basis for SCA - Occurs when a company faces major changes in its competitive environment - May arise from: - New tech - Different regulatory conditions - Transformations in customer values/preferences Sustained competitive advantage (SCA) = goal of strategic management: to outperform relevant competitors for long periods of time (a decade +) - Result of making “winning moves” over the long term, not just producing a few years of good performance - Organization must make a sequence of short-term maneuvers and long-term changes in directions that add up to a unique position - 3-Step Model for SCA: 1. Analysis a. Analysis of the company’s external environment b. Analysis of the company’s internal environment 2. Moves - Moves that flow from the analyses help position a company to prevail in ongoing competitive challenges 3. Implementation and Ongoing Reinvention 1

BUSA 4800 Module 1 Notes Chess Analogy = strategy is like chess: “checkmate” is the goal, thwarting an opponent so escape is nearly impossible - Sustained dominance over competitors - Operating by the rules: dominance achieved according to the rules, playing fairly - Use skill rather than unfair/illegal practices to get ahead - Changing the rules: rules of the “game” tend to shift over time, companies must be aware of this - Changes in laws, ethical climate, technology, economics… - Fundamental new forces in external environment require a strategy alteration - In the face of change, companies can be: - Prospectors = aggressively pursue new growth opportunities - Defenders = clinging to existing niche, trying to protect their turf - Analyzers = both searching for new market opportunities and protecting an existing position - Reactors = incoherently responding to changed circumstances - Envisioning where to go next: think several moves ahead, have a vision - Andy Grove: a company needs to be an “agile giant” - Agility to move quickly to new competitive ground - Capability to defend the space it occupies once it moves - Weathering reversals of fortune: dominant player can get replaced in another period - Making moves that matter: premise of strategy is that moves make companies better War Analogy - Know your enemy, know yourself: examine external situation and understand its strengths and weaknesses - Moves must be designed to strengthen competitive position either by changing external circumstances or upgrading internal resources - Know competitors’ capabilities, weaknesses, culture, values, intentions, organizational doctrines, operational preferences, as well as the personalities of key commanders and staff officers - Not just detailed planning: not a lengthy action plan, but an evolution of a general idea through continually changing circumstances - As much about process as it is about design - Realized and Intended strategies: - Realized Strategies = incorporate response and counter-response of other decision makers that affect the result - In many cases, the situation changes so much that you may not want to achieve the original goal - Concentrating forces: management must: - Determine what confers superiority 2

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BUSA 4800 Module 1 Notes - Create a distinctive competence in which the company has a comparative advantage - Apply the competence decisively at the proper time and place to increase the chances of winning - Redeploying assets: when major changes occur, you need to respond and adapt - Obtaining good signals is not just a matter of having good intelligence - Involves being receptive to that intelligence - Shed preconceptions and redeploy company assets where new opportunities lie - Hedging against uncertainties: risk can be objectively calculated and planned for, but with uncertainty the odds are subjectively assigned - When risk is known, rivals can grasp the situation and take advantage - Hedging strategies = depend on whether an outcome can be well described and/or quantitative odds can be assigned - Gamble on the most probable outcome = companies act based on what they perceive as the likely outcome - Make bets with confidence only to be surprised later if it doesn’t turn out - Take the robust route = rather than bet on a single future, companies can choose one that is variable regardless of what occurs - Hedge bets against a number of possibilities - Delay until further clarity emerges = firm may delay action until the situation becomes clearer, making flexible commitments that minimize potential losses while they wait - Commit with fallbacks = company can justify taking the risk with fallbacks should the plan be unrealistic - Company thinks its initial position provides it with a long-run competitive advantage - Shape the Future = actively drive and influence what takes place - Use resources to increase odds of the most desirable outcome occurring Sports Analogy: goal is not just to win one championship, but to be perpetually successful - Good coaches know their team, their rivals, and the rules of the game very well 3

BUSA 4800 Module 1 Notes - Building early momentum: a company that is the first to introduce a product/idea may be able to build the momentum to win title after title - One thing right creates momentum for a company to get more things right later - Relying on teamwork: winning is dependent on how a team recruits, socializes, and motivates all players to work together - Coaches = management, need to understand the contributions of “star athletes” and “role players” - Teams don’t have to be good at everything, they need to blend the players’ strengths to create a winning combination - Planning and improvising: plans have to change once the “game” is underway - Keeping score: performance measurement - Stakeholders want to know how the firm is doing 2 measures of overall dominance: - Accounting data = based on past performance - Can be skewed despite legal and professional attempts to prevent distortion - Stock market data = typically a reflection of the firm’s outlook - Investors can be fooled and stock prices can be based on inaccurate info Economic value added (EVA) = net operating profit minus the opportunity cost of capital - Measures how much better/worse a company’s earnings are than the amount investors could obtain by putting their money in alternative investments of comparable risk 4

BUSA 4800 Module 1 Notes Chapter 2 External environment = consists of several elements: - Immediate industry environment = rivals, customers, suppliers - Macro-environment = politics, laws, tech, demography, society, economy - Stakeholder groups = within the firm, but strategist still need to examine and determine how the firm will relate to them Industry = group of companies offering products/services that satisfy similar customer needs - Can be defined by various classifying systems: - North American Industry Classification System ( NAICS ) = standard that Federal statistical agencies use to group similar businesses into categories - International Standard Industrial Classification ( ISIC ) = part of the UN Statistics Division - Research organizations will often use NAICS or ISIC, but will also create their own industry classifications to keep pace with the emergence of new industry structures Industry pressures lead to industry movement: - Companies migrate from industry to industry - Industry definitions are dynamic and hard to pin down as external environments rapidly change Industry hopping gives way to unique opportunities and threats - Best understood through analysis of a firm’s external environment - Trade-offs = which strategic moves should a firm emphasize? - Consider the consequences of making the wrong move - Thorough external analysis is necessary to address opportunities and threats that arise from changes in the macro-environment - Must be applied carefully and systematically - Team judgements play a role in what corps decide to do; far from perfect - Monitor the implementation of moves to discover what is: - Resonating with customers - Countering competitive forces - Delivering results - … and what ISN’T doing those things - Be willing to make timely, strategic retreats - BUT also have the patience to let efforts pay off 5

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BUSA 4800 Module 1 Notes Framework for external analysis: 1. Is the game good? - Question posited by Michael Porter, originator of industry analysis - Answer lies in each industry’s basic economic features, competitive forces (customers, suppliers, competitors, substitutes, new entrants), and the influential role that stakeholders play - Reveal whether an industry is inherently more attractive and profitable than others - 20% or more of competitive advantage is determined by industry 2. What is our position in this game? - Sustained competitive advantage doesn’t come with being in a good industry - Critical to position a firm advantageously relative to competition and capitalize on their advantage - Positioning can determine whether a firm is a laggard or a dominant force 3. Should we stay in this position for the long-term? - Short-term may see profits and growth in a strong position/segment in a declining industry, but position may not be viable long-term - Be able to plan for exit and switching strategies for different time horizons - Examine dynamic driving forces shaping an industry over time - Industries are NOT STABLE, and industry analysis is NOT STATIC - Transformed continuously by changes in macro-environment - Fluctuating economy - Government policies and regulations - Developments in tech - Changing demographics - Natural world (availability of natural resources) - Macro-environmental forces alter the relations between a firm, customers, suppliers, rivals, new entrants, substitutes - Scan for changes in macro-environmental conditions in different time horizons - Track and identify their effects on an organization - Questions a firm should pose: - How long should it stay in the business in which it currently operates? - When might it leave this business? - Where should it go if it leaves? - Where are there better opportunities than the current set in which it operates? - Define a set of likely scenarios that account for inevitable risks and uncertainties - Consider the likelihood of the best and worst possible outcomes, and a set of surprises that may take place - Have an action plan that will help the firm bring about the best possible outcomes, avoid the worst ones, and deal with potential surprises 6

BUSA 4800 Module 1 Notes Deciding if the “game is good” - Consider overall size of the industry - Consider where it is in the industry life cycle: - Is it a growing, maturing, or declining industry? - Know a firm’s rivals - How many exist? - Are their offerings similar/different to those of the firm in question? - To what extent? - If customers can’t perceive any differences, it devolves into a pricing war - With many rivals and little differentiation, margins narrow and industry profitability suffers - Companies in mature and declining markets attempt to create differentiation Industrial Organization (IO) Economics = suggests that the “best game” is one with virtually no competition - A firm should strive to be a monopolist - Do this fairly so as not to be taken to court - Current antitrust doctrine has no problem with high market shares as long as there is free entry and company plays by the rules - “Best games” have more features of a monopoly than of perfect competition - Fewer firms - Higher barriers to entry - Fewer homogenous products - Firm benefits at the expense of customers and suppliers - No choice but to deal with that firm - To reduce competition, firm should aim to have unique and sought-after offerings - If customers and suppliers exhibit a need for that category of offerings, they have no one else to go to but the firm in question 7

BUSA 4800 Module 1 Notes - Firm should raise as many barriers to imitation as possible so it can maintain a virtual monopoly in its chosen segment for as long as possible - Consider a geographic scope: - If a firm achieves economies of scale and global scope, it may be in a better position to withstand competition - If a firm is supported by generous subsidies and favourable government policies, it’s hard for other firms to challenge it - Capacity utilization = build capacity globally and makes sure they have sufficient market demand to use it fully - Plays a large role in suppressing competition - Firms with idle assets bear large costs of maintaining them - Thus highly motivated to lower prices and engage in aggressive price wars to win business - SO everyone in an industry suffers Scale economies and learning curve effects: - Require a company to increase its size and experience in order to be competitive - Powerful barriers to industry entrants - Those without scale/experience find an industry unattractive and unprofitable - Don’t have leverage to obtain good pricing from suppliers - Can’t match highly honed and efficient processes - Ability to learn and achieve scale quickly has significant impact on a firm’s ability to survive and thrive Government policies can change the rules, especially regulation and taxation - Can change buyer behaviour via subsidies, loan guarantees, price controls, … - Prevailing politics provide industries with opportunities and hamper growth - Lobbying strategy is needed - Corporate inversion = when a firm re-incorporates outside its current national jurisdiction in order to reduce its tax burden - Response to government policy changes - Current trend - Some policies limit access by imposing requirements that smaller businesses can’t meet - High pollution-control costs - Costly measures to ensure worker safety and provide benefits - Labour laws make it difficult for businesses to operate in certain countries Demographics, natural resources, tech, culture also differ across countries - Firms in some industries are impacted more severely by these differences - Energy costs disproportionately affect industries like airlines, electric utilities, trucking… - Some industries benefit from rapidly changing tech, others prefer slow changes - Changes in culture (leisure behaviour, discretionary spending, …) Porter’s Five Forces that determine industry profitability: 8

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BUSA 4800 Module 1 Notes 1. Rivals - Existing competitors, engage in repeated and regular moves against each other - Moves taken by rivals to undercut each other: - Price cutting - Increased advertising - Product/service giveaways - Rapid innovation - Moves add to a firm’s costs - Presence of aggressive rivals keeps a cap on prices - Factors that increase rivalry: - Large number of undifferentiated firms competing for the same customers and resources - Low switching costs for customers who shop for the best deals - Slow/declining industry growth - Requires firms to seize market share from other companies to improve top-line revenues - High overhead - Motivates firm to raise scale of operations to cover fixed costs - Rapid product perishability and high inventory-storage costs - Necessitate that firms move their products quickly 2. New Entrants - Profitable industries with high growth attract new entrants - Industries that don’t change rapidly provide opportunities for new entrants to introduce innovations - Tweak the grounds for competition, offer cheaper and stripped-down products and services - Threat of potential entry is easier when - Access to supply and distribution is open - Capital investment requirements are minimal - Customer loyalty is weak - Existing competitors are unable to retaliate against new competitors 9

BUSA 4800 Module 1 Notes - Powerful, well-capitalized firms in adjacent industries threaten to break industry boundaries 3. Substitutes - Good substitutes lower industry prices and decrease profitability - Customer loyalty is weakened - Quality and switching costs play a role 4. / 5. Suppliers and Customers - Those with credible options elsewhere are less dependent on a firm and can bargain on prices - Companies that depend on few suppliers are in a weak position - Strong suppliers with many client options can exact a high price - Supplier with the right capabilities can move forward in the supply chain and pose a direct challenge to a business - Can just make the product itself and become a competitor - If competitors java lots of choices and access to competing products/services, - If a firm’s competitor have many choices and free access to competing products, the firm’s position is weakened - May have to drastically lower prices to maintain sales - The more choices customers have, the less power a firm has over them - Can even threaten to make goods themselves Sustained Competitive Advantages - Having power over suppliers, competitors, new entrants, and substitutes - So they are dependent on a company, not vice versa - Power = the key to SCA - Power in the IO econ framework defines a good industry - Power over five forces = competitive advantage - If it holds onto the power for a long time, this is SCA Industry Dynamics = constantly evolve in the face of pressures from macro-environment and moves firms make - Include the five forces Industry attractiveness is inherently transient - Firms must be on guard and carefully monitor the macro-environment and its impact on the five forces - Choice to stick it out in an industry losing attractiveness OR make a difficult journey to a more attractive industry Stakeholder = any group that affects/is affected by a firm - By positively interacting with stakeholders, a company can gain leverage to make industry transitions - External stakeholders include: 10

BUSA 4800 Module 1 Notes - Five forces - Elements contained in the macro-environment - Scientific and technical organizations - Local communities - Media - General public - Representatives from groups in society - Internal stakeholders include: - Owner = primary stakeholder - Shareholders = primary stakeholders - Board members - Managers - Employees - Primary stakeholders take biggest risk - Sole purpose of managing stakeholder relations is to maximize returns to shareholders - Firms have legal, ethical, economic obligations, but obligations to shareholders come first - Agency theorists: giving managers latitude to prioritize other stakeholder needs over owners and shareholders can lead to abuse - Stakeholder theorists: primary stakeholder has to be the shareholder - Firm’s management can actually choose which group it would like to be the primary stakeholder - Firm will see a benefit when it: - Fully understands relative impact of each stakeholder - Can effectively prioritize the management of these groups - A firm should carefully consider the needs of all stakeholder groups - Tool like an influence/impact matrix can help assign priorities - Establish strong ties of reciprocity with stakeholders - Offer incentives for them to ally and affiliate - Allow a company to establish itself within a weak industry as a strong player - Can assist a company in becoming a leader in a rising industry Strategic group analysis = helps answer key questions: - Where are the relevant players positioned in an industry? - Is our firm in a crowded group (one of many firms competing in similar ways for the same customers)? 11

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BUSA 4800 Module 1 Notes - Does the company hold a unique position that allows it to stand out from the crowd? - What strategies/events have led to the unique position each firm holds? - Between which groups is rivalry the greatest? - Which players are strongest? Weakest? - Do external pressures favour some groups over others? - Which strategic moves are rivals with strategic groups likely to make next? - With the above in mind, does our firm’s current position provide it with a relative advantage/disadvantage compared to our competitors? Simple extrapolation = most helpful in short-range planning when industry conditions are stable and demand is relatively smooth over time - Instead of straight-line projections, subject certain projections to stress tests at extremes Bookends = extreme possibilities in terms of where the future may lead - Defining bookends provides insights when demand and prices are volatile - Scenario 1: Mountains - Strong role for government and the introduction of far-reaching policy measures - Scenario 2: Oceans - More prosperous but more volatile world Leading indicators and driving forces: - Beyond simple projections - Can create a range of possible outcomes - Continually scan the environment for driving forces behind the changes that are creating new engagement rules for the future 12

BUSA 4800 Module 1 Notes Systems Analysis = provides insights about changes that are likely to occur on multiple fronts - Changes in one element of the external environment will induce changes in another and so on - Three types of uncertainty always exist: 1. State uncertainty = incomplete knowledge about the components in a model and how they relate to each other - Also uncertainty about how macro-elements affect the five forces - What is their impact on the structure of an industry? Does the industry become more or less attractive? 2. Effect uncertainty = impact on a particular firm - Even with near-perfect info on the macro-environment and industry, a company may still be uncertain what the effects will be 3. Response uncertainty = lack of knowledge about a firm’s response options - Firm must ask: - Which elements of the external environment currently appear to be most important? - What might the scope, direction, speed, and intensity of the changes be? - What are our choices for coping with this type of change? - Scenarios are not predictions, they are prompts to action to shape the future - Cross-impact matrix = useful tool for creating scenarios, shows how one trend may intersect with another 13

BUSA 4800 Module 1 Notes Chapter 3 Internal Analysis = the process of examining an org’s strengths and weaknesses in order to bolster competitiveness and enable the achievement of SCA - Focuses on how orgs can go beyond resources they have and enhance competitive capabilities - Provides insights on what can be done to ensure a firm’s survival and ability to thrive long-term by using resources they have - Both external analysis and internal analysis are necessary to select options and craft a firm’s strategy Resource-Based View = sees an org as a combo of its resources, capabilities, and competencies, and attempts to understand how these factors influence performance - Foundation for internal analysis, alternative to the industrial organization economics approach - Starts with assumption that orgs differ in the resources they command - Based on the way internal resources are managed, performance differences within a category of orgs (like industry groups/segments) can be as significant as those between them Comparing the IO & RBV Approaches IO Economics RBV - External environment = primary determinant of org strategy (not internal managerial decisions) - Assumptions: - Resources are highly mobile between firms - All competing orgs control / have equal access to resources - Environment presents threats and opportunities that must be addressed - Org success is achieved by offering g+s at lower costs than competitors or by differentiating products to bring premium prices - Org’s deployment of resources and capabilities have the greatest impact on firm performance (not external environmental conditions) - Assumptions: - Resources and capabilities are not highly mobile across orgs, once acquired they’re retained - Valuable resources are costly to imitate and nonsubstitutable - Orgs can deploy internal strengths to mold external environment - Competitive advantage is gained through the acquisition and value of resources and capabilities - According to RBV, if no external niche exists for what the firm does best, the firm can leverage its internal resources and capabilities to create a new niche - Can be a first / early mover, occupy new competitive space where it will face little-no serious competition 14

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BUSA 4800 Module 1 Notes - RBV helps to explain the continued blurring of industry boundaries and creation of new categories - New industry categories rise out of unique internal strengths - The way firms structure resources, capabilities, and competencies in comparison to other firms is a source of innovation - Questions to understand a firm’s internal strengths: - Does the firm currently have the resources, capabilities, and competencies necessary to compete and win? - If it lacks resources, capabilities, and competencies it needs, does it have the capacity to acquire/develop them? - What combo of acquisition and developmental activities is needed in order to possess resources, capabilities, and competencies to address critical threats and seize important opportunities? - How can the firm become dynamic enough to continuously acquire and develop the resources, capabilities, and competencies to succeed in the long term? - For a firm to know whether it has the necessary resources, capabilities, and competencies, it needs to understand which are needed to deliver value to the marketplace and how to combine them - RBV sees organizations as collections of primary productive resources and capabilities that can be combined into competencies, which have enduring marketplace value - Resources and capabilities are bundles of services that can contribute to production and services that customers value Resources = firm’s basic financial, physical, human capital - Based on line of business, may also include tangible assets and intangible assets - Best characterized as follows: 1. They are protected by legal rights of ownership 2. They can be bought and sold Capabilities = what allow a firm to exploit resources ; skills - Most important from a business context: leading, planning, and obtaining feedback; engaging in dialogue; and motivating, compensating, appraising, communicating with, and rewarding employees - Culture = backbone of capabilities that get transformed into competencies Competencies = the distinct manner in which a team wins ; link capabilities together into a distinct style of winning - Sets you apart from your rivals, hard for competitors to imitate - Behind every realised competence there is a blend of many capabilities - Distinctive Competence = the unique accumulation of capabilities and rigidities that an organization has acquired over time 15

BUSA 4800 Module 1 Notes - Important to identify when assessing organizations’ strengths and weaknesses - Not only a tool, but a source of employee gratification, institutional integrity, value, and reason for being - 5 Elements: 1. Knowledge and techniques needed to create useful products and services 2. Acquiring and generating resources beyond what the supply organization directly owns and controls 3. Dealing with novel problems 4. Looking toward the future 5. Positioning and repositioning - 3 main attributes of a core competency: 1. Provides access to new markets 2. Gives customers benefits 3. Is difficult for competitors to imitate VRIO Test = determines the competitive significance of resources and capabilities 1. Are our resources and capabilities valuable? Do they enable us to exploit an important opportunity or thwart a significant threat? 2. Are they rare? Are they held by very few firms? 3. Are they inimitable? Are they difficult to copy via development or acquisition? 4. Is the firm organized and ready to exploit them for the benefit of customers? Resources and capabilities should increase the other’s competitive significance and value: - Measurement = if tangible, resources are found in financial statements. Capabilities for combining, recombining, and using resources can propel the value of these resources beyond this accounting value - Market exchange = intangible resources (reputation) cannot be easily traded. Similarly, capabilities (loyalty of dealers, trust of customers) cannot be easily transformed - EXCEPT PATENTS because they are based on legally enforceable property rights - Difficult to imitate = specialized experience in combining and using resources should lead to valuable capabilities that rivals cannot easily copy Steps for reappraising resources, capabilities, competencies: 1. Looi outside organization for talent and technology, establish partnerships and alliances 2. Find ways to synthesize, harmonize, and integrate the acquisitions within organization 3. Discarding resources that no longer provide value Value Chain: 16

BUSA 4800 Module 1 Notes Primary Activities: - Inbound Logistics = receiving, storing, internally transporting product inputs. - Dock scheduling, raw materials inventory control, and any necessary returns to suppliers - Operations = transforming product inputs into product outputs via assembly, machining, packaging, testing… - Outbound Logistics = distributing goods to customers - Finished goods warehousing, order processing, delivery scheduling - Marketing and Sales = making product known to buyers and persuading to buy - Advertising, pricing, promotion, salesforce work, channel selection - Customer Service = providing customers with after-sales service to keep up / improve the value of the product - Installation, training, repair, supplying of parts Support Activities: - Resource Procurement = buying inputs and other items that are used in all value-creating activities - Inputs such as machinery, buildings, office and lab equipment, raw materials, supplies - Purchases are made according to rules for dealings with vendors and require info systems for record keeping - Tech Development = developing know-how to carry out firm’s activities / tasks - Running equipment, writing documents, making products, transporting goods, designing products, enhancing reliability of products - May depend on scientific disciplines and sub-specialties including: nanotech, precision mechanics, fine optics, bioengineering - HR Management = recruiting, hiring, training, developing, compensating the firm's personnel 17

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BUSA 4800 Module 1 Notes - Administration = finance, accounting, legal affairs, public affairs, planning, strat - Some activities carried out at business-unit level, some corporate level Value chain linkages: Profit margin = Value created & captured - Cost to create value Three levels of important financial considerations: 1. Firm must determine how it compares to its industry and marketplace as a whole - How do revenues and profits compare with the broader industry / marketplace? - Are they growing faster, slower, or at the same pace? - Does a company seem to be providing a solid investment opportunity compared to other public offerings? 2. Strategists must understand how components of the firm’s revenues and costs compare to those being realized by other firms in the industry? - How do profit margins, ratios, and other financial indicators stack against rivals? - Is it beating the trends, or falling behind? 3. Analysis: quantitative analysis designed to help leaders benchmark the firm’s key activities and outcomes ; offers important insights into a firm’s relative advantage and the behaviour of its bottom line - Are our products per channel getting stronger? - Are our brand families gaining popularity? - Can we demonstrate continuous improvement of internal processes? - Inventory management - Employee productivity - Delivery times - Defect rates - Safety/compliance - Employe satisfaction - Engagement - Managers must be aware of important measures for specific lines of business and unique internal process requirements at this level Accountability = comes from top down in response to shareholder needs ; best understood in terms of the top management team and its interaction with the board and employees 18

BUSA 4800 Module 1 Notes - According to classic management theory, an organisation must have: - A well-defined hierarchy - A division of labour to allow high degrees of specialization - A very specific and well-defined set of assignments of authority and responsibility - Unity of command and direction so that there is subordination of individual interests to the good of shareholders - Task- and Team- Oriented Organization = stresses motivation and values ; more employee friendly ; asserts that: - Informal coordination in groups should replace centralized controls - Communications between employees and managers should be two-way - Compensation should be based on performance, not on following orders - Management should foster an environment that is conducive to employees’ development and learning Contingency theory = holds that, depending on external environment, there are two models a company can follow: mechanistic or organic - Mechanistic model = relies on hierarchy, functional specialization, formal and impersonal structure - Employee rewards are primarily economic, employees rarely have ownership rights - Contingency theorists argue that this works better in stable environments - Organic model = less rigid and hierarchical ; relies more on decentralization, participation, democratic personal structure - Employee motivation is less dependent on economic rewards ; arises from employee’s sense of belonging and identification with mission and values - Contingency theorists argue that this works better in turbulent environments 19

BUSA 4800 Module 1 Notes 7 S’s Framework: 1. Strategy = extent to which an organization has a logical sense of the actions it must take to gain sustainable competitive advantage over competition, improve position in relation to customers, and allocate resources to high-return activities 2. Structure = extent to which an organization has coherent form of dividing labour, allocating responsibilities, coordinating tasks, and ensuring accountability 3. Systems = extent to which organization has explicit descriptions in place to show how processes work and tasks are accomplished in critical areas such as capital budgeting, manufacturing, customer / supplier relations, accounting and performance measurement, and carrying out mergers and acquisitions 4. Style = degree to which there is tangible evidence that time, attention, and behaviour of management and employees are actually devoted to and aligned with the organization’s strategic needs 5. Staffing = degree to which management and employee expertise and experience match the jobs that have to be carried out ; extent to which the personalities in place are capable of working together ; degree to which there is sufficient diversity among staff to allow opposing and dissenting voices to be heard 6. Skills = extent to which an organization as a whole has the capabilities not only to compete in existing businesses, but to develop new businesses and generate corporate growth 7. Shared values = extent to which there is unity of purpose behind a common vision and culture that is taking the organization where it should be going - Qualities that arise from blending of these elements: - Bias for action - Closeness to customer - Autonomy and entrepreneurship 20

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BUSA 4800 Module 1 Notes - Productivity through people - Hands-on, value-driven operations - Willingness to “stick to the knitting” - Simple form and lean staff - Simultaneous loose-tight properties SWOT: - Strengths and Opportunities (SO) = how can a company use its strengths to take advantage of opportunities? - Strengths and Threats (ST) = how can it take advantage of its strengths to avoid real and potential threats? - Weaknesses and Opportunities (WO) = how can it use its opportunities to overcome its weaknesses? - Weaknesses and Threats (WT) = how can it minimize weaknesses and avoid threats? 21

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Module 1 Notes

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