Strategy Implementation Session 8 – Formal Structure

1. Image not licensed for web distribution. Link here. Strategy ImplementationSession 8 – Formal Structure

2. Agenda • Quiz Friday • Intro: Structure & Re-organization • Shell • Break • Shell Update • Formal Structure

3. Structure has come up all over.

4. The integrating elements of implementation. The traditional approach to re-org began with formal structure, but this proved a path to failed initiatives and ‘the re-organization merry-go-round’. Informal Organization Formal Structure People Planning Partnerships Projects Processes Class 5 - Culture

5. What is the goal of good design? • Goold & Campbell: “Structured Networks” Create units that are self-managing on all matters except those where influence from the hierarchy or designed-in processes are needed to optimize the work.

6. Shell • What were the distinctive features of Shell’s organizational structure prior to 1995? • How well suited was Shell’s structure to the competitive conditions and key success factors in the world oil, gas and chemicals industry? • To what extent did the 1995–6 reorganization remedy the deficiencies of Shell’s structure and systems? • How far did the further organizational changes of 1997–2000 resolve the remaining problems of Shell’s 1995–6 reorganization? • What additional changes to Shell’s organizational structure and management systems would you recommend to the current chairman of the Committee of Managing Directors, Mark Moody-Stuart?

7. Break

8. Update: • A driving force of the changes was increased “individual accountability” • Case: “A key element of the organizational changes pushed by Moody-Stuart was the desire to replace Shell’s traditional consensus-based decision making with greater individual leadership and individual accountability.” p.197 (142) • Moody-Stuart: “We have entered a new period where executive decisions have to be made rapidly and business accountability must be absolutely clear.” p.197 (142) • Van den Bergh: “As a consequence, today we have global businesses headed by personally accountable CEO’s.” p.199 (144) • How could Shell stumble on issues of accountability right after a re-organization targeting increased personal accountability? Formal Structure

9. My Take on Shell: Complementarities (linkages) are a key element of organizational structure. Formal Structure

10. Complementarities make change challenging and risky • They create inertia and increase the likelihood of failure • It’s extremely difficult to get all the complementarities right on the first try. And mistakes can be costly. Formal Structure

11. Key Issues: An architectural approach to formal structure • Structure shapes attention & information flow. • Complex structures support multidimensional capabilities. • The advantages of simple structures are often overlooked in redesigns.

12. The Key Organizing Principles Grouping Principles: What are the separable activities? Linking Principles: How are the disparate groups coordinated?

13. Image not licensed for web distribtion. Link here. “In business, what is worse than having departments? They don’t talk to each other. You have to make open behavior something that is rewarded. Finding an idea, sharing it, spreading it becomes rewarded behavior. Boundarylessness says that every time you meet somebody, you’re looking for a better and newer and bigger idea.” (J. Welch)

14. Design comes down to groups and links. • Group activities that require closer coordination • To achieve scale, build knowledge, or adapt regularly to changes • The principles for grouping determine • Who talks with whom: people closer physically speak much more often • Where attention is focused: people repeat and amplify information they have in common • Where easy and frequent adaptation and coordination occur. • Create links across groups to coordinate interdependent decisions & share resources. • Linking creates complexity, however, which can constrain change.

15. Image not licensed for web distribution. Link here.

16. Linking mechanisms vary from formal to informal. Hierarchy Structural Linking Mech. Processes & Systems Informal Organization

17. Linking alternatives vary in their capacity, cost, and complementarities.

18. Goold & Campbell’s fit tests

19. Insights from the fit tests

20. Goold and Campbell’s Design Tests

21. Insights from the Design Tests

22. Simple vs. Complex Structures • Simple Structures • Clear product/market focus • Autonomous, self-contained units • Strong unit profit accountability • Complex Structures • Multiple dimensions of focus • Interdependent units • More complex, less specific • accountability

24. What does the book name as simple structures? Why are these simple? • How many people in the class have reported within a strategic business unit based on product market(s)? • Did your unit have true autonomy?

25. Simple Structures – Strategic Business Units* * Goold & Campbell p. 113

26. Simple structures • Redesigns sometimes discount the value of simple structures. • Learn & evolve within product markets: Bertelsmann, Mondavi • Encourage of entrepreneurial behavior within corporations: EMAP publishing • Difficult tradeoffs are best made by general managers with rich market knowledge: IBM • Even with simple structures, designs often miss necessary fit & complements. • Accountability: getting the incentives & monitoring right • Define Role of Parent: where & how is corporate value added? • Maintain True Autonomy: encourage cooperation without undermining autonomy

27. Why have firms been adding complexity to these SBU structures? • What kind of cooperation did your firm require/need between units to accomplish its strategic goals? • Did this cooperation take place? If yes, why? If not, what inhibits it?

28. Complex Structures – Managing Interdependence* * Goold & Campbell p. 138

29. Complex Structures • Many strategies require firms to manage along multiple dimensions: • IBM: product innovation & customer solutions • Citibank: • Bertelsmann: • Complex structures enable multiple focuses • Complex structures are more likely to be the home of capabilities that are difficult to imitate. • Eg: Zara’s design & production chain with coordination & feedback through the design unit. • Complex structures are more difficult to monitor & to change as markets evolve. • The guiding principle should be to maintain autonomy and self-correcting relationships in as many areas as possible.

30. Top Insights from the Design Tests

31. Formal structure: key issues • Structure shapes attention and information flow in an organization. • Complex structures support multidimensional capabilities. • The advantages of simple structures are often overlooked in redesigns. • Linkages, or complementarities, between different elements of design (and culture) are often difficult to see and manage.

32. Common missteps with implementation & formal structure. • Leading re-organization with changes to formal structure rather than culture and informal organization. • Adding complexity to design without fully considering the flexibility and speed costs of additional links. • Ignoring the value of simple designs. • Missing the invisible complements to design • Even, maybe especially, in simple designs.

33. Next Up: Knowledge & Authority • Image not licensed for web distribution. • Link here. Does SK-II have the potential to become a global brand within Procter & Gamble’s worldwide operations? Why or why not? Which of the three market options should Paolo DeCesare recommend to the GLT? What risks do you see? How should he implement your recommended option? What are the implications for P&G’s new post-O2005 organization?