Lecture 3: Strategy and Structure - Outcomes

1. Singapore IACT916 - Lecture 3 1 Lecture 3: Strategy and Structure - Outcomes To understand the importance that a change in strategy can have on structure. To be able to explain the contemporary strategy-structure theories as they relate to modern organisations.

3. Singapore IACT916 - Lecture 3 3 Strategy What is Strategy Dimensions of Strategy Chandler, Contemporary Strategy-Structure Theories Miles & Snow, Porter, Miller Industry-Structure Relationship

4. Singapore IACT916 - Lecture 3 4 What is strategy? Strategy can be defined as the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals. Strategy is concerned with both means and ends.

5. Singapore IACT916 - Lecture 3 5 The Strategy Imperative Strategy influences structure. Basic assumptions: The organisation strives to satisfy goals It moves towards its goals rationally Organisations transform economic inputs into outputs The environment within which the organisation operates is a given.

6. Singapore IACT916 - Lecture 3 6 How Does Strategy Form? Is it premeditated? Planning mode Does it just happen over time? Evolutionary mode See Henry Mintzberg (MIT) and the idea of �creative strategy�

7. Singapore IACT916 - Lecture 3 7 Levels of Strategy Corporate-level strategy In what set of businesses should we be? E.g. diversification (not at a product level) Business-level strategy How should we compete in each business? For organisations in many lines of business, each division will seek its own strategy for its products IACT916 focus is on business-level strategy

8. Singapore IACT916 - Lecture 3 8 Dimensions of Strategy I Innovation strategy Does the organisation pride itself on developing new products or services? Sony vs Reader�s Digest Marketing differentiation strategy Does the organisation seek to create a favourable image for its product through advertising, market segmentation and prestige pricing? Omega vs Swatch

9. Singapore IACT916 - Lecture 3 9 Dimensions of Strategy II Breadth strategy Refers to the scope of the market to which the business caters: the variety of customers, their geographical range and the number of products Unilever (Lipton Bertolli, Findus, Dove Omo, Ponds Rexona ) vs Roses Only or Corochan Corokke Cost-control strategy Extent to which the organisation tightly controls costs, refrains from incurring unnecessary innovation or marketing expenses, and cuts prices in selling a basic product Seiyu vs Aldi Supermarkets

10. Singapore IACT916 - Lecture 3 10 Chandler�s Strategy-Structure Thesis Alfred Chandler (1960s) Extensive case studies found that changes in corporate strategy preceded and led to changes in an organisation�s structure. �Unless structure follows strategy, inefficiency results.�

11. Singapore IACT916 - Lecture 3 11 The Chandler Argument An organisation begins with a single line of business, or a single product. As the demand for that product grows, the organisation begins to grow in size and complexity. It introduces more products into its range in order to continue to grow and the organisation�s strategy becomes more ambitious and elaborate. Ultimately the structure of the organisation changes as a results of the strategy change.

12. Singapore IACT916 - Lecture 3 12 Chandler�s Model

13. Singapore IACT916 - Lecture 3 13 Modern Strategy-Structure Theory Miles and Snow�s Four Strategic Types Porter�s Competitive Strategies Miller�s Integrative Framework Miller borrows strategy dimensions from Miles and Snow & Porter to define an integrative framework

14. Miles and Snow, 4 Strategic Types Defenders Seek stability and efficiency; Tight control; extensive division of labour; centralised; formalised Analysers Seek stability but can cope with change Moderately centralised controls; tight controls for current activities, loose for new undertakings Prospectors Seek flexibility and dynamism; Low degree of formalisation Loose structure; low division of labour; decentralised Reactors Organisations that buckle under pressure and poorly implement one of the above; no strategy defined, or wrong strategy is defined; or top management fail to make strategy clear

15. Porter�s Competitive Strategies Cost-leadership strategy When an organisation sets out to be the low-cost producer Must offer comparable products as that of rival or at least comparable to buyers Differentiation strategy Firm that seeks to be unique in its industry Focus strategy Exploit narrow segment of market, niche. Stuck in the middle Those companies without a clear strategy as defined above Difficult to achieve long-term success in this instance

16. Singapore IACT916 - Lecture 3 16 Questioning the Strategy Imperative When can strategy influence organisation structure most? What if a change in strategy by management is NOT followed by a change in structure? Does structural change depend on the competitive pressures an organisation is facing? What if structure determines strategy? What is your opinion about these questions?

17. Singapore IACT916 - Lecture 3 17 Industry-Structure Relationship �Simply knowing the industry in which an organisation operates allows one to know something about product life-cycles, required capital investments, long-term prospects, types of production technologies, regulatory requirements, and so forth.�

18. 2 variable analysis of industries

19. Singapore IACT916 - Lecture 3 19 Industrial Networks When organisations form alliances to pool resources together to aid one another to achieve goals, inter-firm structures are influenced. Strategies of individual companies are both shaped and constrained by other companies with which they have commercial relationships. Consider networks, clusters and alliances.

20. Singapore IACT916 - Lecture 3 20 Size & organisational structure

21. Singapore IACT916 - Lecture 3 21 Outline Aspects of Organisational Size The Size Imperative The Problems of Large Organisations The Downsizing Phenomenon Inefficiencies in Downsizing

22. Singapore IACT916 - Lecture 3 22 Defining Organisational Size Most define size to be the �total number of employees� in a company. What are your thoughts on this definition? Any others you can think of?

23. Singapore IACT916 - Lecture 3 23 Aspects of Size Size is relative How do you measure size: Full-time employees vs Part-time employees vs Seasonal employees?

24. Singapore IACT916 - Lecture 3 24 What about the notion of small, medium and large-size firms? A large-size hairdressing salon of 50 employees vs a large-size computer manufacturer of 100,000 employees? E.g. a large firm in Australia or Singapore may be considered medium-size in the US

25. Singapore IACT916 - Lecture 3 25 Opposing Beliefs on Size Advocate of Size Imperative Peter Blau concluded �size is the most important condition affecting the structure of organisations� Critics of Size Imperative Chris Argyris analysed Blau�s data and argued that civil-service organisations are unique. Argyris agreed that size can be linked to structure but did not cause it.

26. Size and Dimensions of Structure Size and Complexity Size is a predictor of the level of vertical differentiation Larger the organisation, the more pronounced was the division of labour within it Size and Formalisation Formalisation increases with size Size and Centralisation Research is mixed on this point As size increases a firm does not necessarily decentralise, it all depends

27. Singapore IACT916 - Lecture 3 27 The Problem of Large Organisation Size The growth of bureaucracy The need to gather and process information and to turn it into knowledge Extended timeframes for action Knowing where the profits are being made and where the costs are being incurred Difficulty in managing over a wide geographic spread

28. Singapore IACT916 - Lecture 3 28 Coping with large organisations Divide the organisation into manageable parts. Outsource. Finding a balance between what decisions should be centralised as opposed to decentralised. Structuring to facilitate change. Ensure that important tasks have someone responsible for them.

29. IT and Small Business Though only 1% of businesses in Australia are considered �large�, they employ about 25% of the workforce. Over 85% of businesses in Australia are considered �small�, but they employ only 25% of the workforce. Situation in Singapore ? In small business, the issues are different: The influence of the owner Size as a factor of structure is less important as the organisation structure is generally flat The small business faces control, accountability, efficiency and environmental issues instead.

30. Singapore IACT916 - Lecture 3 30 The downsizing phenomenon Why do companies downsize? What do they hope to gain by downsizing? Is downsizing a natural pattern within the lifecycle of a company? What are the effects of downsizing? Are they always positive?

31. Singapore IACT916 - Lecture 3 31 Reasons Leading to Downsizing & Benefits Increased competition Computerisation and automation Technological obsolescence Changes in strategy Limitation of size advantage Rise of outsourcing Lowered overheads Less bureaucracy Faster decision making Smoother communications Greater entrepreneurship Increased productivity

32. Ineffective Downsizing Practices The use of voluntary retirement practices Making across the board layoffs Eliminating training and development programs Cutting too deeply into the numbers of personnel Placing remaining employees into jobs for which they have insufficient skills Emphasising employee accountability over employee involvement Expect survivors to �row harder� Implement layoffs slowly in phases over time Promise high monetary rewards rather than careers

33. Investing in the Future In times of downsizing it is tempting to cut: R&D (research & development) staff New graduate positions New product lines Maintenance engineers Expensive equipment needed to do work But it is important to remember the long-term future of the company. Band-aid solutions are short-term and only have short-term effects (on the problem but not org�n.)

34. Admin things � the exam, pt 1 There will be no exam questions which ask YOU to integrate material from strands 1 & 2 e.g. use Miles and Snow to explain the leadership gap in IT management There may be a few questions which ask you to reflect critically on some strand 1 content e.g. how could IT be used to flatten the vertical hierarchy in an existing organisation Chapters 9 � 15 in text not in exam, which is taken from lecture notes I�ll email a reference for some textbooks on ISM Exam, part 2 on Tuesday

35. Singapore IACT916 - Lecture 3 35 Business Intelligence (BI) Knowledge Management (KM) E-Commerce and C-Commerce Supply Chain Managment Customer relations management (CRM) Enterprise Resource Planning (ERP)

36. Singapore IACT916 - Lecture 3 36 Business Intelligence (BI) The three main components of BI are: Data warehousing Data Mining and Online Analytical Processing This material draws heavily on the article �In pursuit of business intelligence� by Chris Boon in Document World, (ISSN:10259228) Volume�3, Issue��6, Pages�18-24. Despite the title, the article deals primarily with data warehousing. I have edited these notes to reflect the wider field of Business Intelligence (BI) 

37. Singapore IACT916 - Lecture 3 37 Link to BUSINESS BI represents a response to the frustration of decision makers and knowledge workers who know that the data they are seeking to analyse is captured and stored somewhere in the organisation but find they are unable to access that data. For many non-technical managers this is an incomprehensible situation

38. Singapore IACT916 - Lecture 3 38 Potential and Reality BI has become established as a very high-profile sector of the IT industry. It is not, however, essentially an IT fashion (like CASE, 4GLs, client/ server and so on) but more a business phenomenon. BI is a combined business and IT initiative aimed at satisfying information requirements of the business community.

39. Singapore IACT916 - Lecture 3 39 BI seeks to provide access to data that has been integrated and cleansed so that it can be analysed, manipulated, transformed and combined to discover correlations, trends and patterns that add value to the data and provide new business insight. Because BI is business driven, it will survive far longer than IT fashions have tended to.

40. Singapore IACT916 - Lecture 3 40 Applications of BI More and more industries are perceiving the possibilities that BI presents. This includes not only the mainstream commercial sectors of finance retail and telecommunications, but also government agencies, the healthcare industry, policing and scientific institutions.

41. Singapore IACT916 - Lecture 3 41 Business Drivers There are a variety of business drivers for BI, all of which are concerned with responding more quickly and flexibly to an increasingly turbulent and competitive business environment.

42. Singapore IACT916 - Lecture 3 42 manage complex multinational organisations whose data is fragmented and dispersed. consolidate data from different organisations that have been amalgamated through mergers or take-overs integrate strategic and financial management data because traditional financial control systems have proved wholly inadequate for meeting the needs of the enterprise, especially in supporting the short-term responsiveness of the business. The growing availability of valuable external data sources is motivating businesses to use data integration solutions. Business Drivers include a need to

43. Singapore IACT916 - Lecture 3 43 Main Business Driver corporations are demanding access to integrated and enriched data because of the business tendency towards a range of new marketing and sales concepts and techniques known collectively as customer relationship management (CRM). CRM requires the use of a massive database engine for conducting complex analyses of customer behaviour and for defining and monitoring micro-segments of the market.

44. Singapore IACT916 - Lecture 3 44 Project Failures The query-intensive processing environment required for BI is very different from traditional transaction-based IT systems. As a result, the formula for success during the early years of the development of BI proved elusive Many projects have failed, or at least stalled, while the enterprise attempted to overcome the major obstacles they encountered.

45. Singapore IACT916 - Lecture 3 45 Project Failures II Today, the failure rate for BI projects remains higher than 50% (and is estimated by many industry observers at around 70%). But technological obstacles are very rarely responsible for these failures. Instead, the high rate of failure is almost always attributable to factors that may be classified as organisational.

46. Singapore IACT916 - Lecture 3 46 The Leading Players The BI market has traditionally comprised numerous players and, like all immature markets, has been in a state of continuous change.  The early BI user organisations had to acquire solution elements from a range of vendors (typically four or five different suppliers), design and write code for some parts of the solution themselves (typically the data extraction and transformation piece), and perform a systems integration task that is far more demanding than any they had encountered in online transaction processing (OLTP) systems

47. Singapore IACT916 - Lecture 3 47 Implementation obstacles BI involves a multitude of tasks and activities that need to be undertaken from the specialist perspective of a query-intensive environment. These range from a definition of business strategy and objectives through generating the Request for Proposal (RFP) to future-proofing the BI data warehouse (s) and applications. This requires a new breed of system integration and project management expertise. It is also very valuable to have available the support of a methodology devised specifically for BI projects

48. Singapore IACT916 - Lecture 3 48 Soft Issues While the technical and systems integration tasks involved in BI implementation are challenging, they rarely constitute insurmountable difficulties. By far the most common causes of failure in BI projects are what may be termed 'soft' issues. These include:  Lack of project sponsorship. **** Lack of business orientation. **** Lack of user orientation. ****

49. Singapore IACT916 - Lecture 3 49 Soft Issues II Inadequate data quality. Data ownership disputes. *** Poor security management Rapid deployment without considering long term Lack of suitable experienced human resources. Over-reliance on technology vendors. Political and cultural resistance to change. ***** The difficulty of managing project risk.

50. Singapore IACT916 - Lecture 3 50 Increased Focus on Applications BI has had a dramatic impact on business thinking, particularly in the areas of marketing and strategy. This is evidenced by a number of separate trends in business planning which are directly related to the BI phenomenon. A major impact of BI has been on the marketing and sales functions which have for a long period evaded effective automation. In many ways the computerisation of the marketing processes may be represented as the last great challenge to corporate information systems development.

51. Singapore IACT916 - Lecture 3 51 Automating the marketing function It was not easy to rigorously define requirements for applications in marketing, traditionally an obscure function comprising many discrete activities. BI has changed all that. It is common now for large and small organisations to have applications for promotion impact analysis, market segmentation, cross selling, customer care, targeted mailing, prospect analysis and customer retention. These applications have become more rigorously specified and are seen as general applications, as essential and mission-critical as the corporate billing system or payroll system. All of these applications are variants on data exploitation and require a BI infrastructure to exist as a pre-requisite.

52. Singapore IACT916 - Lecture 3 52 Need for �concrete� applications The increased focus on applications is a sign of the impact of BI. In the early BI literature it was assumed that, at least initially, the business would not know precisely how the data was going to be exploited. The underlying assumption was that the hidden nuggets of value would be uncovered by users using ad-hoc query tools. That thinking has given way to a more realistic assessment of the value of BI with reference to concrete applications which have a clear business value.

53. Singapore IACT916 - Lecture 3 53 Market Divergence BI has enabled the growing divergence of markets as it has helped make businesses more aware of the different and distinct market segments that exist and which require different responses from the enterprise. This divergence is quite marked in the retail sector where the introduction of loyalty cards (to capture increasingly detailed data) has led to huge growth in the volumes of data being captured and manipulated.

54. Singapore IACT916 - Lecture 3 54 Market Divergence II All of this is leading to the emergence of mass customised markets and a definite shift away from the old mass production industrial system. It was always known that all customers are different. Now the enterprise can see how and in what way each customer is different. What this means for world commerce is not an incremental technology-enabled change but a fundamental change in the way that business is conducted and transacted

55. Singapore IACT916 - Lecture 3 55 Other examples of BI applications The development of complex supply-chain integration applications in logistics services. Finance, where the application focus is centred on activity-based costing, cost-discovery and risk management applications. Policing and military planning. Support of economic and social planning activities in government agencies.

56. Singapore IACT916 - Lecture 3 56 Link to business vision BI has been a phenomenal business success where the business vision existed to understand the value of data the technical competency existed to design the data exploitation infrastructure that was needed to deliver that vision. A close partnership between business and IT has been, and remains, the principal key to success.