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EXPANSION STRATEGY
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organization structures follow the growth
strategies of firms.
Growth strategies tend to follow certain
patterns.
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GROWTH STRATEGIES I
The initial stage typically involves plants,
sales offices, or warehouses in a singleindustry, a single location, and performance
of a single function. If successful, they
follow a predictable path.
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GROWTH STRATEGIES II
The first growth stage is VOLUME
EXPANSION, producing selling anddistributing more of their product or
service to customers.
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GROWTH STRATEGIES III
The next stage of growth is
GEOGRAPHIC EXPANSION,continuing what it was already doing in
new geographical areas, with new field
units.
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GROWTH STRATEGIES IV
The third growth strategy is
VERTICAL INTEGRATION, as firmseither buy or create other functions.
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GROWTH STRATEGIES V
The ultimate growth strategy,
PRODUCT DIVERSIFICATION,involving the firm in new industries
either through merger, acquisition, or
creation (product development).
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The change to geographic expansion, andultimately, product diversification increases
the firms concern for adaptability andflexibility in the face of diverse andcomplex environments. Thus, the
organization structures of such firms are
characterized by product-based divisionsand departments, decentralized authority,
and relatively wide spans of control.
Expansion
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As demand grows for products. Companies expand.
They increase product lines. Integrate vertically to
control sources of supply. Reducing dependency on
suppliers. To produce a greater variety of products.
They separate into product groups within the
organization.
Stage-1
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Strategies become more ambitious and elaborate.
Expand activities within their same industry.
Vertical integration requires more complex
coordination due to increased interdependencebetween organizational units. Accomplished by
redesigning the structure to form specialized
units based on functions performed.
(Moderate Centralization, Moderate Formalization,
Moderate Complexity)
Stage-2
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Stage-3
Growth and diversification give rise to the need for an
autonomous multi-divisional structure. The centralized
structure becomes inefficient and impractical for
dealing with significantly greater complexity.
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A product-diversification strategy requires a
structural form that allows for the efficient allocation
of resources. Accountability for performance, and
coordination between units. This can best be achievedthrough the creation of a multiple set of independent
divisions, each responsible for a specified product
line.
(High Complexity, Low Centralization, Moderate
Formalization)
Product diversification
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Strategic types
Classify organizations into four strategic types:
1. Defenders: seek stability by producing only a limited
set of products directed at a narrow segment of thetotal potential market. Strive aggressively to prevent
competitors from entering their limited niche or domain.
They accomplish this by standard economic actions such
as competitive pricing or production of high-quality
products.
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Defenders tend to ignore developments outside their
product line areas. They do little environmental
scanning and limit product development. There is
intensive planning towards cost and efficiencyissues.
ExampleSoft Soap
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2. Prospectors: Almost the opposite of Defenders. They
find and exploit new-product and market opportunities.
Innovation is sometimes more important than profitabilityafter exploiting a new opportunity, they get out. Must
have high profit margins to cover high costs.
Examples - 3M, some Magazine publishers
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3. Analyzers: Capitalize on the best of both Defenders
and Prospectors. Minimize risk and maximize
opportunities for profit. They move into new
innovations and new markets only after Prospectors
have proven the viability of the market. They live
by imitation. They take the ideas of Prospectors
and copy them.
Analyzers must have the ability to respond toleading Prospectors, but maintain operating
efficiency. They tend to have smaller profit margins
than Prospectors, but are more efficient.
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Analyzers seek both flexibility and stability. They develop
a structure made up of dual components. Parts have high
levels of standardization, routinization, and mechanizationfor efficiency. Other parts are adaptive to maintain
flexibility.
ExamplesIBM, Catapillar, Digital Equipment Corp.
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4. Reactors: A residual strategy. Inconsistent and unstable
patterns when one of the other three strategies is pursued
improperly.
In general, Reactors respond inappropriately, perform poorly,
and are reluctant to commit themselves aggressively to a
specific strategy.
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ENVIRONMENT STRATEGY
CONTINUUM
Little Change
and Uncertainty
Rapid Change
& High Uncertainty
Defender ProspectorReactor Analyzer
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TWO-VARIABLE ANALYSIS
OF INDUSTRIES
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INDUSTRY-STRUCTURE
TYPE A and C INDUSTRIES: The high capital
requirements tend to result in large organizations and alimited number of competitors. Firms in Type Aand C
industries will be highly structured and standardized, with
the Type As(text error) being more decentralized to
facilitate rapid response to innovations introduced by
competitors.
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INDUSTRY-STRUCTURE II
TYPE B and D INDUSTRIES:Because of low capital
requirements. These industries tend to be made up of a large
number of small firms. Type D, however, will likely havemore division of labor and more formalization than Type Bs
because low innovation rates allow for greater standardization.
in the same way that capital requirements influence
organizational size and number of competitors. We should
expect high product-innovation rates to result in lessformalization and more decentralization of decision-making.
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THE EFFECTS OF
STRUCTURE ON STRATEGY
1. Complexity2. Formalization
3. Centralization
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COMPLEXITY
As the level of complexity increases, so does the
probability that:
1. Members initially exposed to the decision stimulus will
not recognize it as being strategic or will ignore itbecause of parochial preferences.
2. A decision must satisfy a large constraint set, which
decreases the likelihood that decisions will be made to
achieve organization-level goals;3. Strategic action will be the result of an internal process of
political bargaining, and moves will be incremental; and
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FORMALIZATION
As the level of formalization increases, so does the
probability that:
1. The strategic decision process will be initiated only inresponse to problems or crises that appear in variables
monitored by the formal system;
2. Decisions will be made to achieve precise, yet remedial,
goals, and means will displace ends;
3. Strategic action will be the result of standardized
organizational processes, and moves will be incremental;
and
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CENTRALIZATION
As the level of centralization increases, so does the
probability that:
1. The strategic decision process will be initiated only bythe dominant few, and it will be the result of proactive,
opportunity-seeking behavior;
2. The decision process will be oriented toward achieving
positive goals (i.e.- intended future domains) that will
persist in spite of significant changes in means;3. Strategic action will be the result of intendedly rational
choices, and moves will be major departures from the
existing strategy; and