Organization Theory: Strategy Implementation Process

1. Organization Theory: Strategy Implementation Process Steven E. Phelan June, 2006 STRATEGY EXECUTION: Structure, Systems, Rewards

2. Overview • Syriana Discussion • Structure and Execution • Hrebiniak Chapter 4 • USA Today • Integration • Hrebiniak Chapter 5 • Brache – Strategy implementation • Bossidy- Letter to a new leader • AHA • Incentives and controls • Hrebiniak Chapter 6 • Bebchuk – Pay without performance

3. Syriana • Analyze the movie from the perspective of: • Chaos and complexity theory • Critical theory • Corporate social responsibility

4. The Star Model Strategy People Structure Rewards Processes (Integration) from Galbraith, Designing Organizations

5. Structure • Key principles • Functional organization -> efficiency • Economies of scale, avoids duplication, critical mass of know-how, clear career path • Divisional structure -> effectiveness • Traditional focus on products, markets or geography • New areas – customers, processes, solutions, segments • Profit contribution can be easily measured in product divisions • Does this provide more monitoring/motivation as well?

6. Centralization v Decentralization • General principle • Centralized = functional/efficient • Decentralized = divisional/effective • Text recommends a sequential process starting from the corporate level to group, division, and strategic business unit (SBU) • Choice depends on what is important to management

7. Tall v Flat • Large, more centralized companies often have taller structures (I.e. more layers) • Increasing the span of control to create flatter structures can create benefits • Faster decision making, less bureaucracy, closeness to customers, cost savings, and flexibility • but can also suffer from problems such as: • inertia, inadequate expertise, lack of responsibility, and lateral communication problems • Not a universal cure all • Corporate HQs are starting to include: • Strategic management functions, executive education, and “centers of excellence” in addition to traditional HR, legal, IT etc.

8. Strategic Drivers • Type of strategy • Global strategy often calls for matrix structure • Low cost leadership = functional structure • Focus/differentiation = divisional structure • Market and technological relatedness • Same customers, processes, distribution etc. • Leads to increased centralization (or need for coordination) • Growth/size • Increased decentralization

9. Emerging Trend • Customer centric mindset • To find as many new and existing products to sell to a customer as possible • To create and customize solutions for a customer • To appear as one company to each customer • To develop an on-going customer relationship • Contrasted with a product-centriccompany whose mission is to find as many uses and customers for each product as possible

10. Customer-focused structure • The front/back structure • Front End = customers and market • Back End = products and technologies • Example of a hybrid structure

11. Telstra • Customer Divisions • Sales, direct marketing, sales engineers • Corporate, Government, Business, Residential • Product Management • Product marketing and product engineers • Basic access, DSL, prepaid cellphones • Network Engineering • Technologies, platforms, infrastructure • Switching, transmission, access • Broadband, wireless, microwave

12. Thoughts • Art or science? • Is organizational design more art than science? • Diversity (in customers, technology, distribution etc. ) is grounds for differentiation • Need to choose primary form of departmentalization • Integration processes can compensate for inherent weaknesses • Need to be aware of pros and cons

13. Case 1: American Heart Association • Case Study • Was the first restructure a sound move? • What problems did it create? • As an org design consultant, what changes would you recommend to the existing structure… • At the regional level? • At the national level?

14. Integration • Interdependence • Pooled • Low coordination requirements • Rules/SOPs/Hierarchy • Sequential • High coordination • Scheduling, JIT, transfer pricing issues • Reciprocal • Very high coordination • Meetings, trust, group incentives

15. More integration ideas • Voluntary (or informal) • Rotation, interdepartmental events, co-location, mirror image departments, consistent rewards, common language • E-coordination • Web pages, databases, CRM, email, discussion groups, instant messaging/chat • Formal group • Regular meetings – need for leadership/conflict mgt skills

16. More integration ideas ctd. • Full-time integrators • Project managers, brand managers, process managers etc. • Put teams together across departments • Matrix organization • Level of coordination grows but so does cost and difficulty of implementation • What about tie-breakers and two-boss bosses? GE’s Workout program?

17. Responsibility Plotting • Responsibility Matrix • Major tasks by key people • R = responsibility • A = accountability (final say) • I = must be informed • C=must be consulted • ? = don’t know • Useful tool

18. Brache v Bossidy • Systems of strategy implementation • Brache is more structural (hard) • Establish an initiative identification & priority setting system (to favor fewer initiatives), • Put in place the right structure, people (sponsors, leaders, teams), and culture to support implementation initiatives • Create a reporting system to monitor progress on initiatives • Bossidy is people oriented (soft) • Know yourself, know your people (potential & performance of top 1/3), know your customers • Be open, honest, realistic – always learn • Attract, reward, retain the doers (the A-players) that get things done • What works?

19. Rewards & Controls • Hrebiniak’s prescriptions • Develop and use good objectives • Clear, relevant, measurable • Reward the doers • Reward cooperation • Face the brutal facts honestly • Clarify responsibility and accountability • Obtain timely and valid information • Use the information for learning and adaptation • Take action when actual results deviate from plan • Be sure to change as a result of lessons learned

20. Case 2: USA Today • Identify the problem(s) • Recommend: • A strategy • A structure • A set of key lateral processes, and • A reward systemThat will solve (or at least address) the problem(s) at USA Today

21. Bebchuk and Fried • CEO compensation • Critical analysis (compare to Chomsky) • Aggregate compensation of top-five executives 10%+ of earnings of public firms • Limits on board independence to set rewards • Incentive to be nominated/re-elected • CEO’s power to benefit directors • Friendship, loyalty, collegiality, authority, solidarity • Small personal cost of favoring CEO • Ratcheting

22. Dubious practices • A list • Camouflage and stealth compensation • To reduce ‘outrage’ costs • Gratuitous goodbye payments • Windfall compensation • Options tend to reward broad market movements and short-term spikes • Pension and deferred compensation • Is the system broken? Are we rewarding executives too much? Will there be a backlash?