Strategy Implementation HCAD 5390
Organizational Structure • Organizational design • Selecting the structure and control systems that are most strategically effective for pursuing sustainable competitive advantage. • The role of structure and control • To coordinate strategy implementation. • To motivate and provide incentives for superior performance.
The Role of Organizational Structure • Building blocks of organizational structure • Differentiation in the allocation of people and resources to create value. • Vertical differentiation in the distribution of decision-making authority. • Horizontal differentiation in dividing up people and tasks into functions and divisions. • Integration • The means used in coordinating people and functions to accomplish organizational tasks.
Differentiation, Integration, Bureaucratic Costs • Bureaucratic costs and strategy implementation: • Bureaucratic costs increase with organizational complexity. • More differentiation = more managers. • More integration = more coordination. • Better strategy implementation = better bottom-line performance and profitability.
Vertical Differentiation • Span of control (division of authority) • The number of subordinates that a single manager directly manages. • Organizational hierarchy choices • Flat structures • Few organizational levels • Wide spans of control • Tall structures • Many organizational levels • Narrow spans of control
Problems with Tall Structures • Principle of minimum chain of command • Maintaining a hierarchy with the least number of levels of authority needed to achieve a strategy. • Sources of bureaucratic costs:
Centralization or Decentralization • Authority patterns in organizations: • Centralized • Decision making retained in the hands of upper-level managers. • Decentralized • Decisions delegated to lower levels in the organization.
Advantages of decentralization Reduced information overload on upper managers. Increased motivation and accountability throughout organization. Fewer managers; lower bureaucratic costs. Advantages of centralization Easier coordination of organizational activities. Decisions fitted to broad organizational objectives. Exercise of strong leadership in crisis. Faster decision making and response. Centralization (Structural) Choice?
Horizontal Differentiation • Focus is on division and grouping of tasks to meet business objectives. • Simple structure: • Characteristic of small entrepreneurial companies. • Entrepreneur takes on most managerial roles. • No formal organization arrangements. • Horizontal differentiation is low.
Structure Follows Strategy: • Changes in corporate strategy lead to changes in organizational structure
Structure Follows Strategy: • New strategy is created • New administrative problems emerge • Economic performance declines • New appropriate structure is invented • Profit returns to its previous levels
Stages of corporate development • Simple Structure • Functional Structure • Divisional Structure • Beyond SBU’s
Simple Structure: • Stage I: • Entrepreneur • Decision making tightly controlled • Little formal structure • Planning short range/reactive • Flexible and dynamic
Functional Structure: • Stage II: • Management team • Functional specialization • Delegation decision making • Concentration/specialization in industry
Divisional Structure: • Stage III: • Diverse product lines • Decentralized decision making • SBU’s • Almost unlimited resources
Beyond SBU’s: • Stage IV: • Increasing environmental uncertainty • Technological advances • Size & scope of worldwide businesses • Multi-industry competitive strategy • Better educated personnel
Advantages Task grouping facilitates specialization and productivity. Better monitoring of work processes, reduced costs. Greater control over organizational activities. Disadvantages Functional orientation creates communication problems. Performance and profitability measurement problems. Location versus function problems (coordination). Strategic problems due to structural (vertical and horizontal) mismatches. Functional Structure
Advantages Enhanced corporate control by division Enhanced strategic control of each SBU in portfolio Growth is easier. New units don’t have to be integrated across organization Stronger pursuit of internal efficiencies. Performance of individual units is readily measurable. Disadvantages Establishing the divisional-corporate authority relationship Distortion of information by divisions Competition for resources by divisions Transfer pricing problems between divisions Short-term research and development focus Bureaucratic costs Mutlitdivisional Structure
Matrix Structure • Advantages • Flexibility of the structure and membership • Minimum of direct hierarchical control • Maximizes use of employees’ skills • Motivates employees; frees up top management • Disadvantages • High bureaucratic costs • High costs (time and money) for building relationships • Two-boss employee’s role conflict
Two-boss employee Matrix Structure
Network Structure: • “non structure” – elimination of in-house business functions • Termed “virtual organization” • Useful in unstable environments • Need for innovation and quick response
Packagers Designers Suppliers Corporate Headquarters (Broker) Manufacturers Distributors Promotion/ Advertising Agencies Network Structure
Effective implementation requires: • Leadership • Leading people to use their abilities and skills most effectively and efficiently to achieve organizational objectives
Staffing follows strategy: • Matching the manager to the strategy • Executive type • Executives with a particular mix of skills and experiences
Executive Types: • Dynamic industry expert • Analytical portfolio manager • Cautious profit planner • Turnaround specialist • Professional liquidator
Matching Chief Executive “Types” with Strategy Business Strength/Competitive Position Strong Average Weak Growth—Concentration Dynamic Industry Expert Retrenchment—Save Company Turnaround Specialist High Stability Cautious Profit Planner Medium Industry Attractiveness Low Growth—Diversification Analytical Portfolio Manager Retrenchment—Close Company Professional Liquidator
Managing corporate culture: • Corporate culture • Affects firm’s ability to shift its strategic direction • Strong tendency to resist change • Corporate culture should support the strategy
Strategy-Culture Compatibility: • Consider the following: • Is the planned strategy compatible with the firm’s current culture? • Can the culture be easily modified to make it more compatible with new strategy? • Is management willing to make major organizational changes? • Is management committed to implementing the strategy?
Managing corporate culture: • Communication • Key to effective management of change • Rationale for strategic change should be communicated to all
What Is Organizational Culture? • Culture • The collection of values and norms shared by people and groups in an organization. • Shared values and a common culture increase integration and improve coordination. • Values • Beliefs and ideas about common goals and proper behaviors. • Norms • Act as guidelines or expectations that prescribe acceptable behavior by organizational members.
Organizational Culture • Ways of transmitting organizational culture:
Culture and Strategic Leadership • The influence of the founder • Initial cultural values and management style is imprinted on the organization by its founder. • Organizational structure • Structure follows strategy. Strategic leadership affects the cultural norms and values that develop in the organization.
Strategic Reward Systems • Individual reward systems • Piecework plans • Commission systems • Bonus plans • Promotion • Group and organizational reward systems • Group-based bonus systems • Profit sharing systems • Employee stock option systems • Organization bonus systems