Chapter 3: Strategy and Effectiveness — Complete

Study Guide
Organizational Theory & Design | TISS MBA-HR

1. BIG PICTURE: How the Chapter Flows

External Environment (Opportunities, Threats, Uncertainty, Resources)
+
Internal Situation (Strengths, Weaknesses, Distinctive Competence, Leader Style)
↓
Top Management defines STRATEGIC INTENT (Mission, Operating Goals, Competitive
Strategy)
↓
ORGANIZATION DESIGN (Structure, Info Systems, Technology, HR Policies, Culture)
↓
EFFECTIVENESS OUTCOMES (Goal attainment, Resources, Efficiency, Strategic
constituents)
↓
Feeds back into Internal Situation for next cycle

This is Exhibit 3.1 — draw this as your master diagram. It ties the whole chapter together and is a
favourite for "explain the strategic management process" questions.
Opening case: eBay under CEO John Donahoe — shifted from pure auction site to broader e-
commerce via $2.4 billion acquisition of GSI Commerce. Shows strategy must evolve as
environment (Amazon-style retail) changes. Quote worth remembering: "eBay is clearly going on
the offensive" — David Spitz, ChannelAdvisor.

2. KEY DEFINITIONS (rapid-fire, exam-ready)

Term Definition
Organizational goal A desired state of affairs the organization
attempts to reach; a result/end point.
Strategic intent All organizational energy & resources directed
toward a focused, unifying, compelling overall
goal.
Mission (Official goals) Formally stated definition of business scope &
outcomes; the org's reason for existence.
Operating goals Specific, measurable, short-run ends sought
through actual operating procedures.
Strategy A plan for interacting with the competitive
environment to achieve organizational goals —
i.e., goals = where you want to go; strategy =
how you'll get there.
Competitive advantage What sets the org apart from others; distinctive
Term Definition
edge for meeting customer needs.
Core competence Something the organization does especially well
vs. competitors.
Organization design Administration & execution of the strategic plan
(structure, systems, culture, tech).
Organizational effectiveness The degree to which an organization realizes its
goals (broad, multidimensional).
Efficiency Amount of resources used to produce a unit of
output (ratio of inputs to outputs) — narrower
than effectiveness.
Social construct Something created/defined by people rather than
existing independently — effectiveness is a
social construct.

Efficiency ≠ Effectiveness — classic exam trap. You can be efficient but ineffective (efficiently
making a product nobody wants) or effective but inefficient (hitting profit goals wastefully).
Example given: a fast-food chain cut costs by not pre-cooking food until ordered → efficient but
reduced sales/effectiveness due to slow service & irritated customers.

3. ORGANIZATIONAL PURPOSE
3.1 Strategic Intent — 3 components
1. Mission — reason for being; communicates legitimacy to internal/external stakeholders.
• Example: Machias Savings Bank mission = "To be exceptional in every
relationship, in every product developed, in every service rendered and every
promise made." (Exhibit 3.2 — also has Vision + Principles: Driven to Be the Best /
Build a Winning Performance Culture / Execute as One)
• Mission statements with larger social purpose perform better: Medtronic — "To
restore people to full life and health"; Liberty Mutual — "Helping people live safer,
more secure lives."
• Negative example (legitimacy damage): News Corporation / Rupert Murdoch
phone-hacking scandal.
2. Core Competence — what the org does best.
• Apple → design & marketing
• Robinson Helicopter → technological know-how (2-seater helicopters)
• Tashn (Indian online fashion retailer, Gurgaon HQ) → merchandising via dedicated
statistician-led department; tagline "Be You"; targeted higher-end brands (Dorothy
Perkins, Mango, Vero Moda, GAP, H&M, Zara) instead of discount brands.
3. Competitive Advantage — the distinctive edge from analyzing competitors +
 internal/external environment for "competitive openings."

3.2 Ambitious goal examples (Strategic Intent illustrations)

• Microsoft (early): "Put a computer on every desk in every home"
• Komatsu: "Encircle Caterpillar"
• Coca-Cola: "To put a Coke within 'arm's reach' of every consumer in the world"

3.3 Operating Goals — 5 Types (Exhibit 3.3 pyramid)

Pyramid structure: Overall Performance Goals at top, supported by Resource Goals + Market
Goals, based on Employee Development + Productivity + Innovation/Change Goals.

Goal Type Meaning Example

Overall Performance Profitability, growth, output Toyota's goal: sell 10 million
volume vehicles & $12 billion
operating profit (missed 2009
target due to recession +
recalls)
Resources Acquiring needed Starbucks–Tata Group alliance
material/financial resources for Arabica beans + Indian
outlet locations; New England
Patriots draft/coaching goals
Market Market share/standing L'Oréal SA — double clientele,
add 1 billion consumers by
2020, targeting Brazil
Employee Development Training, promotion, safety, Wegmans Food Markets — #3
growth on Fortune "100 Best
Companies to Work For"
(2011); 40+ hrs/year training
Productivity Output per resource input ("cost Illumination Entertainment
per unit," "units per employee") (made "Hop") — animated
films at ~half cost of larger
studios; CEO Christopher
Meledandri
Innovation & Change Flexibility/readiness for new Procter & Gamble's "Connect
services/products/processes + Develop" program (2001) —
goal: 50% of innovation via
external collaboration by 2010
(up from 10% in 2000) →
met/exceeded → gave Swiffer
Dusters, Olay Regenerist, Mr.
Clean Magic Eraser

IRS example (govt/nonprofit goal, non-profitability based): goal of 85% accurate responses to
taxpayer questions.
3.4 Importance/Purpose of Goals (Exhibit 3.4)
Official goals & mission → (a) communicate purpose & values, (b) bestow legitimacy. Operating
goals → (a) provide employee direction & motivation, (b) offer decision guidelines, (c) define a
standard of performance/assessment.
• Example: Guitar Center — daily sales targets at every store; mantra "Take the deal" —
take any profitable deal, even razor-thin margins.

4. FRAMEWORK FOR SELECTING STRATEGY AND DESIGN

4.1 Porter's Competitive Strategies (Michael E. Porter) — Exhibit 3.5
Two generic strategies, each can be broad or narrow scope:

Strategy Focus Broad-scope example Narrow-scope

example
Differentiation Uniqueness/ Apple Edward Jones
distinctiveness → Investments
premium price; targets (rural/small-town,
customers not price- conservative long-term
sensitive advice; Peter Drucker:
sells "peace of mind"
that "no Wall Street
house has ever sold
before")
Low-Cost Leadership Efficiency, tight cost Walmart Family Dollar (prices
control, aggressive cost 20–40% below major
reduction brands like
Tide/Colgate; targets
customers earning
<$35,000/yr;
inexpensive real estate)

• Differentiation example (service firm): Umpqua Bank (Portland, OR) — positions as

"lifestyle brand," free Wi-Fi, branded coffee, released own music CD with Rumblefish;
grew deposits from ~$150 million to $7+ billion.
• Low-cost example: Ryanair — CEO quote: "Pile 'em high and sell 'em cheap... We want to
be the Walmart of the airline business. Nobody will beat us on price. EVER."
• Low-cost example (India): Patanjali Ayurved Ltd. (PAL) — Ramdev, launched 2012;
admin cost only 2.5% of revenue (vs. 15% industry norm); top management/monks worked
without salary; backward integration; A&P spend only 2–3% (vs 10–12% industry); 15–
17% cheaper than competitors; YoY growth ~93% (2007–2016) vs. FMCG industry growth
of only 11%.
• Porter's finding: companies that don't consciously adopt EITHER strategy get below-
average profits ("stuck in the middle"). Many failed dot-coms lacked coherent strategy.
 Google = successful coherent differentiation.

4.2 Miles & Snow's Strategy Typology (Raymond Miles & Charles Snow)
Four strategy types based on fit between internal characteristics, strategy, and external environment:

Type Description Example

Prospector Innovate, take risks, seek new Nike (recycled materials, low-
opportunities, grow; suited to toxicity glue shoe line); Biocon
dynamic environments; (India — Dr. Kiran Mazumdar-
creativity > efficiency Shaw's co.; shifted to
discovery/high-risk innovation
under R&D head Dr. Iyer,
appointed 2007, focus on oral
insulins); Facebook, Google,
Zynga ("Connecting the World
through Games")
Defender Opposite of prospector; Paramount Pictures — steady
stability/retrenchment; holds reliable hits, avoids high-profile
current customers; internal risky films, stays profitable
efficiency & control; no while others lose money
innovation/growth push; works
in stable/declining industries
Analyzer Hybrid — maintains stable core [Link] — defends core
business (efficiency) while book/retail business while
innovating at the periphery building digital media (Kindle
(new products) books, video rental, music store
vs. iTunes)
Reactor NOT really a strategy — ad hoc Dell — floundered after
response to reaching limits of "cheap,
threats/opportunities; no build-to-order" PCs;
explicit mission/long-range competitors caught up, no new
plan; can lead to failure strategic direction identified

Validity: widely tested across hospitals, colleges, banks, industrial firms, life insurance — strong
research support.

4.3 How Strategy Shapes Organization Design (Exhibit 3.6) — HIGH-

YIELD FOR EXAMS
Strategy Design Orientation Key Design Features
Differentiation / Prospector Organic, learning-oriented Flexible/fluid/decentralized
structure; strong horizontal
coordination; strong R&D
capability; empowered
employees; rewards for
creativity & risk-taking;
customer intimacy mechanisms
Low-Cost Leadership / Mechanistic, efficiency- Centralized authority; tight cost
Strategy Design Orientation Key Design Features
Defender oriented control with frequent detailed
control reports; standard
operating procedures; efficient
procurement/distribution
systems; close supervision;
routine tasks; limited
empowerment
Analyzer Mixed/Balanced Balances efficiency (tight cost
control) for stable lines +
flexibility/adaptability for new
lines; efficient production for
stable products, creativity/risk-
taking for innovation
Reactor No clear approach Design characteristics shift
abruptly based on current
needs; no direction

Mnemonic: Differentiation & Prospector = "Learn & Adapt" (organic). Low-cost &
Defender = "Control & Comply" (mechanistic). Analyzer = "Best of both." Reactor =
"No plan at all."

4.4 Other Contingency Factors Affecting Design (Exhibit 3.7)

Strategy is just ONE contingency. Others (detailed in later chapters):
• Environment — stable → mechanistic; rapidly changing → organic, horizontal
coordination
• Size/Life cycle — young/small orgs = informal, little division of labor, ad hoc systems;
large orgs (Coca-Cola, Sony, GE) = extensive division of labor, many rules, standardized
systems
• Technology — mass production (e.g., auto assembly line) →
efficiency/formalization/centralization; e-business → informal/flexible
• Culture — teamwork/collaboration/creativity culture doesn't fit a tight vertical/rule-bound
structure
BookMark 3.0 — "Good Strategy Bad Strategy" by Richard Rumelt (Harry & Elsa Kunin
Chair, UCLA Anderson):
• Bad strategy signs: (1) mistaking goals for strategy (e.g., "grow by 20%" is a goal, not a
strategy), (2) fails to define the problem, (3) based on weak/fuzzy objectives ("dog's dinner
of goals"), (4) "blue sky" wish-driven goals, (5) mostly fluff/buzzwords.
• 3 elements of good strategy:
1. Diagnosis — careful analysis of challenges/problems
2. Guiding Policy — overall approach to cope with/overcome challenges, gives
distinctive advantage
 3. Coherent Action Steps — specific, coordinated execution steps
• Historical examples cited: Hannibal's defeat of Rome at Cannae (216 BC); Steve Jobs'
rescue of Apple.

5. ASSESSING ORGANIZATIONAL EFFECTIVENESS

5.1 Definition & Who Decides
• Effectiveness = broad concept; extent to which multiple (official + operating) goals are
attained.
• Efficiency = narrower; internal resource usage (input/output ratio).
• Effectiveness is a social construct — "nothing until managers or stakeholders 'call it.'"
(Analogy: 3 baseball umpires calling balls/strikes — "I call 'em as they are" / "as I see 'em" /
"they ain't nothin' till I call 'em.")
• Different stakeholders define effectiveness differently: employee (timely accurate pay),
customer (good product, low price), CEO (profitability).
• Einstein quote (kept on his office sign): "Not everything that counts can be counted, and
not everything that can be counted counts." — supports use of both qualitative &
quantitative indicators.

5.2 Exhibit 3.8 — 15 Effectiveness Indicators reported by multinational

firms (useful for MCQs)
Meeting deadlines/on-time delivery; timely material/equipment acquisition; quality of
product/service; customer satisfaction/complaints; market share; employee training hours; staying
within budget; shareholder satisfaction; cost reduction; supply chain delays/improvements;
productivity ($/unit output); employee engagement; achieving sales targets; product development
cycle time; hours/days to complete tasks.

6. FOUR EFFECTIVENESS APPROACHES (Exhibit 3.9) —

CORE EXAM TOPIC
Based on the open systems model: Resource Inputs → Organization (Internal Activities/Processes)
→ Product/Service Outputs, surrounded by Strategic Constituents (Employees, Owners,
Government, Suppliers, Creditors, Customers, Community).

Approach Focuses On Key Indicators Best Used Limitation

When...
1. Goal OUTPUT side — Profitability, Output goals can Multiple/
Approach attainment of market share, be readily conflicting goals;
output goals growth, social measured subjective
responsibility, (business, govt) indicators for
product quality things like gender
Approach Focuses On Key Indicators Best Used Limitation
When...
equality
2. Resource- INPUT side — Bargaining Other Only vaguely
Based Approach obtaining & position; ability to performance linked to customer
managing perceive/interpret indicators needs; assumes
scarce/valued environment unavailable (esp. market stability
resources correctly; ability nonprofits)
to use tangible &
intangible
resources; ability
to respond to
environmental
changes
3. Internal INTERNAL Strong adaptive Efficient resource Ignores total
Process health, smooth culture; trust use & harmonious output & external
Approach process, efficiency between functioning matter environment;
employees/mgmt; most often subjective
operational
efficiency;
undistorted
communication;
employee growth;
coordination/confl
ict resolution
4. Strategic Satisfaction of Varies by Multiple Hard to satisfy all
Constituents KEY constituent (see constituents' groups equally
Approach STAKEHOLDER table below) claims must be
S balanced;
broad/complex
orgs

Goal Approach — Examples

• Millennium Development Goals (MDGs) — from 1990 Human Development Report;
India's flagship programs: NRHM, Total Sanitation Campaign; succeeded by 17
Sustainable Development Goals (SDGs), target 2030 ("leave no one behind").

Resource-Based Approach — Examples

• Shriners Hospitals for Children (SHC) — 22 hospitals, free treatment (orthopedic, burns,
spinal, cleft lip/palate); historically resource-based (donations); lost patients/donations once
govt launched low-income child health insurance.
• Marks & Spencer (UK retailer) — evaluates effectiveness via prime store locations, strong
brand, quality employees, supplier relationships.
Internal Process Approach — Examples
• Human relations scholars: Chris Argyris, Warren G. Bennis, Rensis Likert, Richard
Beckhard.
• DuPont, Campbell Soup, UPS — post-recession efficiency focus.
• Campbell's Maxton, NC factory — employee-driven improvements → 85% of theoretical
max operating efficiency.
• UPS — trucks track left-turns to optimize routes → saves 1.4 million gallons of fuel/year.
• Ritz-Carlton — tracks employee engagement, customer engagement, "Ritz-Carlton
Mystique"; daily pre-shift meetings; VP Operations John Timmerman: "is how we stay
agile in an ever-changing world."

Strategic Constituents Approach — Table (memorize!)

Original study: 97 small businesses, 7 constituent groups surveyed.

Constituent Group Effectiveness Criterion

Owners Financial return
Employees Pay, good supervision, worker satisfaction
Customers Quality of goods and services
Creditors Creditworthiness
Community Contribution to community affairs
Suppliers Satisfactory transactions
Government Obedience to laws and regulations

• Example: Facebook — independent software developers are key strategic constituents (not
owners/customers/suppliers); Mark Zuckerberg won them over with free "Like" button
technology at a developer conference.

7. AN INTEGRATED EFFECTIVENESS MODEL: THE

COMPETING VALUES MODEL — MOST IMPORTANT
FRAMEWORK IN THE CHAPTER
Developed by Robert Quinn and John Rohrbaugh. Balances concern across the whole
organization rather than one part; based on the idea that managers have competing/conflicting
values about what effectiveness means.

Two Value Dimensions (Exhibit 3.10)

1. Organizational Focus: Internal (employee well-being/efficiency) vs. External (well-being
of org itself w.r.t. environment)
2. Structure preference: Flexibility (learning, change) vs. Control/Stability (efficiency, top-
 down)

The Four Quadrants (MUST MEMORIZE — draw the 2x2 grid)

Flexibility (Structure)
Internal Focus Human Relations Open Systems
EmphasisPrimary goal: human EmphasisPrimary goal: growth
resource developmentSubgoals: & resource
cohesion, morale, training acquisitionSubgoals: flexibility,
readiness, external evaluation
External Focus Internal Process Rational Goal
EmphasisPrimary goal: EmphasisPrimary goal:
stability, equilibriumSubgoals: productivity, efficiency,
info management, profitSubgoals: planning, goal
communication setting
Control (Structure)

(Note: table above shows structure across top/bottom, focus down the side, per Exhibit 3.10 layout:
Human Relations=Internal+Flexible; Open Systems=External+Flexible; Internal
Process=Internal+Control; Rational Goal=External+Control)
Cross-links to earlier approaches:
• Open Systems Emphasis ≈ Resource-Based Approach
• Rational Goal Emphasis ≈ Goal Approach
• Internal Process Emphasis ≈ Internal Process Approach (but less HR-focused, more about
efficiency mechanisms)

Worked Example — Exhibit 3.11

• Organization A (young, finding a niche): emphasis on Open Systems (flexibility, resource
acquisition, external constituents) > moderate Human Relations > minimal Rational Goal >
near-zero Internal Process.
• Organization B (large, established): emphasis on Rational Goal (productivity/profit,
planning) > stability/control-oriented > minimal flexibility/HR concern.

Real Case: Disney–Pixar (Bob Iger, CEO)

• Disney bought Pixar (2006). Iger gave Pixar's John Lasseter and Ed Catmull full control
of Walt Disney Animation Studios rather than forcing integration.
• Pixar = Open Systems emphasis (flexible, organic, creative risk-taking; founded 1980s,
small/entrepreneurial).
• Disney (finance side, CFO Jay Rasulo) = Rational Goal emphasis (mechanistic,
hierarchical, stability, productivity/profit-focused; large since 1920s).
• Tension example: "Cars 2" (2011) seen by critics as a safe, merchandise-driven sequel —
"dollar becoming king" instead of "story is king" (Lasseter's philosophy).
 • Lesson: competing values coexist simultaneously; dominant values shift over time with
new leadership/environment demands.
Usefulness of Competing Values Model: (1) integrates diverse effectiveness concepts (output
goals, resource acquisition, HR development) into one framework; (2) shows effectiveness criteria
are socially constructed from management values and that opposing values exist simultaneously —
managers must choose priority.

Related tragedy examples (illustrating conflicting values / poor

mechanisms for dissent)
• NASA Columbia disaster (Feb 2003) — investigative committee found poor mechanisms
for incorporating dissenting opinions between scheduling & safety managers; external
pressure to launch on time overrode safety.
• BP Deepwater Horizon (2010) — Congressional investigations found BP managers
prioritized cost control & timeliness over contractor safety advice.

8. "MANAGING BY DESIGN" — Agree/Disagree Self-Check

Answers (useful for viva/case discussion framing)
1. "A company's strategic intent reflects managers' systematic analysis of organizational and
environmental factors." → AGREE — best strategies come from systematic SWOT-type
analysis combined with experience.
2. "The best business strategy is to make products/services as distinctive as possible." →
DISAGREE — differentiation is ONE effective approach; low-cost leadership can be
equally/more effective depending on strengths & industry competition.
3. "The best measures of business performance are financial." → DISAGREE — diverse,
multidimensional measures (e.g., competing values model) outperform financials-alone
because they let managers understand and control the actions that cause effectiveness.
Financial numbers alone are narrow/limited.

9. "HOW DO YOU FIT THE DESIGN?" Self-Assessment —

Strategy/Performance Strength
• Two manager profiles: Strategic Formulator (pushes out-of-the-box strategies,
mission/vision, dramatic breakthroughs) vs. Strategic Implementer (works on operating
goals, efficiency, reliability, measurement/improvement).
• Both are essential; scoring difference of 2 or less = balanced; 4–5 = moderate strength; 7–8
= distinctive strength area.
• (Useful for HR: this is essentially a light instrument for talent placement — formulators suit
corporate strategy/innovation roles, implementers suit operations/PMO roles.)
10. KEY CONCEPTS LIST (Glossary — as given in chapter,
alphabetized)
analyzer • competing values model • competitive advantage • core competence • defender •
differentiation strategy • focus • goal approach • human relations emphasis • internal process
approach • internal process emphasis • low-cost leadership strategy • mission • official goals • open
systems emphasis • operating goals • organizational goal • prospector • rational goal emphasis •
reactor • resource-based approach • social construct • strategic constituents approach • strategic
intent • strategy • structure

11. QUICK-RECALL EXAM ANSWER FRAMES

Q: "Distinguish between goals and strategy." A: Goals define where the organization wants to go
(e.g., 15% sales growth); strategy defines how it will get there (e.g., advertising, sales incentives,
acquisitions). Essence of strategy = choosing whether to perform different activities than
competitors, or the same activities more efficiently.
Q: "Explain Porter's model with organization design implications." A: Two strategies
(differentiation/low-cost), each broad/narrow scope → differentiation needs organic design
(flexible, empowered, R&D-heavy); low-cost needs mechanistic design (centralized, standardized,
tight control). Cite Apple/Edward Jones vs. Walmart/Family Dollar.
Q: "Explain Miles & Snow with examples and design fit." A: Prospector (Nike, Biocon) =
organic/learning; Defender (Paramount) = mechanistic/efficiency; Analyzer (Amazon) = mixed;
Reactor (Dell, historically) = no consistent design, drifting.
Q: "Four approaches to measuring effectiveness — explain with examples." A: Goal
(MDGs/SDGs), Resource-based (Shriners Hospitals, M&S), Internal process (UPS, Ritz-Carlton),
Strategic constituents (Facebook developers) — tie to Exhibit 3.9 open-systems diagram (inputs–
process–outputs–constituents).
Q: "Explain the Competing Values Model with a real example." A: Quinn & Rohrbaugh; 2
dimensions (focus: internal/external; structure: flexibility/control) → 4 quadrants (Human
Relations, Open Systems, Internal Process, Rational Goal). Use Disney–Pixar
(Iger/Lasseter/Rasulo) as the real-world illustration of competing values coexisting.

12. REAL-WORLD / CORPORATE APPLICATION NOTES (for

HR practice & case interviews)
• For HR strategy work: Use the Operating Goals pyramid (Exhibit 3.3) to structure a
balanced scorecard-style goal-setting exercise for a business unit — don't let "Overall
Performance" crowd out Employee Development/Innovation goals (chapter explicitly warns
against single-minded profit focus).
• For diagnosing "why is this team dysfunctional": Ask which of the 4 Competing Values
quadrants leadership is actually rewarding vs. which they claim to value — misalignment
(like Disney/Pixar) is a common root cause of friction between creative and
 finance/operations functions.
• For M&A integration (HR's role): Iger's Disney–Pixar approach (preserve the acquired
org's dominant values instead of forcing homogenization) is a reusable playbook when
integrating an innovative acquisition into a control-oriented parent.
• For competitive strategy diagnosis in interviews: Classify any company quickly using
Porter (cost vs. differentiation, broad vs. narrow) AND Miles & Snow
(prospector/defender/analyzer/reactor) — examiners like candidates who can apply both
frameworks to the same company and show how they're complementary, not redundant.
• Rumelt's "bad strategy" checklist is a genuinely useful real-life BS-detector for internal
strategy documents — check for goals dressed up as strategy, fluff/buzzwords, and absence
of coherent action steps.

Tip: For revision, cover the right-hand "Example" columns of each table and try to recall them
from the concept name alone — this chapter is example-heavy in exams (professors love asking
"give an example of a defender strategy" etc.)