Organization Aspect In Strategic Management Framework
Environment change currently becomes major issue for firms. Firms are forced to take actions in anticipating potential effects–either good or bad–to their operations and eventually their sustainability. Among all resources, people are considered the most important production factor. Dependency on people as production factor, which is structured in an organization, clearly sends us a message that various aspects of organization have to be seriously considered in order to ensure firms’ sustainability. Neglecting this aspect and putting ore attention on other production factors such as capital, machineries and other physical things surely will put firms in jeopardy.
Discussion on Organization Aspect in Strategic Management Framework
Jones (2004) defines organization as “a tool used by people to coordinate their actions to obtain something the desire or value–that is, to achieve their goals”. Daft (2010) says that “organizations are (1) social entities that (2) are goal-oriented, (3) are designed as deliberately structured and coordinated activity systems, and (4) are linked to the external environment. Daft (2010) further mentions that organizations are made up of people and their relationship with one another to perform essential functions that help attain goals. These definitions are in line with famous statement that often used by Japanese companies, that they build people first before they make products. At this point, it is obvious that organizations, which consist of people, play important –if not central- role in strategic management practices.
People (or human resource) are one of four known main aspects in strategic management beside operation/production, finance and marketing. Richerson et al (2006) mentions that “most of what an organization is and does is a function of the skills that individuals have and the norms and rules individuals use to deal with each other”. Lack of attention on organization/human resource issues will deter firms in achieving their goals. Further, resource-based view which appears to provide firms with an approach in facing changing environment does not see that competitive advantage of a firm stems from its market position. Instead, it comes from firm’s “ownership and/or employment of difficult-to-replicate knowledge assets” (Teece, 2009). Indirectly, this shows the importance of people as firm’s resource since knowledge assets are mainly embedded to people. Teece (2009) further states that “processes of organizational and strategic renewal are essential for the long-term survival of the business firm”. Firms need -from time to time- developing their capabilities in finding and identifying new opportunities, developing new knowledge and methods, disseminate them to all related units within organization, develop and produce new products/services and deliver to market.
Main issue in organization/human resource field is whether firms’ organizations have the capability in facing future challenge caused by fast-changing environment. Existing capabilities which are derived from their past experience and has proven to support past performance might not work as effective as before. It is, then, obvious that firms’ organizations have to possess adaptive capabilities and skills. Facing competition with other firms, Mc Cann (2004) states that “the organization that able to achieve the closest fit or alignment between its larger environment, its overall strategy, and its organizational design would outperform its competitors”. Organization needs to build its capability to adapt and fit with changing situation. It needs to be agile and reduce its rigidity. Stick to its main principles is important, but there has to be flexibility in translating them into activities. Principles have to be evaluated periodically, and adjusted when necessary. This does not mean that firms have to change their goals. Instead they have to adjust means in achieving them.
An attribute of an organization which differ it from others is its culture. Jones (2004) defines organizational culture as “the set of shared values and norms that control organizational members’ interactions with each other and with suppliers, customers, and other people outside the organization”. Organizational culture plays role as guidance for organization members to act and in doing their activities. Barney (2007) states that in order for a firm’s culture to provide sustained competitive advantage, three conditions must be met i.e. valuable (i.e. culture must have positive economic consequences), rare (i.e. must have attributes and characteristics that are not common to the culture of a large number of other firms and imperfectly imitable. Since organizational culture is intangible, there is a variation in culture embeddedness in each firm. Some firms have strong organizational culture, while some others are weak.
Sorensen (2002) mentions that “a culture can be considered strong if those norms and values are widely shared and intensely held throughout the organization”. Further, it is said that “key consequence of a strong corporate culture is that it increases behavioral consistency across individuals in a firm. Organizational culture is a “social control mechanism”. Strong culture is able to enhance the reliability of firm performance under the right environmental conditions.
Sorensen (2002) also states that performance reliability depends on two factors i.e. consistency of a firm in performing its organizational routines and the degree to which those routines are well adapted to changing environmental conditions. Schein (1992) in Sorensen (2002) cited that “culture ultimately reflects the group’s effort to cope and learn and its residue of learning processes”. In this case culture and learning process are interrelated. Sorensen (2002) hypothesizes that “firms with strong corporate cultures will exhibit more reliable (less variable) performance.
Despite its significant role in ensuring firm’s performance, strong culture is not always positively contribute. Strong culture often built on firm’s past performance and experience, sometimes for a long period of time. This long-time experience path is then constructed to become firm’s culture. This strong base creates strong culture which difficult to change. Sometimes this creates a situation where firm see and analyze current and future changed environment using old and, maybe, obsolete view. Nevertheless, firms with strong culture often come out with better performance compared with firms with weak or without culture, especially if the culture encourage learning process. Thus, the nature of environment change will affect the relationship between culture strength and firm’s performance. When the degree of environment change is small or if the change happens gradually in small and predictable, then firm with strong culture (which also translated in organization’s routines) is still able to achieve reliable performance by making incremental adjustment.
Sorensen (2002) mentions that “in relatively stable environments, strong-culture organizations should exhibit more reliable performance than organizations with weak cultures, because they are more adapt at refining and improving established competencies”. But, in unpredictable and radical environment change, firms are not supposed to do small and gradual adjustment. This incremental adjustment is only beneficial in stable environment, or in a slight-change environment. The organizations have to build their ability to adapt, finding new methods and technologies and new suitable routines. In this situation, organizations with strong culture often find it difficult to fit with exploratory learning process. Sorensen (2002) mentions that this situation occurs because of several factors. Strong-culture organizations may have greater difficulty recognizing the need for change. They also do not have individuals whose beliefs contradict the organization’s dominant belief. It is said that “strong-culture organizations should have greater difficulty responding to environmental volatility than weak-culture organizations. Research by Sorensen (2002) concludes that “firms with strong cultures incur a tradeoff with respect to their adaptive ability in the face of environmental change. Strong corporate cultures facilitate reliable performance in relatively stable environments, but as volatility increases, these benefits are dramatically attentuated”. Jones (2004) mentions that culture can be a source of resistance to change. Cultures are built “in a series of stable expectations between peoples, so values and norms cause people to behave in predictable ways”. If an environmental change occurs and disrupts the agreed values and norms, resistance to change will occur as well.
It is obvious that organization plays significant function in strategic management practices, since firm’s strategies are executed through it. In a changing and turbulent environment, firm’s organization has to have agility and resilience in order to maintain its competitive advantage which in turn will ensure firm’s existence. Firm’s organization has to transform itself to become a learning organization, since past experiences, skills and knowledge are vulnerable to become obsolete. Organization needs to find its flexibility and build new fresh capabilities. At this point, corporate culture, which is the “soul” of an organization, takes important role. Firm needs to have a strong-but-flexible culture which able to function as a solid code-of-conduct for the organization, both in a stable or volatile environment. The challenge is how to construct such culture.
- Barney, Jay.B and Clark, Delwyn N. (2007). Resource-Based Theory. Creating and Sustaining Competitive Advantage. New York. Oxford University Press Inc.
- Daft, Richard L. (2010) Organization Theory and Design 10th ed. Mason. Ohio. Cengage Learning
- Jones, Gareth R. (2004). Organizational Theory, Design, and Change 4th ed. New Jersey. Pearson Education Inc.
- McCann, Joseph (2004). Organizational Effectiveness : Changing Concepts for Changing Environments. Human Resource Planning;27
- Richerson, Peter J., Collins, Dwight, Genet, Russel M. (2006) Why managers need an evolutionary theory of organizations. Strategic Organization. Vol 4(2) : 201 – 211
- Sorensen, Jesper B. (2002). The Strength of Corporate Culture and the Reliability of Firm Preformance. Administrative Science Quarterly 47:70
- Teece. David J. (2009). Dynamic Capabilities and Strategic Management : Organizing for Innovation and Growth. New York. Oxford University Press. Inc.