Intermediate Strategic Management

1. Intermediate Strategic Management Marco Clemente Spring 2014 2nd session – 3 March 2014

2. What I learned last class (that could be useful for you) Communication andIncentives “Don’t introduce anything that can distract the audience from your message – if they can get distracted, they will get distracted.” How to get feedback? Email communication How to win emotional commitment

3. Expectations of the class What (content) How (the process) “the work … to motivate the students.” “A thought…came from the way the course is organized…I think this thinking can be transformed to many fields and activities. It is not just about presenting your stuff, but getting the things really going, people working and enthusiastic.” … • “to learn on strategy implementation (the nature of it, essential parts and where/how things can go wrong)” • … “The form is the content”

4. Let’s use the tools of the course to analyze the course Source: Kaplan and Norton (1996, 2004)

5. 1. Communication and Incentives Formal vs. Informal Assessment Mandatory: • passing the exam (grading is based on the exam only) • group presentation about one school of strategy Non-mandatory: • questions to quest speakers • using the course twitter account • individual learning diaries • attendance on the sessions Though these actions are not mandatory, they are highly suggested and will provide better learning outcomes and course grade.

6. 2. “If they can get distracted, they will get distracted.” • In how many ways it can be filled? 1 1 2 2 3 3

7. 3. Feedback comes before the transmission……How? Transmission RECEIVER SENDER Asking receiver Asking other senders Being in the receiver role Feedback

8. 4. Email communication- scriptamanent, verbavolant - Action in the subject Summary of the email Bullet points A bit too emotional (careful)

9. Email communication Put the email addresses in the end!!!! Clarity of Message • Put the action in the subject • Use bullet points • Start with the action in the top and then explain Appropriateness (Emotionality) • Do not mix informal and formal (Emails are forwarded inside and outside) • Principle: “Will I get embarrassed if my parents would read it”? Other rules to be efficient • “1 touch rule” • Allocate specific time to read emails • Use other channels (not always the email is the most appropriate ones) The more emails you send the more emails you receive!

10. 5. How to win emotional commitment- Twitter - I KNOW I UNDERSTAND YES, I THINK I CAN I WILL I show a slide Send an email gap Better learning Social media are key for working in Management/Strategy Social media are expected by young employees (new generation) You are a brand Your employee would search online for you gap gap If you have problems to set up ask Kalle or me Providing people information is only the first step towards emotional commitment and action

11. Other questions • Tips on how to find a job in a consulting company, job interviews etc. • Ask the guest speakers • Extra session at the end of the course (more later) • Many want to work internationally • Working with international people is key • Use this course

12. Agenda Organizationalstructures(40minutes) • Group exercise (I knowyouwillloveit!) • Philips versusMatsushita Schools of Strategy: Design and Planning (40 minutes) • Group presentations • My presentations

13. Organizationalstructures

14. Organizational configurations- Where are we? Where will we be? - “Structures give people formally defined roles, responsibilities and lines of reporting with regard to strategy”* * Johnson, Whittington and Scholes, Exploring Strategy 9th edition, p.431

15. Structure and Strategy Strategy Structure Alfred Chandler (1965): Structurefollowsstrategy The traditional view

16. Let’sstartfrom a case

17. 1. The earlystage 1. Youarestarting a productbusiness (T-shirt) with three of yourfriends. Equity-split: How willyoudivide the company’sshares? Structure How willyoustructure the business? Whowilldowhat?

18. 1.a Equity split “The equity-split negotiation can be among the most emotional and visceral events in the development of a founding team, with feelings overwhelming rational considerations” (The Founder Dilemma, p. 147) 50%-50% 51%-49% … http://thinkspace.com/how-to-divide-equity-to-startup-founders-advisors-and-employees/ http://www.andrew.cmu.edu/user/fd0n/35%20Founders%27%20Pie%20Calculator.htm http://www.geekwire.com/2011/wrong-answer-5050-calculating-cofounder-equity-split/

19. 1.aEquity-split Big literature The founder’s dilemma: Chapter 6

20. 1.b The mother of allstructure: No Structure Founder 1 Founder 2 Founder 3 Founder 4

21. 1.b RACI / PACE Chart

22. 2. The nextstage: Growth Yourcompanyhasgrown to about 35 employees. Youhaveoneproduct on the marketthat is sellingreasonablywell. How willyoustructure the business? Whowilldowhat?

23. 2 The Functional Structure A Typical Functional Structure • Organizes activities according to the specific functions that a company performs • Functions are coordinated and controlled by top management • Decision making is centralized

24. Advantanges and disadvantages Advantages • CEO in touch with all operations • Reduces/simplifies control mechanisms • Clear definition of responsibilities • Specialists at senior and middle management Disadvantages • Overburdened with routine issues • Neglect strategic issues • Difficulty coping with diversity • Coordination between functions • Failure to adapt

25. Developmentcontinues

26. 3.a Business scope Yourcompanycontinuesgrowingnicely. Youhavedecided to broaden the business scopebyadding a new business (mugs) linethataddresses a new customergroup with a secondproduct How willyoustructure the business? Whowilldowhat?

27. 3.b Geographic scope Yourcompanycontinuesgrowingnicely. Instead of broadening the business scopeyouhavedecided to go international byentering the North American market. How willyoustructure the business? Whowilldowhat?

28. Multidivisional Structure Headquarters Business Group A Business Group B Business Group C One solution to problems of managing activities in multiple markets or managing multiple products Finance Finance Finance Marketing Marketing Marketing Operations Operations Operations Example GM is organized according to product division (GM Trucks, Chevrolet, Buick, Cadillac, Opel, Pontiac, etc. Each maintains its own finance, marketing, and other support functions

29. Advantages and disadvantages Advantages • Flexible • Control by performance • Ownership of strategy • Specialization of competences • Training in strategic view Disadvantages • Duplication of central and divisional functions • Fragmentation and non-cooperation • Danger of loss of central control

30. 4. Developmentcontinues After 20 years of success your company serves customers on all continents in three different businesses. Unfortunately some of the markets you are serving have commoditized forcing you to increasingly focus on cost. How will you structure the business? Who will do what?

31. Matrix Structure Corporate Office Product or Region A Product or Region B Product or Region C Product or Region D R&D Hybrid between functional and multidivisional structure Operations Marketing Finance Source: http://www.cio.com/archive/090103/hs_reload.html

32. Advantages and disadvantages Advantages • Integrated knowledge • Flexible • Allows for dual dimensions Disadvantages • Length of time required for decision making • Unclear job and task responsibilities • Unclear cost and profit responsibilities • High degrees of conflict

33. The Four Key Design Decisions Specialization Division of Labor: Low High Basis Departmentalization: Homogeneous Heterogeneous Number Span of Control: Many Few Delegation Decision making: High Low

34. A. Division of Labor • Division of labor is the process of dividing work into relatively specialized jobs to achieve advantages of specialization • Division of labor can occur on three bases • Personal specialties • e.g., accountants, software engineers, graphic designers, scientists, etc. • Natural sequence of work • e.g., dividing work in a manufacturing plant into fabricating and assembly (horizontal specialization)

35. Geographic Functional Customer Product B. Departmentalization Departmentalization is the process in which an organization is structurally divided by combining jobs in departments according to some shared characteristic or basis.

36. C. Span of Control • Number of individuals who report to a specific manager • Narrow span • Wide span Key factors that drive the optimal span of control are • Required Contact • Degree of Specialization • Ability to Communicate

37. D. Centralized versus decentralized decision making • Centralized decision-making • facilitates coordination • ensures decisions are consistent with the organization’s objectives • gives managers the means to bring about organizational change • avoids duplication of activities • Decentralized decision-making • relieves the burden of centralized decision-making • has been shown to motivate individuals • permits greater flexibility • can result in better decisions • can increase control

38. Somealternativestructures

39. Multinationalstructures Johnson, Scholes, Whittington

40. Indi-vidual Projectgroup Projectgroup Example Network Structure Small, semi-autonomous, and potentially temporary groups brought together for a specific purpose Gore Industries ’s 6,000 employees spread across the world work in small teams and are encouraged to seek out colleagues on their own

41. Partnerships Franchises The company is organized as a group of partners who own shares or units in the corporation Company not only transfers ownership of local facilities to franchisees, but license all local man-agementresponsibility Example Example Most law firms Burger King Partnerships and Franchises

42. Butdoesstructurealwaysfollowstrategy?

43. Philips versus Matsushita

44. Germany Belgium 1918-1930s Vacuum tubes, radios, x-ray tubes 1892 Light bulb factory 1963 Audio cassette tape 1982 Compact Disc with Sony 1970’s Adoption of Matshusita’s VHS over V2000 videocassette 1940 Moved management & research to US and England 1912 Incorporation 1971-present Reorganization of company - 7 CEOs - Koninklijke Philips Electronics N.V., Netherlands • Consumer Electronics, Lighting, Medical Systems, and Domestic Appliances and Personal Care • In 2006 $39.6 billion in sales, 60 countries • Bordered by the North Sea to the north and west, Belgium to the south, and Germany to the east.

45. 1974 Purchased Quasar from Motorola 1940’s Light fixtures, motors, electric irons 2006 No more analog TVs. Concentrate on digital. 1918 Duplex lamp sockets 1989 Japanese stock market crash 1979 Expanded “Panasonic” brand to Europe 2004 Panasonic as primary global brand 1960’s Television sets “Panasonic” brand 1927 Bicycle lamp “National” brand Matsushita Electric Industrial Co., Japan • Brands and divisions: • Panasonic, National, Nais, Quasar, Technics, Ramsa, Rasonic • In 2006, $79 billion in sales • Ranked the 59th company in the world in 2007 by the Forbes Global 500

46. Comparison of the starting positions Philips Matsushita Structure Matrix Hierarchical Decision making Decentralized Centralized Staffing Key staff local Key staff ex-pats Strategy Technical innovator Fast follower

47. Structure and Strategy Strategy Structure

48. How Philips’ strengths and core competencies became its weaknesses Core Competencies Core Incompetencies Ability to adapt to local market conditions No economy of scale in manufacturing Strong National Organizations NOs often working against each other Common Market Employee centric values Organization with “lifers” Focus on R&D / technical innovation Inability to commercialize innovation

49. How Matsushitas’ strengths and core competencies became its weaknesses Core competencies Core incompetencies Broad line of products (5000 vs. Sony’s 80) Bloated operations & excess capacity Centralized structure in Japan Developing local footprint 1989 Market Crash Strong culture at centre Over-reliance on centre for innovation Fast follower strategy Weak entrepreneurial / innovation ability

50. A comparison of attempts to shift strategies Matsushita Philips Degree of centralization • 1970’s - Shift to IPC’s / Tilting matrix to PD’s • 1987 - 4 core LOBs / 14 PD’s to 4 global divisions • 1990 - Bet on 15 core multimedia technologies • 2001 - Eliminate “management discount” in stock price • 1982 - Operational Localization • 1986 - “Matsushita Bank” • 1999 - “Simple, small, speedy and strategic” High Low