BUSINESS STRATEGY 51110

1. 1 BUSINESS STRATEGY 51110 / MKT3002 LECTURE Ten Strategy Implementation �Organisational structure and design�

2. 2 Module 10 �Organisational structure and design� Learning outcomes- at the conclusion of this module, students should be able to: Describe the main types of organisational structures Compare the various multi-national organisational structures Define devolution Describe strategic planning, financial control & strategic control Define organisational configuration; building blocks and co-ordinating mechanisms Undertake a stakeholder mapping exercise and Describe Mintzberg�s six organisational configurations

3. 3 Key words and concepts Simple structure Functional structure Multi-national structure Holding company Matrix structure Virtual organisation Related diversification Vertical integration Transnational corporation Devolution Strategic planning style Financial control Strategic control

4. 4 Introduction This module looks at basic organisational structural forms and how management authority is exercised within the organisation; it asks the following: Have major changes occurred in the firm�s internal strategic position? Have major changes occurred in the firm�s external strategic position? Has the firm progressed satisfactorily toward achieving its stated objectives?

5. 5 Structural types

6. 6 The simple structure The simple structure: �is one in which the organisation is run by the personal control of an individual�. (Johnson & Scholes 1999, p. 402) Management problems arise when such businesses grow. Brother�s Neilson, Uncle Tony�s Kebabs etc could not keep this structure in their quest for growth

7. 7 The functional structure �based on the primary activities that have to be carried out, such as production, finance and accounting, marketing and personnel�. (Johnson & Scholes 1999, p. 403) Organisations are organised around specific functions Departments and �teams� are designed each with its own leadership structure Results in specific task orientation rather than the greater good of the whole organisation Can result in many sub-cultures, goals, norms etc Departmental feuds can result with �horror� stories about other departments. Blaming can often result. Develops specialist skills and efficiencies but lacks integration which may be needed for strategic growth

8. 8 The multi-divisional structure �the subdivision of the firm into into (operating) units (divisions) on the basis of products, services, geographical areas or processes of the enterprise�. (Johnson & Scholes 1999, p. 404) Used to manage diversified companies Good ownership of strategic direction and outcomes for SBU Corporate control is loose and mainly revolves around corporate planning and budgeting Can be fairly decentralised and autonomous May result in competition between divisions and some cannibalisation

9. 9 The holding company structure �is an investment company consisting of shareholdings in a variety of separate business operations, over which the corporate centre exercises simple control�. (Johnson & Scholes 1999, p. 408) Very diversified corporation The SBU structural form groups similar divisions or structures into strategic business units and delegates authority and responsibility for each unit to to a senior exec. who reports the CEO. Very distinct SBU structure normally with individual brands and names and allowed to run itself Corporate parent has whole or part shareholdings in many sperate firms

10. 10 The holding company structure (Cont) Advantages Suitable for complex and growing business environments Reduces gap between upper & lower management levels Improves inter-firm communication Strategy implementation can be facilitated more effectively Disadvantages Requires an additional layer of management (high salary costs) May reduce x- fertilisation of ideas within the corporation Can dissipate core competencies thereby reducing capacity to develop new products and technologies

11. 11 The matrix structure �combination of structures which often takes the form of product and geographical divisions or functional and divisional structures operating in tandem�. (Johnson & Scholes 1999, p. 409) Complex � dependent upon both vertical & horizontal flows of authority & communication. Integrates activities, planning and allocation of resources to overcome issues of functions and divisions Used in small or large firms with multiple products, markets and functions Dual (or more) management resulting in 2 boss syndrome and conflicting orders. Queensland Retail manager reports to Australia retail director, Australia category manager and Australian MD

12. 12 The matrix structure (Cont) Advantages Can integrate diverse resources to address an immediate problem Project objectives can be clearly defined Often suitable for defence, research & health industries Disadvantages Very complex Lacks clear accountability More suited to a developmental role Can result in high overhead costs Needs effective communication channels to avoid mistrust between specialist areas

13. 13 Other structures In reality very few firms follow the rigid models as described but adapt & modify such models to meet specific needs & contextual situations. Firms need to develop structure based on; Degree of control sought over product management, strategic planning, organisational functions Degree of diversity in geography (markets served) functions and product categories (SBUs) Need for growth and response to environmental change Need for accountability and measurement of KPIs Desire to motivate, train and develop employees along a career path In view of this there are 3 major elements to consider when designing the structure

14. 14 The elements of organisational design Three elements: Centralisation vs. devolution (structure on the responsibility for operational and strategic decision making) Organisational configurations (matching the structure with the context that the organisation is operating) Resource allocation & control processes (influence on the behaviour of people and assist strategic development)

15. 15 Centralisation vs. devolution Devolution is: �the extent to which the centre of the organisation delegates decision making to units & managers lower down the hierarchy�. (Johnson & Scholes 1999, p. 423) Issues that managers trying to avoid: �out of touch� in the markets and operations of the business. Overcentralisation (too concerned with internal matters).

16. 16 Centralisation vs. devolution (Cont) The role of the centre Improve efficiency. Providing expertise and services Providing investment. Fostering innovation. Mitigating risk. Providing strong external image. Encouraging collaboration and co-ordination. Setting standard.

17. 17 Organisational configurations �The configuration of an organisation is the detailed design consisting of a number of building blocks and co-ordinating mechanisms�. (Johnson & Scholes 1999, p. 431) Mintzberg (1979) six building blocks of organisations: The operating core The strategic apex The middle line The techno-structure Support staff Ideology

18. 18 Lecture 10 review Types of organisational structure The elements of organisational design Centralisation vs. devolution Organisational configurations Now go back and ask yourself the introductory questions Now ask which organisational structure will MOST benefit the firm, in terms of being able to achieve the strategic outcomes recommended in your report? Is a change required? If YES then is this change realistic? If NO then are the recommendations implementable? If NO then��.

19. 19 Next lecture Module 11: Resource allocation and control (Study book: Module 11 - Text Chapter 10)

20. 20 Next tutorial Assignment 1. (preparation)