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Business of Managing

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Example Organizational Development Perspective

StrategyVision/Mission

Strategic PlanningNew Business/Markets

Strategic Change ManagementKnowledge Management

Building SponsorshipAcquisitions

PeopleLeadership Development

Succession PlanningTalent Management Strategies

Roles & ResponsibilitiesKnowledge, Skills & Experience

Internal RedeploymentChange Management

Feedback

ReinforcementCommunication Systems

Cultural ChangeReward Processes

Annual Priority AlignmentBalanced Scorecard

Virtual Team / Global Team Management

ProcessBenchmarkingProgram ManagementBusiness Process DevelopmentStrategic PartnershipsInter-organizational alignmentProcess improvement / Re-engineeringInterdependencies

StructureOrganization Design OptimizationOrganization DiagnosticsOrganization AssessmentNew Organization Start-up“White Space” EffectivenessWritten, Unwritten, Virtual

Adapted from “Designing Organizations” by Jay Galbraith

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Topic Agenda

• Managing an Enterprise Within Its Environment

– Management & Strategy

– Creating & Executing Business Processes Around Strategy

• Organizing the Enterprise

– Categorizing Jobs Within the Organization

– Determining Who & What Authority

– Determining Form of the Organization

– What Is Strategy & Why Is It Important

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Types or Levels of Strategy

• Enterprise– Revenue & Market Share Growth Objectives– Product Lines to Maintain/Grow or Enter– Markets (Foreign/New Region) to Enter/Develop– Growth by Acquisition; Growth by Partnerships, etc.

• Business or Competitive– Supply & Value Chain Definitions– Marketing & Promotion Campaigns– Cost Cutting Initiatives

• Functional– Planning & Execution KPI Tracking & Management

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Why Strategy?

Every organization operates on a Theory of the Business, that is, a set of assumptions as to:

– What its business is

– What its objectives are

– How it defines results

– Who its customers are

– What the customers value and pay for

Strategy converts this into performance!

Peter Drucker, Management Challenges for the 21st Century

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Does Strategy Need to Evolve?

“The things I tend to be paranoid about vary. I worry about

products getting screwed up, and about products getting

introduced prematurely. I worry about factories not performing

well and about having too many factories. I worry about hiring

the right people and about morale slacking off. And of course, I

worry about competitors. I worry about other people figuring out

how to do what we do better or cheaper, and displacing us with

our customers. But these worries pale in comparison to how I

feel about strategic inflection points.”

Andy Grove, CEO Intel, “Only the Paranoid Survive”

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So What is a Strategic Inflection Point?

• Time in a business when its fundamentals are about to change

• Full-scale changes in the way business is conducted.. More than

technology or competition

• “Companies that begin a decline as a result of its changes rarely

recover their previous greatness”

• Growth opportunity vs. beginning of the end

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Topic Agenda

• Managing an Enterprise Within Its Environment

– What is Strategy & Why Is It Important

– Creating & Executing Business Processes Around Strategy

• Organizing the Enterprise

– Categorizing Jobs Within the Organization

– Determining Who & What Authority

– Determining Form of the Organization

– Creating & Executing Business Processes Around Strategy

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Strategy Converts Business Theory Into Performance

Clarity About What the Key Goals of the Organization Are

Commitment to Initiatives That Promote Key Goals

Accountability For Actions That Affect The Key Goals

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Example: General Electric

• $125 Billion in Sales (Intel $27B, MS $32B)

• 310,000 Employees

• Spans Manufacturing, Services & Even Media

(NBC Television Network) Sectors

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General Electric Produces

• Aircraft engines• Locomotives & other transportation equipment• Appliances (kitchen and laundry equipment)• Lighting, electric distribution & control

equipment• Generators and turbines• Nuclear reactors• Medical imaging equipment• Plastics

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GE Capital Provides

• Commercial finance

• Consumer finance

• Equipment management

• Insurance

• Accounts for nearly half of GE's sales

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GE Strategy for Performance: Six Sigma

• Basic Definition of Six Sigma:Application of statistical methods to business processes to improve operating efficiencies

• Six Sigma Provides:

Companies with a series of interventions & statistical tools to improve both profits & quality

• Key Metric of Six Sigma: A Six Sigma Quality Level is 3.4 Defects Per Million

Operations in a Manufacturing or Service Process

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GE Strategy for Performance: Six Sigma

• 1995 Jack Welch initiates & within a year:– 200 Projects on Six Sigma– 30,000 employees trained – $200 million training expense

• 1996 – 3000 Projects– Bonuses for entire company

• 60% based on financials• 40% Six Sigma results

– Stock option grants especially for black belts• 1997 6000 Projects

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GE’s Six Sigma Results

• 1997 – Strategic Target of $150 Million Productivity Gains &

Profits– Actual Productivity Gains & Profits: $320 Million

• 1998 – Actual Productivity Gains & Profit: $750 Million– Still between 3 to 4 defects per million or $8-12

BILLION a year in inefficiencies and lost productivity

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Extending Six Sigma to Customers

• Aircraft Engines– 1500 Projects – Over 50 Airlines – $230 Million Operating Margin Earned by Customers

• Medical Systems– 1000 Projects– $100+ Million Operating Margin Earned by Hospitals

Both of these are for 2000..

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Topic Agenda

• Managing an Enterprise Within Its Environment

– Defining Enterprise Strategy

– Creating & Executing Business Processes Around Strategy

• Organizing the Enterprise

– Categorizing Jobs Within the Organization

– Determining Who & What Authority

– Determining Form of the Organization

– Categorizing Jobs Within the Organization

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Simple Form, Lean Staff

“Along with bigness comes complexity, unfortunately. And most big companies respond to complexity in kind, by designing complex systems and structures. They then hire more staff to keep track of all this complexity, and that’s where the mistake begins. The paradox is clear. On the one hand, size generates legitimate complexity, and a complex systems or structural response. On the other hand, making an organization work has everything to do with keeping things understandable for the tens or hundreds of thousands who make things happen. And that means keeping things simple.”

Tom Peters, “In Search of Excellence”

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Core Considerations of Organizing

• Categorizing Jobs Within the Organization

– Specializations

– Departments

• Determining Who & What Authority

– Levels of Authority

– Type of Authority

• Determining Form of Organization

– Functional, Divisional, Matrix, International

• Categorizing Jobs Within the Organization

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Categorizing Jobs: Specialization

• Determining Who Will Do What Specific Tasks

• Matching Employees with Skills to Specific Tasks

• Some Different Examples:

– Laughter Therapists

– Vermiculturist – Worm Farmer (www.happydranch.com)

– Heritage Management Officer (Archeology Degree Required)

– Golf Ball Marshal

– Frito-Lay QA Expert

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Categorization of Jobs: Departments

• Grouping Jobs into Logical Units

• Ways of Departmentalizing

– Functional

– Geographic

– Product

– Customer

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Basic Functional Departments

• Sales & Marketing– High Level: 5 Year Sales Forecast– Detailed Level: Order Tracking, Customer Mgmt

• Research & Development– High Level: Product Trends, Technology Directions– Detailed Level: Design Collaboration & Prototype

• Manufacturing/Operations/Planning– High-Level: 5-Year Operating Plan or Supply Chain– Detailed Level: Machine Control, Plant Scheduling

• Finance– High-Level: 5-Year Budget Forecasting, Cost Analysis– Detailed Level: Securities Trading, Cash Mgmt

• Accounting– High-Level: Profit Planning– Detailed Level: Payroll, Accounts Payable, Accounts Receivable

• Human Resources– High Level: Personnel & Recruitment Planning– Detailed Level: Relocation, Compensation, Training & Development

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Don’t Forget the Leadership Team!

Dave BerrySenior Vice President &

Secretary

Roger HurstSenior Vice President

Bill Helmsmen

Jose GarciaSenior Vice President

Badri KrishnaSenior Vice President

Terri WestSenior Vice President

Rich TempleExecutive Vice President

Finance Leadership Team

Senior Vice President,Treasurer, Chief Financial Officer

Human Resources

Public Affairs Communications Investor Relations

Semiconductor Materials & Controls Educational & Productivity Digital Imaging

Controller

Thomas Bus

Chairman, President and Chief Executive Officer

Jane HedrickSenior Vice President &

General Counsel

Legal Corporate Security

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Other Departmentalization Options

• Organize Around Geographic Sales Areas– Examples:

• Global: EMEA (Europe, Middle East, Africa) vs. NA• National: Northeast vs. Southwest

• Organize Around Customer Base– Example: P&G Customer Support

• VMI Customers• Web-Customers• EDI (Electronic Data Interchange) Customers

• Organize Around Products or Services– Example:

• Semiconductor Purchasing: Silicon, Gases, Hazardous• Semiconductor Selling: DSP, ASIC, Memory, Microprocessors

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Core Considerations of Organizing

• Categorizing Jobs Within the Organization

– Specializations

– Departments

• Determining Who & What Authority

– Levels of Authority

– Type of Authority

• Determining Form of Organization

– Functional, Divisional, Matrix, International

• Determining Who & What Authority

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Some Hierarchy-Related Buzz Words

• Responsibility – Assigned to Perform a Task

• Authority – Ability to Make Decisions on Task

• Delegation – Assign Task to Subordinate

• Accountability – Consequences for Results

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Hierarchy Attributes

• Centralized vs. Decentralized

• Flat vs. Tall

• Span of Control at each Level

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Tall Organizations

• Advantages

– Allow for categorized work

– Provide predictable career & compensation ladder

– Establish clear accountability

– Value Experience

• Disadvantages

– Expensive, time-consuming & resistant to change

– Promote self-importance, status, buck passing, bureaucratic

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Flat Organizations

• Advantages– Promote ownership of tasks

– Eliminate redundancy

– More responsive to change

– Facilitate creativity & innovation

– Put people closer & more responsive to customers

– Empower employees

• Disadvantages– Fewer opportunities for advancement

– Put more responsibility & stress on individuals

– Require skilled, experienced employees

– Reduce independent checks, balances & controls

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Flat Organization Example: Nokia R&D

• #1 Manufacturer of Cell Phones

• Founded 1865 as Forest Product Company

• 1992: Shed All Divisions Except Mobile Communications

• Two Divisions Now: Cell Phones & Mobile Networks

• 2001 $27 Billion Sales

• 2001 Roughly 54,000 Employees

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Nokia’s R&D Team

• 1992: Yrjo Neuvo joins from Finland University (EE)

• 18,000 Engineers, Designers & Socialogists

• 69 Sites from Boston to Bangalore

• Flat Hierarchy & Free-Range Engineering Culture

• Promotes “Hacker Spirit”

Example:

2000 Addition of Text Messaging in 3310 Model

Last Minute w/out Manager Approval…

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Nuevo’s Five Rules

• Don’t Locate All R&D in One Place

(Make it Global & Spread from HQ)

• Keep Teams Small (Less than 50 People)

• Flatten Hierarchy & Stay Close to Engineers

• Celebrate Secret Tinkering & Side Projects

• Welcome Mistakes

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Forms of Authority

• Line Authority – flows up & down chain of commandExample: TI Fab Managers, Mfg Plant Manager

• Staff Authority – based on job expertise/specializationExample: HR Manager Assigned to a Business Unit

• Committee/Team Authority – groups play central roleExample: Corporate Logistics Group Oversees & Evaluates Performance of Regional DCs

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Core Considerations of Organizing

• Categorizing Jobs Within the Organization

– Specializations

– Departments

• Determining Who & What Authority

– Levels of Authority

– Type of Authority

• Determining Form of Organization

– Functional, Divisional, Matrix, International

• Determining Form of Organization

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Basic Forms of Organization Structure

• Functional

– Typically small to medium size enterprises

– Organize around basic functions (I.e., sales, R&D, ops)

• Divisional/Business Unit

– Overall enterprise made up of independent businesses

– Typically segmented across

• Product Departmentalization

Campbell’s: Soup, Franco-American, Godiva, Pace, Pepperidge Farm

• Acquisitions

Safeway: Randalls/Tom Thumb, Vons (So. Cal), Dominicks (Chicago)..

• Matrix

– Cross-functional teams with individuals reporting to two or more managers

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Example Business Unit Organization

WW ASICSteve James

AdvancedTechnologyBrad Milken

Operations,Customer Engr &

FinanceTracy Person

InternetInfrastructure BU

Billy Smith

WirelessInfrastructureClint Addis

ProductDevelopment

Preston Popoff

LegalKatie Williams

WW DesignCenter ManagerFrancis Laroux

HumanResources

Toni Rodman

WW QualityDave Nowitzki

Europe ASICJill Reeves

Japan ASICRob Meddars

India ASICGautam Mitra

Asia ASICWillie Wang

ASIC = Application Specific Integrated Circuits

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Change to Matrix: Royal Dutch/Shell

• #3 Oil & Gas Group (Behind Exxon & BP)

• $135 Billion in Sales; 91,000 Employees

• 9.5 Billion Barrels of Oil Reserves

• 55.8 Trillion Cu. Ft. Gas Reserves

• 46,000 Gas Stations World-Wide

• Operations in 130+ Countries

• Headquarters in both London & The Hague

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Royal Dutch/Shell Before 1994-1995

• 1993 Cornelius Herkstroter Promoted to CEO

• Attributes: – Insular company, introverted control freaks

– Managers who rarely talked to rank and file

– Risk adverse, headquarters based six man committee of managing directors (CMD)

– 100+ country CEOs act as local chieftains

– Public relations bombs (associations w/Nigerian dictatorship that executed environmentalist)

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Royal Dutch/Shell After 1994-1995

• 30% cut of 3000 HQ jobs

• Deep cuts in many regional & functional areas

• Committees to oversee global operations: Exploration & Production Oil products Gas & coal Chemicals Central staff functions

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Matrix Organization Results?

• Lower prices for raw materials as single giant buyer• Better alignment of supply chain to customer locations (I.e.,

Louisiana vs. Britain in chemicals)• Net Income & Return on Average Capital Employed**:

** ROACE is the main measure of financial success in the oil business