MILES AND SNOW’S STRATEGY TYPOLOGY
Another business strategy typology was developed from the study of business strategies by Raymond Miles and Charles Snow. The Miles and Snow typology is based on the idea that managers seek to formulate strategies that will be congruent with the external environment. Organizations strive for a fit among internal organization characteristics, strategy, and the external environment. The four strategies that can be developed are the prospector, the defender, the analyzer, and the reactor.
Prospector: The prospector strategy is to innovate, take risks, seek out new opportunities, and grow. This strategy is suited to a dynamic, growing environment, where creativity is more important than efficiency. Federal Express Corporation, which innovates in both services and production technology in the rapidly changing overnight mail industry, exemplifies the prospector strategy, as do today’s leading high-tech companies, such as Microsoft or AOL.
Defender: The defender strategy is almost the opposite of the prospector. Rather than taking risks and seeking out new opportunities, the defender strategy is concerned with stability or even retrenchment. This strategy seeks to hold onto current customers, but it neither innovates nor seeks to grow. The defender is concerned primarily with internal efficiency and control to produce reliable, high-quality products for steady customers. This strategy can be successful when the organization exists in a declining industry or a stable environment. Philips Electronics used a defender strategy after $ 2.2 billion loss nearly bankrupted the company. Philips managers began dramatic cost-cutting efforts, including eliminating thousands of jobs and selling off dozens of business.
Analyzer: The analyzer tries to maintain a stable business while innovating on the periphery. It seems to lie midway between the prospector and the defender. Some products will be targeted toward stable environments in which an efficiency strategy designed to keep current customers is used. Others will be targeted toward new, more dynamic environments, where growth is possible. The analyzer attempts to balance efficient production for current product lines with the creative development of new product lines. Procter & Gamble has shifted to an analyzer strategy under new CEO Durk Jager. His strategy is to maintain a stable business for strong brands such as Tide, Crest, and Pampers, while also pushing the company to invent entirely new categories of products, such as a home dry cleaning product called Dryel
Reactor: The reactor strategy is not really a strategy at all. Rather, reactors respond to environmental threats and opportunities in an ad hoc fashion. In a reactor strategy, top management has not defined a long-range plan or given the organization an explicit mission or goals, so the organization take whatever actions seem to meet immediate needs. Although the reactor strategy can sometimes be successful, it can also lead to failed companies. Some large, once highly successful companies, such as Kellogg and Kodak, are struggling because managers failed to adopt a strategy consistent with consumer trends.
HOW STRATEGIES AFFECT ORGANIZATION DESIGN
Choice of strategy affects internal organization characteristics. Organization design characteristics need to support the firm’s competitive approach. For example, a company wanting to grow and invent new products looks and “feels” different from a company that is focused on maintaining market share for long-established products in a stable industry.
With a low – cost leadership strategy, managers take an efficiency approach to organization design, whereas a differentiation strategy calls for a learning approach. Organizations designed for efficiency have different characteristics from those designed for learning. A low-cost leadership strategy (efficiency) is associated with strong, centralized authority and tight control, standard operating procedures, and emphasis on efficient procurement and distribution system. Employees generally perform routine tasks under close supervision and control and are not empowered to make decisions or take action on their own. A differentiation strategy, on the other hand, requires that employees be constantly experimenting and learning. Structure is fluid and flexible, with strong horizontal coordination. Empowered employees work directly with customers and are rewarded for creativity and risk – taking. The organization values research, creativity, and innovativeness over efficiency and standard procedures.
The prospector strategy requires characteristics similar to a differentiation strategy, and the defender strategy takes an efficiency approach similar to low-cost leadership. Because the analyzer strategy attempts to balance efficiency for stable product lines with flexibility and learning for new products, it is associated with a mix of characteristics. With a reactor strategy; managers have left the organization with no direction and no clear approach to design.
OTHER FACTORS AFFECTING ORGANIZATION DESIGN
Strategy is one important factor that affects organization design, ultimately, how ever; organization design is a result of numerous contingencies. The emphasis given to efficiency and control versus learning and flexibility is determined by the contingencies of strategy, environment, size and life cycle, technology, and organizational culture. The organization is designed to “fit the contingency factors.
For example, in a stable environment, the organization can have a traditional structure that emphasizes vertical control, efficiency, specialization, standard procedures, and centralized decision making. However a rapidly changing environment may call for a more flexible structure, with strong horizontal coordination and collaboration through teams or other mechanisms. In terms of size and life cycle, young, small organizations are generally informal and have little division of labor, few rules and regulations, and ad hoc budgeting and performance systems. Large organizations such as IBM or Sears, on the other hand, have an extensive division of labor, numerous rules and regulations, and standard procedures and systems for budgeting, control, rewards, and innovation.
Design must also fit the workflow technology of the organization. For example, with mass production technology, such as a traditional automobile assembly line, the organization functions best by emphasizing efficiency, formalization, specialization, centralized decision making, and tight control. An e-business, on the other hand, may need to be very informal and flexible. A final contingency that affects organizational design is corporate culture. An organizational culture that values teamwork, collaboration, creativity, and open communication among all employees and managers, for example, would not function well with a tight, vertical structure and strict rules and regulations. One responsibility of managers is to design organizations that fit the contingency factors of strategy, environment, size and life cycle, technology, and culture. Finding the right “fit” leads to organizational effectiveness, whereas a poor fit can lead to decline or even the demise of the organization.