Strategy Implementation (II): Achieving Integration ppsx

337 CHAPTER OUTLINE CASE 1 Disney World CASE 2 Westinghouse Electric Corporation Introduction Moving to a Networked Organization Semipermeable Boundaries Reliance on External Alliances Organizational Focus on Core Processes and Technologies Flexibility and Stability: Finding a Balance Organization Design Practices Staffing Policies Selection Policies Development Policies Reward and Performance Measurement Systems Hierarchy-Based Systems Performance-Based Systems Performance Measurement at the Corporate Level Shared Values and Corporate Culture Characteristics of Shared Values That Define Culture Methods of Transmitting Shared Values Corporate Culture and Strategy Implementation An Overview of Organization Design Practices Ethical Dimension Corporate Credo Indoctrination Full CEO Support Control Systems Summary Discussion and Exercise Questions Strategy Implementation (II): Achieving Integration WHAT YOU WILL LEARN • The concept of organization design practices • Why organization design practices are crucial in helping the firm achieve integration • Why many companies are moving to a “networked” organization • The staffing and reward policies used by many companies • How corporate culture can contribute to competitive advantage • The dangers of relying too long on established organizational practices and corporate cultures 338 PART 3 Organizing for Advantage The Disney World complex near Orlando, Florida, is the largest family entertainment facility in the world. Disney World covers an area in excess of 28,000 acres and employs more than 33,000 people. A central feature of this huge facility is the Magic Kingdom Park, a vast assortment of rides and amusements with such exotic terrain as the Celestial Heavens, the Amazon River, Dinosaur Land, the Grand Canyon, Tom Sawyer’s Cave, and the Bottom of the Sea. Most children who have not been to the park aspire to go sometime during their lives. Disney World has always remained a top vacation spot for children and adults alike. Disney’s world- renowned Florida park is only one part of the larger Disney Cor- poration, which has similar park operations in Anaheim, Califor- nia, and affiliates in Europe and Japan. The towering Cinderella’s Castle in the Magic Kingdom of each Disney park in Florida, Cal- ifornia, France, and Japan clearly stands out as more than simply an emblem of the Disney Corporation. The Magic Kingdom also symbolizes a place where dreams of happiness come true. Disney has more than 23 million visitors at its Florida location annually. The park’s underlying mission is to generate special emotions: pleasure, delight, release, adventure, excite- ment, even fear. These emotions are what customers receive in exchange for the more than $1 billion they spend annually at the Disney facility. In this sense, Disney’s distinctive competence is more than providing a pleasurable vacation spot or entertainment; Disney is in the business of providing emotional experiences. These special feelings are produced in part by the park’s unusual physical decor that is designed and landscaped to take guests into authentically depicted jungles, swamps, caves, and seas. The park’s restaurant pavilions also play a role; they depict the architectural styles of many nations and serve food of almost every imaginable regional type. However, the real key to Disney’s magic are the park’s more than 10,000 employees. As attendants, tour guides, entertainers, and custodians, these indi- viduals are almost continuously in contact with customers. Since the special atmosphere of fantasy and escape that customers experience is determined to a great extent by the way employees act, Disney exerts deliberate effort to control and influence employee behavior. Specific methods Disney uses to achieve this objective include the following: Recruiting. Disney limits hiring to attractive, well-groomed people who interact well with the public. People hired by Dis- ney like to work with people and are graceful under stressful situations. Socialization. All recruits undergo one and a half days of formal training called “Traditions I.” Its main purpose is to imbue new employees with the company’s key values. Recruits are given an overview of the company’s distinguished history and are introduced to the philosophy of its illustrious founder, Walt Disney. The company’s four main “disciplines”—safety, courtesy, show, and efficiency—are described and their central importance emphasized. Associates are introduced to the special vocabulary Disney uses to reinforce its central “entertainment experience” mission. For example, recruits are told that they are “cast members,” not employees; have “roles,” not jobs; wear “costumes,” not uniforms; and serve “guests,” not customers. Recruits are provided a wealth of detail about the park itself so that they can later deal effectively with guests’ questions concerning the exact location of facilities, hotels, and even car parking sections. Training in guest courtesy is mandatory for all Disney employees. More important, each employee is expected to understand what customers expect to see and what Disney wants its guests to experience. For example, telephone operators learn how to “put a smile in their voice.” Disney park cast members often engage in extensive role-playing sessions designed to improve their skill in handling customers who become lost or afraid. For example, friendly characters in Don- ald Duck and Mickey Mouse costumes help small children find their parents. These extensive measures are designed to instill Disney’s central values in all of its staff. People working in the park are expected to behave in a manner consistent with Dis- ney’s basic principles. Job training. Recruits designated for positions as operators of the park’s many theme “adventures” are carefully trained to carry out their respective assignments. As a first step, each individual must master a job description manual—sometimes exceeding 30 pages in length—detailing the specific behaviors necessary for the operator’s role. Job manuals prescribe the dia- logue operators should deliver, called the “spiel,” and even provide the specific variations that are permissible. Having mas- tered the manual associated with a role, recruits must then rehearse their roles under the close guidance of a trainer until a high level of proficiency is achieved. Only then is an individual permitted to move “on location” into the park. Performance measurement. Because employees are widely dispersed throughout the park, managers cannot easily observe cast members’ behavior directly. Managers, however, need to (Case 1) Disney World 1 CHAPTER 10 Strategy Implementation (II): Achieving Integration 339 acquire knowledge of employee behavior to reward employee achievement properly. Therefore, Disney takes great effort to obtain this information. One source of such information is letters from guests; the park receives tens of thousands each year. All letters received each week are summarized in a “guest comment report” that is then widely distributed to managers and supervisors. It classifies guest comments as either compli- ments or complaints and indicates where possible the specific park location to which each comment applies. Managers also obtain information about employee performance from daily inspections of park activities conducted by the park’s Indus- trial Engineering Department. Data collected by this unit are compiled in show quality reports, waiting time studies, and other documents, and distributed regularly to managers and employees throughout the park. Rewards. The park’s hourly employees earn compensation comparable to the pay received by other employees in the Orlando area. Consequently, most people do not regard monetary rewards as their sole source of motivation. Many of these indi- viduals want to work at Disney simply because of the fun and experience it provides. Working in a show business atmosphere and making friends with other employees and customers are important for many young people who spend a couple of years at Disney. People who have worked for Disney often feel they have learned special people skills that will last their lifetimes. Before all of its industrial businesses were recently spun off in a series of divestitures by CBS Corporation in February 1998, Westinghouse Electric Corporation consisted of more than 20 strategic business units (SBUs) that were heavily involved across a broad range of different industrial businesses. A $9.6 billion company (1997) whose fortunes have fluctuated wildly over the past decade, Westinghouse has spent huge sums diver- sifying across a series of unrelated businesses, only to find it was incapable of managing them effectively. During the 1980s and 1990s, these businesses spanned such diverse fields as haz- ardous waste systems, office furniture, defense systems, power generation systems, motors, electrical distribution products, radio and television broadcasting, and even such far-flung industries as home security systems, retirement communities, and financial services. Several Westinghouse businesses are quite familiar to consumers. For example, the Group W cable television and broadcasting system is found in many large cities, and Westinghouse is a leading provider of home security systems. Consumers still recognize the Westinghouse name found on many of their older major home appliances. In reality, though, Westinghouse has not been in the consumer electronics or home appliance businesses for over twenty years. Foreign competition from low-cost, high- quality Japanese producers prompted Westinghouse management to sell its consumer electronics and television operations to other companies during the late 1970s. During the same period, Westinghouse also sold its major home appliance group (refrig- erators, ovens, heavy appliances) to White Consolidated, a leading firm in that industry. Its electrical light-bulb business was sold to Philips in the mid-1980s to raise cash for other acquisi- tions. In 1989, Westinghouse sold its huge power transmission and distribution business to Asea-Brown-Boveri (ABB) in a complex transaction spanning more than two years. By the early 1990s, most Westinghouse businesses focus on industrial users and defense applications, with a continuing small market position in broadcasting and cable television businesses. No longer was the company a giant in the original power systems field that it helped to pioneer. Even as recently as 1995, Westinghouse continued to buy and sell different businesses to bolster its corporate profitability. For example, in February 1994, Westing- house sold its electrical supply unit to Clayton Dubilier and Rice, a New York investment firm, in an effort to continue reducing the company’s heavy debt load. In March 1994, Westing- house bought Norden Systems, Inc., from United Technologies. Norden Systems produces air-traffic control radars that comple- ment Westinghouse’s defense radar systems expertise. However, the acquisition that had the single greatest impact on redefining the very essence of Westinghouse was the purchase of CBS in September 1995. CEO Michael Jordan believed that acquiring CBS would help bolster Westinghouse’s position in the broadcasting and media industries, where competition was less intense than in its industrial operations. More- over, it would enable the firm to move decisively away from relying on older businesses that had now begun to face even more severe competition from General Electric, ABB, Mit- subishi, and other more potent competitors. In reality, the industrial and electrical businesses that propelled Westinghouse into the halls of scientific fame and accomplishment a few decades (Case 2) Westinghouse Electric Corporation 2 340 PART 3 Organizing for Advantage ago had become an enormous financial burden on the company. Many of these businesses (e.g., radars, motors, power generation), once technological leaders in an earlier time, were now highly mature and uncompetitive. Westinghouse was often the high-cost producer when compared with its rivals, and the firm never attained a strong leadership position in any of its industrial businesses. Thus, the acquisition of CBS set in motion a series of later corporate moves that would ultimately result in the disappearance of one of the greatest industrial companies in the United States. Yet, Westinghouse’s eventual exit from its historically core businesses had its roots in many financial mis- steps and poorly managed organizational control systems that occurred throughout the past two decades. The long-term organizational and financial costs of control- ling and managing Westinghouse’s broad-based diversification have been heavy. In 1993 and 1994, for example, Westinghouse was forced to undertake several major restructurings that were costly to its stakeholders and employees. Nearly $3 billion was written off during this period because of underlying financial difficulties in some of Westinghouse’s businesses. The long-standing CEO of Westinghouse, Paul Lego, was dismissed from his position in early 1993 because of these continuing losses. In a few notorious situations, the performance of some Westinghouse businesses has been so dismal that it jeopardized the entire company’s survival. Westinghouse’s financial services subsidiary and its nuclear energy unit are cases in point. In other situations, such as robotics, Westinghouse’s initial investments in what appeared to be an attractive industry went awry because of the inability to compete effectively against more focused competitors. Financial Services This subsidiary provides financing to a wide variety of corporate, commercial, and real estate borrowers. It grew rapidly during the 1980s, expanding its investment base from $2 billion in 1981 to more than $12 billion by 1990. The unit achieved this rapid growth in part by lending to marginal borrowers unable to obtain credit from other lenders. This policy exposed the unit to great risk. By 1990, 85 percent of its investments were in high- risk ventures such as shopping centers, junk bonds, leveraged buyouts, and hotels. A severe drop in commercial real estate values, plus a long recession, caused many of these investments to sour, which forced the unit to write down $2.7 billion in 1991 alone. This charge turned a modest third quarter 1991 profit into a $1.6 billion loss. The difficulties in the financial services subsidiary were so severe that Westinghouse could find no buyers for this unit until 1995. Nuclear Energy Westinghouse’s nuclear energy subsidiary, established to produce nuclear power plants for electric utilities, followed a sim- ilarly disastrous path. Potential buyers of nuclear power plants in the 1960s and 1970s were worried about obtaining reason- ably priced nuclear fuels. To allay their fears, Westinghouse began offering customers contracts guaranteeing a supply of uranium for extended periods at a fixed price. This ploy stimulated rapid growth. However, it also caused a rapid increase in the amount of uranium Westing- house was obligated to supply under its guarantee program. By 1976, this amount had exceeded 80 million pounds of uranium at prices ranging from $6.50 to $10 per pound. The price of uranium had meanwhile climbed to $28.50 per pound, following the Arab oil embargo of 1973 and the Atomic Energy Commission’s decision to delay construction of new enrichment facilities. Westinghouse owned only about 15 million pounds of uranium at the time, 65 million pounds short of its contractual obligations. Westinghouse thus faced a huge liability. While Westinghouse never actually delivered more than a fraction of the total it had contracted to supply, its costs in damage payments and settlement fees eventually reached almost $1 billion. Robotics and Industrial Automation In the early 1980s, Westinghouse had ambitions of becoming a leader in the factory automation and robotics industry. The company believed its extensive experience with power generation, electrical equipment, motors, and other industrial technologies made it well suited to learn and compete in the robotics business. Manufacturers were increasing their use of robots to improve the quality and speed of production in their factories. Robotics appeared to be a growing industry with many U.S. companies offering a stunning array of automation technologies to their customers. Westinghouse’s biggest move into this industry came about with its acquisition of Unimation, a leading U.S. robot designer and producer, in 1982. General Motors, Ford, and other firms used Unimation’s hydraulically controlled robots extensively in their factories to improve production speed and quality. However, many customers com- plained about the uneven quality of Unimation’s robots. Because Unimation’s robots were controlled and powered by hydraulic fluids, the robots had a marked tendency to misfire and to leak oil when operating. The number of complaints began to grow, but Westinghouse’s response to the quality problem was not to improve the robot’s design, but to continue sell- ing more hydraulic fluids to its customers. At the same time, more advanced, better quality electronically controlled robots from Japanese competitors were making strong headway into the U.S. market. Despite growing customer pressure and the arrival of superior quality Japanese machines, Westinghouse still believed nothing was fundamentally wrong with its Uni- mation robots. Customers subsequently defected from Westing- house; the Unimation robotics unit was sold to Kawasaki Heavy Industries of Japan in 1984. CHAPTER 10 Strategy Implementation (II): Achieving Integration 341 INTRODUCTION This chapter is the second of two that focus specifically on how a well-designed organization lays the foundation for effective strategy implementation. Chapter 9 focused on the issue of organizational structure and how different organizational structures have particular advantages and disadvantages in supporting strategy implementation. It stressed that no single structure is perfect. Each firm needs a custom-designed organization to match its specific strategy. These three examples were among the most dramatic of West- inghouse subunit failures, which have taken the company to the brink of destruction. Unfortunately, they were not isolated events. Other Westinghouse businesses (mail order sales, factory-built homes) also performed spectacularly for a while, only to collapse later. The frequency and severity of such surprises have led many observers to question the adequacy of the methods Westinghouse used to control and monitor its various operations. The Current State of Ex-Westinghouse Businesses As CEO Michael Jordan dismantles and transforms the older, industrial Westinghouse into a new, media-focused CBS Corpo- ration, many businesses that were once under Westinghouse’s umbrella have now found new life. Most of the industrial businesses sold by Westinghouse are now divisions of other firms, with the remainder becoming stand-alone companies. The common thread among many of these ex-Westinghouse businesses is that they appear to be doing very well for themselves after taking on new management and owners. For example, office furniture maker Knoll Group, once considered a high-cost producer and a laggard, is now thriving on its own after Westing- house sold it in 1996 to investment banking group Warburg- Pincus. Knoll’s office furniture sales and earnings for the past two years have broken all records for the company. Westing- house Defense Electronics, sold to Northrup Grumman in 1996 for $3 billion, is doing very well even during an era of slow defense spending. Northrup Grumman has been able to assimi- late many of Westinghouse’s earlier innovations and manufacturing skills in radar technology with its own operations. Together, Northrup Grumman and Westinghouse’s electronics operations represent a formidable player in an increasingly con- solidating defense industry. Westinghouse’s distribution and controls business is now part of Eaton Corporation. Eaton has been able to successfully integrate this acquisition with many of its own circuit-breaker and other related businesses to become a dominant player in this field. German industrial giant Siemens purchased the remaining Westinghouse non-nuclear power- generation businesses for $1.2 billion in January 1998. By many accounts, Siemens has integrated its former Westinghouse unit easily into its own massive power-generation business to become a leading global competitor in this arena. Siemens is now second only to General Electric in capturing new orders for turbines and other power-generation equipment. With much of the restructuring and spin-offs completed, the newly transformed Westinghouse is now CBS Corporation. On December 1, 1997, Westinghouse formally changed its corporate name to CBS and continues to search for new growth opportunities in the entertainment, broadcasting, and media industries. CBS itself has undertaken a series of important restructurings designed to further boost its market capitalization value for shareholders. In 1997, the company acquired two major radio companies, Infinity Broadcasting and American Radio Systems, that enabled CBS to become the largest radio broadcasting player in the industry. Both Infinity Broadcasting and American Radio Systems were subsequently reorganized and consolidated into one larger radio unit that is now compet- ing against the likes of Chancellor Media in the fast-changing broadcasting business. In 1998, CBS began to spin-off 20 percent of Infinity Broadcasting (which includes the former Amer- ican Radio System properties) to the public. At the same time, CBS is also undertaking a series of initiatives to bolster its pres- ence on the Internet. It is now working closely with America Online to provide a new web site entitled Marketwatch.com, and its CBS News unit is the preferred supplier of up-to-date information to America Online users. Many analysts now believe that CBS, now managed by savvy network executive Mel Karmazin, is looking to purchase rival NBC from General Electric if the government would grant approval for such a move. Other analysts also speculate that CBS itself could be sold to another Internet or digital media company, perhaps America Online, in the next few years. While searching for new ways to deliver information and entertainment over the Internet, CBS purchased King World Productions for $2.4 billion in April 1999. King World Productions is best known for producing and distributing such mega-hit shows as Jeopardy and The Oprah Winfrey Show. CBS’s interest in King World stems from its desire to consolidate marketing and syndication costs that would save both companies upwards of $60 million a year. Moreover, the acquisition of King World enables CBS to go beyond its core business of network programming and enter the lucrative syndication business, in which its shows would be shown on other stations and networks. 342 PART 3 Organizing for Advantage As mentioned in Chapter 9, a big part of strategy implementation is designing the right kind of organization that best fits and supports the firm’s strategy. Still, no matter what structure management ultimately chooses, it comes with an ongoing need to monitor and “fine-tune” the organization to make sure people from all parts of it can work together smoothly. Recall that we compared an organization to a high-performance engine. The engine has many supporting components and sensors that control fuel/air mixture, tem- perature, idle speed, and power. When all components of a high-performance engine are working together, the result is smooth performance, balance, fast response, and control. Likewise, firms need additional mechanisms beyond structure to provide smooth performance within their organization. These additional mechanisms are called organizational design practices. In this chapter we examine how senior managers use organizational design practices to support and fine-tune their firm’s implementation efforts. The first part of this chapter examines some new approaches developed by leading firms in order to deal with some of the disadvantages of existing organizational structures. We examine the concept of the “networked” organization, a topic of rapidly growing interest. The networked organization represents an attempt by firms to make their organizational structures more responsive to changes in the environment. We then proceed to examine key organizational design practices that senior management can use to fine-tune their firm’s strategy implementation. The key design practices we will analyze include staffing policies, reward and performance evaluation systems, shared values, and corporate culture. MOVING TO A NETWORKED ORGANIZATION Recall that every firm’s internal organization is likely to be unique. In practice, the shape and architecture of each company’s organization are heavily influenced by past decisions, the personality of the managers involved, as well as the evolution of the firm’s strategy over time. An organizational structure that works well for one firm will likely require sig- nificant modification and adjustment before it can work for another firm. As we enter the next millennium, we are in the midst of an organizational transformation. Rapid technological change, the emergence of new products and markets, globaliza- tion, and the need to keep people productive are among the many tensions forcing senior management to make their organizations more flexible. Percy Barnevik, CEO of Asea- Brown-Boveri (ABB), stated the crux of the problem: We want to be global and local, big and small, radically decentralized with centralized reporting and control. If we resolve those contradictions, we create real organizational advantage. 3 In both new and existing companies, management is experimenting with a wide array of new organizational formats and management practices. These practices are designed to make firms more responsive and flexible in every aspect of their operations and activities, regardless of function, product, or region. The resulting trend is toward a more flexible and agile organization combining the benefits of existing structures while reducing some disadvantages of rigidity. In effect, companies seek to combine the stability and efficiency of their existing structures with a capability for fast response and flexibility. Broadly speaking, more companies are trying to become “networked” organizations. Network organizations are firms that attempt to combine both stability and flexibility in their operations. 4 Although network organizations still rely on conventional structures to provide the basic architecture of the firm, they differ from traditional firms in several important ways. The three primary characteristics of a networked organization are (1) semipermeable boundaries, (2) reliance on external alliances, and (3) an organizational focus on core processes and technologies. These characteristics are outlined in Exhibit 10-1. network organization: organizational format in which firms try to balance stability with flexibility through less reliance on traditional organizational structures. CHAPTER 10 Strategy Implementation (II): Achieving Integration 343 Semipermeable Boundaries Conventionally organized firms employ a strict division of tasks and activities along welldefined functional, product, or geographic lines. Although conventional structures may facilitate senior management’s task of monitoring and measuring subunit performance, they tend to isolate individual subunits from each other. Thus, conventional structures create “walls” or boundaries between subunits that slow down information flow and impede the firm’s responsiveness to environmental change. Network organizations differ from traditional firms in that their structures have semipermeable boundaries. Semipermeable boundaries mean that assignment of tasks, activities, and responsibilities is less strict along functional, divisional, or geographic lines within the organization. In other words, network firms aim to keep the subunits of conventional structures more open and flexible and to loosen the functional and divisional boundaries that separate and isolate the subunits of the firm. Semipermeable boundaries are preferred in network organizations because they help information flow faster. Still, network organizations do not completely abandon conventional organizational structures. Functions and divisions are not elimi- nated; only the walls or boundaries that separate subunits from one another are eased and rendered more flexible to accommodate new sources of information, thus enhancing the firm’s responsiveness to environmental changes and new customer needs. In the 1990s, Corning Incorporated has redesigned its organizational structure to make its divisions more flexible. One of the most important steps in this direction was Corning’s move to relax some of the formal boundaries that prevent the domestic product divisions from working closely with geographic divisions operating outside the United States. With its domestic product divisions working independently and separately from geographic divisions, Corning was previously unable to take quick advantage of newly emerging market opportunities for many of its products. In many of Corning’s technologically advanced businesses such as fiber optics, catalytic converters, diagnos- tics, and advanced materials, fast response to the needs of global customers and low-cost production achieved by combining manufacturing of numerous subunits are necessary to sustain competitive advantage. Corning’s CEO James Houghton spent considerable time and effort convincing product division and regional managers of the need to communicate and cooperate more extensively with each other. Since much of Corning’s growth now occurs outside the United States, regional managers located abroad increasingly need the product and technological expertise housed in Corning’s domestic product divisions. Corning’s senior management has exerted great effort to make its organizational Characteristics of the Network Organization Semipermeable Boundaries • Looser organizational “walls” • Faster information flow among subunits Alliances and Partnering • Divide up the industry value chain • Specialize among partners Focus on Core Processes/Technologies • Specialization along a core activity • Redefining ways to create value in core activity exhibit(10-1) semipermeable boundaries: flexible separations between organizational subunits across which communication, knowledge, and information flow more readily. 344 PART 3 Organizing for Advantage boundaries more semipermeable, thereby significantly boosting the firm’s competitive- ness in commercializing new products faster for customers around the world. Other firms in the United States are attempting similar organizational changes to make their structures more semipermeable. For example, industrial giant Allied-Signal has restructured its operations twice over the past six years to improve responsiveness to customer needs. In its first restructuring, Allied-Signal removed the cumbersome sector and group reporting levels between SBUs and senior management. As you may recall from the previous chapter, sectors and groups are costly because they represent additional layers of management. Now, SBU managers report directly to senior management. In the most recent restructuring, Allied-Signal attempted to reduce the functional boundaries that separate R&D from manufacturing and marketing within SBUs to cut down on the amount of time needed for product development. Reliance on External Alliances Network organizations also differ from conventional firms by relying more extensively on strategic alliances to become more responsive to external change. Compared with traditional firms, network organizations do not seek to maintain full control over all assets and value- adding activities required to produce a product or service. Thus, network firms do not stress total control over the value chain. They place less emphasis on attaining vertical integration. Strategic alliances represent a key external dimension of a network organization. Recall from Chapter 8 that strategic alliances offer many opportunities for firms that know how to use them. These benefits include reduced risks in entering new markets, participating in new industries, learning and applying new technologies, and rounding out a product line. Firms often form networks of alliances to access the distinctive competences and skills of alliance partners. Alliances can also provide considerable flexibility. By working closely with a part- ner, the firm does not have to commit its own valuable resources to attaining full control (or integration) over key value-adding activities. Firms that cooperate closely can divide up value chain activities according to their own distinctive competences and ability to contribute. In many cases, network organizations use strategic alliances as more formal extensions of long- standing supplier–customer relationships. By closely integrating the activities of both suppli- ers and customers, firms using network organizations have broken down the once-solid walls that traditionally kept them separated from their key partners and customers. Let’s revisit Corning to see how it has been able to use alliances successfully to achieve faster response and to build new sources of competitive advantage. Corning formed a series of alliances in several parts of the world to enter new markets and to develop new products faster. For example, in the Far East, Corning teamed up with Asahi Glass of Japan and Samsung of Korea to build television tubes. Since the majority of the world’s production of television sets and other consumer electronics occurs in the Far East, Corning’s alliances give the company an inside track in working with key players in this industry. In Europe, Corning works closely with German electronics giant Siemens to develop and produce fiber optic cable for the telecommunications industry. Corning provides the expertise in glass and advanced materials; Siemens provides advanced manufacturing technology and access to the growing European market. Thus, alliances play a central role in Corn- ing’s transformation into a networked organization. Organizational Focus on Core Processes and Technologies The third key dimension of a network organization is its emphasis on organizing around core processes and technologies. Core processes and technologies are the key levers that core processes and technologies: the key levers or drivers that form the basis of a firm’s distinctive competence and critical value-adding activities. CHAPTER 10 Strategy Implementation (II): Achieving Integration 345 form the underlying basis of the firm’s distinctive competence and critical value-adding activities. The network firm attempts to combine the low-cost efficiency of the functional structure with the high degree of autonomy found in product divisions and the responsiveness of geographic structures. Moreover, the network firm tries to accomplish this task without using a cumbersome matrix structure. In effect, network firms move toward organizing themselves along their core processes and sources of distinctive competence as opposed to strictly relying on function, product, or region. The core processes, skills, and technologies that make up the firm’s distinctive competence become the basis for special- izing, prioritizing, and delegating activities within the network firm. While all traditional structures in part are organized around some type of underlying process, these processes are usually specific to a subunit’s particular needs (subunit specialization). Core processes, on the other hand, are key activities and technological drivers that cut across all divisions, whether product-based or geographic-based. Core processes are not the same as functions such as engineering, manufacturing, and marketing; they represent a common skill or technology that all of the firm’s subunits use in varying degrees to develop systemwide competitive advantage (or organization-wide specialization). Core processes and technologies could include, for example, the cross-docking distribution system that Wal-Mart uses so effectively to compete against other retailers and department stores; the miniaturization and microelectronics skills that Sony uses to produce new gen- erations of televisions and Walkmans quickly; or even the satellite-based transmission network that FedEx uses to coordinate overnight delivery operations. Many core processes and technologies, including those listed above, are cross-functional; that is, they overlay engineering, manufacturing, and marketing operations. Organizing around a core process involves bringing together various functions to accelerate information flow. Network organizations use the concept of core processes and technologies as the basis for deciding which activities are truly vital. Vital activities are conducted in-house or in conjunction with close alliance partners. Nonvital, or tangential, activities are outsourced to other firms. Disney uses the concept of core processes to organize its Magic Kingdom and other amusement park operations. A core process for Disney is close and friendly customer contact. All activities within Disney’s amusement parks are organized and positioned in such a way that guests are treated exceptionally well. Almost every possible guest need or request has been anticipated in advance: park rides and events are organized around considerations of human comfort and convenience; so are information booths, kiosks that sell ice cream, camera film, and souvenirs, and first-aid kits that are located throughout the parks. Disney is customer service at its ultimate. Although every Disney amusement park contains vital functions (engineering, operations, maintenance and repair, sales), Disney’s approach to customer service blends all functions into a defining core process. The overriding priority placed on fast and friendly customer service transcends the parochial interests of each of the individual functions. In fact, a growing number of firms from other service industries are studying the Disney approach to organizing its core activities around the customer. By making friendly customer service its core process, Disney lays the foundation for its distinctive competence—providing memorable emotional experiences, or the special “Disney Magic.” The concept of core processes and technologies is not limited to for-profit organizations in industry. Hospitals, for example, are becoming network organizations as well. Core processes and technologies for large hospitals include delicate surgery, emergency trauma, burn units, oncology, and specialized treatment centers. On the other hand, hospitals are beginning to view certain medical procedures as increasingly noncore, such as routine examinations, day surgery, testing, and even advanced imaging (MRI and CAT scans) techniques that can be performed more cheaply in specialized, nonhospital facilities on an outpatient basis. 346 PART 3 Organizing for Advantage Flexibility and Stability: Finding a Balance Efforts to achieve both flexibility and fast response, on one hand, and efficiency and stability on the other have led many firms to experiment with the network organization concept. Firms can modify their existing organizational structures to become more networked at any level or size. Semipermeable boundaries, use of alliances, and a renewed focus on core processes are the key characteristics of the evolving network organization. Network organizations are more “loosely coupled” than firms relying on traditional structures to manage operations. “Loosely coupled” means a de-emphasis on vertical integration and on performing every aspect of producing a good or service. This de-emphasis means a firm’s divisions must communicate more frequently with one another and with alliance partners operating within the network to share information. ORGANIZATION DESIGN PRACTICES A growing number of companies are making important modifications to their organizations to respond more effectively to changes in their competitive environments. Organizational mechanisms serving this end are also called organization design practices. Organization design practices are the means by which a firm implements strategy within the framework of its structure. Organization design practices (or support mechanisms) thus help comple- ment the key role of organizational structure in implementing a firm’s strategy. These design practices are easier to change and adjust than structure and to fine-tune to fit the needs of the firm’s particular strategy. While every structure gives rise to its own set of disadvantages, organization design practices possess the ability to work around some of these disadvantages. In well-managed companies, senior management can use effective design practices to enhance decision making, information flow, and smoother strategy implementation. Many kinds of design practices are used to supplement organizational structure. Some of the most important design practices include staffing policies, reward and performance evaluation systems, and shared values and corporate culture (see Exhibit 10-2). In the next sections, we explore these key organization design practices. Collectively, they represent the mortar that seals together the organization so that it can fully implement its strategy. STAFFING POLICIES Staffing policies address the following two questions: What personal and professional qualities will we need? How will we acquire or develop these qualities? exhibit(10-2) Some Key Organization Design Practices Staffing Policies • Managerial selection • Managerial development Reward and Performance Evaluation Systems • Hierarchy-based systems • Performance-based systems • Impact on corporate performance Shared Values and Corporate Culture loose coupling: an organization design and structure that fosters a balance between the need to centralize and decentralize activities. organization design practices: support mechanisms that facilitate the implementation of a strategy within the framework of a given structure. [...]... This kind of “marketbased” approach is practiced in rewarding the firm’s people as well CHAPTER 10 Strategy Implementation (II): Achieving Integration Firms that pursue multidomestic strategies of global expansion also tend to use some variant of the performance-based reward system Unlike their global strategy counterparts, firms that practice multidomestic strategies tend to view the world as separate,... encourage employees to behave ethically when carrying out their duties Among the many measures top managers can employ to encourage ethical behavior are (1) development of Strategy Implementation (II): Achieving Integration CHAPTER 10 Implementation Methods to Encourage Ethical Behavior 363 e x h i b i t (10-8) • Corporate credo that defines ethical values • Thorough instillation and training of values... strategies take time to develop and implement Differentiation strategies need a longer-term outlook than do low-cost strategies, which tend to emphasize strict cost controls CHAPTER 10 Strategy Implementation (II): Achieving Integration 351 Hierarchy-based reward systems are also helpful for firms implementing related diversification and global strategies Related diversifiers, such as Hewlett-Packard and.. .Strategy Implementation (II): Achieving Integration CHAPTER 10 347 Two central aspects of an organization’s staffing policies are selection and development.5 Selection refers to the steps involved in hiring people Development... perform and interrelate with one another Yet another means of supporting effective strategy implementation is to instill a welldefined set of shared values and corporate culture within the firm Deeply held shared values can strongly influence implementation of strategy Shared values and corporate cultures help implement strategy by shaping the behavior of managers and employees.10 Shared values lay the... Crystallized at the Top • Consistent over Time • Examples McDonald's QSCV Southwest Airlines Fun, warm, friendly Wal-Mart Friendly service and low prices Motorola Quality is key CHAPTER 10 Strategy Implementation (II): Achieving Integration Simple and Clear Values Values must be simple and clear so they can be understood and practiced by everyone If values are to convey the same meaning, ideas, and sense of... Develop internal folklore • Heighten awareness of key cherished values Socialization • Learning “proper” behaviors and ways of doing things • Extensive mentoring and coaching CHAPTER 10 Strategy Implementation (II): Achieving Integration 357 legends have become so enduring that people use them as guides to their own efforts One story that has taken on mythical proportions describes an engineer who, many... bottlers—that supply and distribute Coke’s products come from every part of the world Keeping this giant, diverse group of people together and unified in purpose is no easy task CHAPTER 10 Strategy Implementation (II): Achieving Integration Organizational structures and reward systems help but cannot substitute for Coke’s core values and a global image that span many cultures and beliefs Quality, fun, joy,... strategies possess a huge advantage over competitors that do not enjoy such a match Yet, distinctive corporate cultures can in some instances impede a firm’s ability to respond CHAPTER 10 Strategy Implementation (II): Achieving Integration to new developments and changes Companies, as with people, often need a shake-up to keep themselves from becoming too complacent over time Hiroyuki Itami, a leading Japanese... chosen strategy should not be too radically different from the firm’s traditional strategy; otherwise, managers and employees are likely to reject the idea outright On the other hand, the chosen strategy should not be so familiar that it fails to create a reasonable level of creative tension Too easy a consensus means that the strategy is not sufficiently novel In its ideal form, a “creatively tense” strategy . support mechanisms that facilitate the implementation of a strategy within the framework of a given structure. CHAPTER 10 Strategy Implementation (II): Achieving Integration 347 Two central aspects. behavior directly. Managers, however, need to (Case 1) Disney World 1 CHAPTER 10 Strategy Implementation (II): Achieving Integration 339 acquire knowledge of employee behavior to reward employee achievement. robotics unit was sold to Kawasaki Heavy Industries of Japan in 1984. CHAPTER 10 Strategy Implementation (II): Achieving Integration 341 INTRODUCTION This chapter is the second of two that focus specifically

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