The role of strategic direction is to decide the end purpose of the organization. How the organization gets to the “end purpose” is through goals and strategy development (strategic planning). Organizational design functions to carry out the administration and execution of the strategic plan and as such, the organizational structure must support the strategic direction. (Daft 54-55). An organization that embarks on an organic open systems strategy that requires learning and innovation must look very different from an organization dedicated to efficiency. There are six competitive strategies that top management can use to attain their organizations goals. Two strategies are based on a model by Michael E. Porter (Porter) and four are based on a model by Raymond Miles and Charles Snow (Miles and Snow). Porter proposed that managers can make an organization more profitable and less vulnerable by adopting either a differentiation strategy or a low-cost leadership strategy. (Daft 62) A differentiation strategy, such as that developed by Apple, focuses on offering unique or distinctive products.
A low-cost leadership strategy such as that developed by Family Dollar stores focuses on providing lower costs. The Miles and Snow strategy is based on the idea that organizations strive for a fit between internal organizational characteristics and external factors. The four strategies are: Prospector – The prospector strategy is to innovate, take risks, and seek out new opportunities to grow. (Daft 66) SEMCO under the leadership of Ricardo Semler is an excellent example. Defender – The defender strategy seeks to hold onto current customers and neither seeks to innovate or grow. This strategy is most suitable when the organization is in a declining industry or stable environment. (Daft 67) An excellent example is carmaker Rolls Royce. Analyzer – The analyzer strategy seeks to maintain a stable business while innovating on the periphery. (Daft, 67) In many respects, it is a balance between the Prospector and the Defender. The Walt Disney Company is a good example of an analyzer organization.
Reactor – The reactor strategy responds to environmental threats and opportunities in an ad hoc fashion. The reactor strategy is not really a strategy at all and while there have been some companies that have used this approach successfully, it can also lead to company failure. (Daft, 67). Kmart in the early 1980’s exemplified the reactor strategy as it attempted to compete with Walmart. There are four approaches to measuring organization effectiveness in organizations. The goal approach uses readily measured output goals and assesses how well the organization has met those goals. Indicators used in the goal approach include profitability, market share, growth, product quality and social responsibility. (Daft 73) The research based approach looks at the organizations ability to obtain scarce and valued resources and successfully integrate and manage them.
Indicators of the resource based approach include items such as bargaining position or the organizations ability to obtain scare and valued resources. (Daft, 75) The internal process approach is measured as internal health and efficiency and includes indicators such as a strong adaptive culture, confidence and trust between employees and managers and the growth and development of employees.(Daft, 76) The strategic constituents approach measures effectiveness by focusing on the satisfactions of key stakeholders (constituents) that are critical to the organization ability to survive and thrive. Studies of ninety seven small businesses identified seven constituents groups, each with their own effectiveness criteria. (Daft, 78)
An integrated effectiveness model combined several indicators of effectiveness into a single framework, based on the assumption that there are disagreements and competing viewpoints on what constitutes effectiveness. The result is a model that management can use to evaluate the focus on the organization (internal vs. external) against its structure (flexible vs. controlling) as they decide what values to emphasize. (Daft, 78-82)
Daft, R. 2013.”Organization Theory & Design.” In Organization Theory & Design, by R. Daft. Mason: Cenage Learning.