Organizations have attempted to build competitive advantages in various ways, but three underlying strategies appear to be essential in doing so: low-cost, differentiation, and focused. A low-cost strategy is based on an organization's ability to provide a product or service at a lower cost than its rivals. This strategy aims at selling a standardized product that appeals to an "average" customer in a broad market.
A differentiation strategy is based on providing customers with something that is unique (e.g., image, styling, reputation) and makes the organization's product or service distinctive from its competition in such a way that customers are willing to pay a higher price for it. A focused strategy is designed to help an organization target a specific niche within an industry, unlike both the low-cost and differentiation strategies, which are designed to target industry wide markets. The basic idea is to specialize in ways that other organizations can't match effectively.
The four traditional forms of organization design are functional, geographic, product, and network design. Organizations with a product design usually begin with a functional design and then add some place design features as they begin to serve new geographic markets. Eventually, serving multiple customers creates management problems that can't be effectively dealt with by a functional or geographic design alone. The addition of new product lines, diverse customers, and technological advances also increases the complexity and uncertainty of the organization's business environment.
The four traditional forms of organization design are functional, geographic, product, and network design. Organizations with a product design usually begin with a functional design and then add some place design features as they begin to serve new geographic markets. Eventually, serving multiple customers creates management problems that can't be effectively dealt with by a functional or geographic design alone. The addition of new product lines, diverse customers, and technological advances also increases the complexity and uncertainty of the organization's business environment.
When changing to a product design, companies may incorporate features of the functional and geographic designs into the organization of each product division. This may culminate in the network design, in which tasks are organized by division on the basis of the product or geographic markets in which the goods or services are sold, and division managers are given primary responsibility for overseeing day-to-day operations so that corporate managers can concentrate on strategic issues.
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