Foundations of Strategy Realizing Strategy

1. Foundations of StrategyRealizing Strategy

2. Introduction • Will learn of the ways in which strategy is realized in practice • Learn of the 3 key factors (organizational structure, culture, & systems) and how they shape strategy • Learn of the challenges of organizing and how the 3 factors can help us overcome those

3. Specialization • Efficiency in production comes from specialization through the division of labor into separate tasks • Though too much division of labor between specialist, can lead to the challenges of integration • There 2 challenges of integration of specialists, cooperation and coordination

4. The Cooperation Problem • The main problem in organizations is that different groups have different goals • The agency relationship can be a major reason for the cooperation problem • Several mechanisms can be used to help align the groups and goals within the organization

5. Cooperation Mechanisms • Bureaucratic controls • Top management have to be careful not to exercise too much bureaucratic control, otherwise it could limit the way the workers lower down within the organization, can do there job. • Performance incentives • Have to be careful to not only reward desirable outcomes, but as well as reward for how those outcomes are being achieved. • Shared Values • You want to make sure that your employees are “buying in” to the culture & goals of the organization, but if that culture & goals are promoting unethical behavior, you have to change that as top management.

6. The Coordination Problem • Have to make sure that the entire organization is coordinating all efforts correctly, otherwise production will not exist • 3 mechanisms that exist in the coordination problem • Rules & Instructions • Routines • Mutual Adjustment

7. Organizational Design • Two forms • Bureaucracy • Hierarchy • Advantages of using hierarchies to achieve coordination as well as control • The different ways in which organizations can be structured along hierarchical lines

8. Hierarchy and Coordination • By introducing hierarchical structures can help reduce costs of coordination • One individual appointed leader • Less number of interactions are needed to be managed, which lowers the cost of coordination

9. Hierarchy and Coordination Cont’d • When thinking about hierarchies within organizations, we think about the way in which specialized units are coordinated and controlled by a superior unit • Hierarchies are a flexible way of coordinating activities because they allow specialist units to act independently of each other

10. Organizational Units • Organizational Units can be grouped in the following forms • Common tasks • Products • Geography • Process

11. Tasks • Employees are grouped together with others who do the same job • Ex: a firm might create a machine shop, maintenance department, secretarial pool and a sales office

12. Products • This is where a company offers multiple products • Ex: In a department store, departments are defined by products: Kitchen goods, bedding, lingerie • Ex: PepsiCo has three main product groups: PepsiCo Beverages, Frito-Lay, and Quaker Foods

13. Geography • Where a company serves multiple local markets, organizational units can be defined around these localities • Ex: Wal-Mart is organized by individual stores, groups of stores within an area and groups of areas within a region. • Ex: Catholic Church is organized in parishes, dioceses, and archdioceses

14. Process • A sequence of interlinked activities. • An organization may be viewed as a set of processes: the product development process, the manufacturing process, the sales and distribution process • A process may correspond closely with an individual product, or a process may be dominated by a single task • Functional organizations tend to combine task-based and process-based grouping.

15. How do we decide which to use? • Fundamental issue is achieving the coordination necessary to integrate the efforts of different individuals • This implies grouping individuals according to the intensity of their coordination needs • Individuals whose tasks require the most intensive coordination should work within the same organizational unit

16. How do we decide which to use Cont’d • In geographical dispersed organization where communication across distance is difficult, it is advantageous to base the organization on local units • Ex: consultancy companies are often organized on this basis

17. Undiversified Organizations • When an organization is not particularly diversified in relation to products and doesn’t need to be differentiated by location but possesses strong functional specializations, then grouping around functional task is appropriate • Ex: British Airways is organized primarily around functions: Flight operations, engineering, marketing, sales, customer service, HR, information, and finance

18. Diversified Organization • Where a company is diversified over many products and these products are substantially different in terms of technology and markets, it is vital that individuals who work on the same product should interact closely – a product based organization is the appropriate structure • Ex: GE, 3M, Sony, Siemens and Unilever

19. Alternative Structural Forms • There are three alternative approaches to grouping tasks and activities • The Functional Structure • The Multidivisional Structure • The Matrix Structure

20. Functional Structure • Single business firms tend to be organized along functional lines • Grouping together functionally similar tasks is conducive to exploiting scale economies, promoting learning and capability building and deploying standardized control systems • Conducive to a high degree of centralized control by the CEO an top management

21. Problems with Functional Structure • Functional structures are subject to the problems of cooperation and coordination • Different functional departments develop their own goals, values, vocabularies and behavioral norms • Pressure on top management to achieve effective integration as the size of the firm increases

22. Problems with Functional Structure Cont’d • This is because different functions of the firm tend to be tightly coupled rather than loosely coupled and there is limited scope for decentralization • The real problems arise when a firm grows its range of products and businesses • When this happens coordination within each product area becomes difficult

23. Multidivisional Structure • Emerged during the 20th century in response to the coordination problems caused by diversification • Key advantage of divisionalized structures is the potential for decentralized decision making • Classic example of a form or organization that allows business level strategies and operating decisions to be made at the divisional level, while corporate headquarters concentrates on corporate planning, budgeting and providing common services

24. Advantages to Multidivisional Structure • Efficiency advantages of the multidivisional corporation is the ability to apply a common set of corporate management tools to a range of different businesses • Divisional autonomy also fosters the development of top management leadership capability among divisional heads

25. 3 Levels of a Divisionalized Organization • Large, divisionalized corporation is typically organized into 3 levels • Corporate center • Divisions • Individual business units • Each representing a distinct business for which financial accounts can be drawn up and strategies formulated

26. Matrix Structure • Organizational structure that formalize coordination and control across multiple dimensions • Many diversified, multinational companies adopted matrix structures during the 60s and 70s • During the past tow decades, most large corporations have dismantled or reorganized their matrix structure

27. Matrix Structure Cont’d • In fast moving business environments companies have found that the benefits from formally coordinating across multiple dimensions have been outweighed by excessive complexity, larger head office staffs, slower decision making and diffused authority • Bartlett and Ghoshal observed that matrix structures • “Led to conflict and confusion; the proliferation of channels created informational logjams as a proliferation of committees and reports bogged down the organization; and overlapping responsibilities produced turf battles and a loss of accountability”

28. Problem with Matrix Organizations • Not that it attempts to coordinate across multiple dimensions but that this multiple coordination is over formalized, resulting in excessive corporate staffs and over complex systems that slow decision making and dull entrepreneurial initiative

29. Beyond Hierarchical Structures • For several decades consultants and management scholars have proclaimed the death of hierarchical structures in business firms • In 1993, two scholars of organization announced • “the new organizational revolution is sweeping one industry after another…quantum changes in manufacturing and computer mediated communication technologies have given managers radical new options for designing organizations”

30. Beyond Hierarchical Structures Cont’d • New organizations featured • Flatter hierarchies, decentralized decision making, greater tolerance for ambiguity, permeable internal and external boundaries, empowerment of employees, capacity for renewal, self organizing units, self integrating coordination mechanisms

31. Alternative Organizational Forms • Adhocracies: type of organization characterized by the absence of bureaucracy and hierarchy. Decision making authority is diffused and located within organizational members areas of specialization. • Flexible, spontaneous coordination and collaboration around problem solving and other non routine activities

32. Alternative Organizational Forms Cont’d • Team based and project based: common in sectors such as construction, consulting, oil exploration and engineering services • This approach works well because every project is different and goes through a changing sequence of activities, each project needs to be undertaken by closely interacting team that relies on problem solving and mutual adjustment as well as rules and routines

33. Alternative Organizational Forms Cont’d • Networks: can be a viable alternative to industrial development where large enterprises are lacking

34. Common Characteristics • All three different organizational forms share common characteristics • Focus on coordination rather than control • They focus almost wholly on achieving coordination • Financial incentives, culture and social controls take the place of hierarchical control • Reliance on coordination by mutual adjustment • Dependent on voluntaristic coordination through bilateral and multilateral adjustment • Individuals in multiple organizational roles

35. 4 major Systems • Information • Strategic Planning • Financial Planning and Control • Human Resource Management

36. Information System • Communication technology • telephone, computers • Administrative hierarchies • upward flow-managers • downward flow- instructions

37. Strategic Planning System • Statement of the goals • Set of assumptions or forecasts • Specific action • Set of financial projection

38. Financial Planning and Control System • Capital expenditure budgetsare the overall financial plan that deals with expenditure on assets such as equipment and facilities • Operating budget is a detailed projection of all estimated income and expenses based on forecasted sales revenue during a given period.

39. Human Resource System • How the organization work within the company • Setting goals • Creating incentives • Monitoring performance

40. Organizational Culture • Organizational Culture: “A pattern of shared basic assumptions that was learned by a group as it solved problems of external adaptation and internal integration, that has worked well enough to be considered valid and, therefore, to be taught to new members as the correct way you perceive, think and feel in relation to those problems.” • Edgar Schein

41. Organizational vs. Corporate Culture • Corporate Culture refers to the values and ways of thinking that senior managers wish to encourage within their organization • Organizationalculturerefers to the diverse cultural patterns that exist in the informal organization

42. Strong vs. Weak Cultures • A strong culture is one in which key values and attitudes are widely shared and intensely held. • A weak culture, in contrast, is one where people tend to hold different views, have different values and may interpret and respond to signals in very different ways.

43. Describing and Classifying Cultures • Johnson has identified a number of elements that can be used to describe organizational cultures which he labels a “cultural web”. These include: • The organization’s paradigm • Its control systems • Organizational structures • Power structures • Rituals, routines, stories, and myths.

44. Schein’s Three Cultural Levels • First Level: Comprises the organizational attributes that an outsider visiting the company for the first time might see, hear or feel. • Second Level: The values and attitudes that organizational members express. • Third Level: These are the “unspoken rules” and tacit beliefs of an organization. Schein considers this to be the most influential but also the most difficult to change.

45. Corporate Culture & Organizational Performance • There is limited empirical evidence on the links between corporatecultureand and organizationalperformance, in part because of the difficulties of measuring these broad concepts.

46. Summary • Learned of the ways in which strategy is realized in practice • Learned of the 3 key factors (organizational structure, culture, & systems) and how they shape strategy • Learned of the challenges of organizing and how the 3 factors can help us overcome those

47. Questions?