Okay, great, so we finished the last video talking about efficiency and flexibility. Now let's get an idea of which competitive strategies and complimentary organization design elements meet the needs of these approaches. Efficiency is one of the goals of an organization. And in fact we've heard that all organizations care about efficiency. Now why do they? Well of course efficiency is nothing else but needing fewer resources to achieve the same goal. And of course if you achieve the same goal by spending less, you have a higher performance. Some firms, however, care more about efficiency than others because they run strategies that are basically resting, or that basically can only be successful if they are very efficient, right? And this could be because their environments demand this, or because their organizational life cycle stage is exactly such that it demands efficiency. Now, recall that environments determine the attractiveness of particular strategies. Now, what determines the attractiveness of an environment? We've heard that in previous courses on competitive strategy and advanced competitive strategy, that's basically Porter's five forces. Now Porter, as a consequence, came up or developed a number of so called generic competitive strategies that are best placed to achieve high profitability. And when we think of two dimensions here, we can think of the competitive scope on the one hand, and that can be narrow or broad and the source of competitive advantage, which could be low cost or uniqueness. And so if you have a broad competitive scope, that means you reach a large market and also have a large number of competitors. You could either try to choose uniqueness as a source of competitive advantage, in that case you would have a differentiation strategy. Or you could try to achieve low cost as your main source of advantage, that would be low-cost leadership. You can also use these two strategies on a more narrow market. In that case, you would have either focused low-cost leadership or focused differentiation as a generic strategy. Now what are some examples? What are some specimens of these? Well, if you have low cost leadership, you compete through low cost and therefore you can charge low prices. The main thrust here is to develop efficient facilities to make sure that there are cost reductions, there are type controls and cost developments. So you're always at your lowest point of the cost. So an example here would be Ryan Air. On the other hand, differentiation means that you're trying to distinguish your product or services from those of competitors. So the specific strategies, the specific things you do to achieve that differentiation strategy would be to advertise, to choose distinctive and to develop distinctive product features, to deliver exceptional services or to develop new technology. So Apple, in general, or the iPhone, in particular, would be products that are differentiated products. Well a focus strategy, either based on low cost or differentiation means that you will concentrate on a specific market or bio group. An example here would be Puma. It's a German athletic wear manufacturer and they've selected a specific type or a small number of consumer groups very specifically. So, for example, these would be armchair athletics, right? They care about style issues, they care about stylish clothes that have some athletic taste to it, or some athletic flavor to it. Edward Jones Investments, it's a brokerage that's based in St. Louis with the selected market of rural small town America. They're not even trying to get on to the same sphere as some of the big Wall Street agencies or brokerages. They will target a very specific kind of sub market. So when we think of these generic strategies, what's obvious is that we need to choose an organization design that supports the different firms as competitive approach. So when we choose low cost leadership as our strategy, it's pretty obvious that we need to choose an organization design that's mainly focused on efficiency. Now, this means that we have a strong centralized authority, we have tight controls on costs and other activities. We have standard operating procedures to make sure that everything is done in the same way all the time because that's the most efficient way. We have routinized tasks. There's an emphasis on efficient procurement and distribution systems. In other words, the value of flexibility is less than the value of efficiency. Conversely if we think of the differentiation strategy, that means that we are choosing a learning approach. The learning approach is supported by, for example, employees frequently learning, experimenting, fluid and flexible organizations, strong horizontal coordination across different departments at the same hierarchical level. We have empowered employees working directly with consumers and being able to make decisions by themselves. These employees will be rewarded for being creative, coming up with creative solutions and taking risks. So in the differentiation strategy, it's clear that the value of flexibility is bigger than the value of efficiency. So therefore, we need to enable a strategy, so managers can always choose and change design elements. They can take into account environments. They know that organizations have specific structure that compliment either the efficiency or the flexibility approach. We'll say more about that in the next video. Now let's see if you got your facts right on which factors surrounds certain strategies. In this video, we discussed Porter's competitive strategy. And we matched him to the efficiency and flexibility approach. We found out that focused, or general, low cost leadership requires efficient, while differentiation requires flexible organization. Of course, all organizations are free to design as they wish. However, organizational structure is greatly shaped by its environment and life cycle stage. So, some organizations are more or less naturally placed on either pathway. Find out which ones in the next video.
