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Chapter 4 internal context: organization design
Reflection: yesterday in chapter 3 review, it had been discussed how a firm’s assets might be a source of competitive advantage. Chapter 4 focuses on achieving competitive advantage through the organization of these internal assets because organization is central to whether the assets are able to create competitive advantage. The best design for a firm actually depends on the strategy it is pursuing. Chapter 4 provides a way to think systematically about the problem of organization design and the levers managers have to address it. The first step in achieving competitive advantage through organization is to understand the problem that the organization is supposed to solve. Once a clear picture emerges of what the organization design shall achieve, we can turn to the tools the managers has for meeting the challenging. A manager can work with three levers, architecture, routines and culture (ARC).
Every organization must face two main classes of problems: the coordination problem and the incentive problem. The coordination problem is the challenge of designing an optimal organization even when everyone in the firm fully internalized its goals and puts self-interest aside in helping it to pursue these goals. The incentive problem is the challenge of inducing people whose private goals might diverge from the firm’s to take actions that are consistent with achieving the goal. The firm could manipulate many components of organization design to address the coordination and incentive issues. Briefly, we could define these components of organization as follows: architecture, routines and culture (ARC).
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