Strategy Implementation

HCAD 5390

Organizational Structure

Organizational design– Selecting the structure and control

systems that are most strategically effective for pursuing sustainable competitive advantage.

The role of structure and control– To coordinate strategy implementation.– To motivate and provide incentives for superior

performance.

The Role of Organizational Structure

Building blocks of organizational structure– Differentiation in the allocation of people and

resources to create value. Vertical differentiation in the

distribution of decision-making authority.

Horizontal differentiation in dividing up people and tasks into functions and divisions.

– Integration The means used in coordinating people and functions to

accomplish organizational tasks.

Differentiation, Integration, Bureaucratic Costs

Bureaucratic costs and strategy implementation:

– Bureaucratic costs increase with organizational complexity.

– More differentiation = more managers.– More integration = more coordination.– Better strategy implementation = better bottom-line

performance and profitability.

Vertical Differentiation

Span of control (division of authority)– The number of subordinates that a single manager

directly manages.Organizational hierarchy choices

– Flat structures Few organizational levels Wide spans of control

– Tall structures Many organizational levels Narrow spans of control

Tall and Flat Structures

Problems with Tall Structures

Principle of minimum chain of command– Maintaining a hierarchy with the least number of

levels of authority needed to achieve a strategy.

Sources of bureaucratic costs:

Centralization or Decentralization

Authority patterns in organizations:– Centralized

Decision making retained in the hands of upper-level managers.

– Decentralized Decisions delegated to lower

levels in the organization.

Centralization (Structural) Choice?

Advantages of decentralization

– Reduced information overload on upper managers.

– Increased motivation and accountability throughout organization.

– Fewer managers; lower bureaucratic costs.

Advantages of centralization

– Easier coordination of organizational activities.

– Decisions fitted to broad organizational objectives.

– Exercise of strong leadership in crisis.

– Faster decision making and response.

Horizontal Differentiation

Focus is on division and grouping of tasks to meet business objectives.Simple structure:

– Characteristic of small entrepreneurial companies.– Entrepreneur takes on most managerial roles.– No formal organization arrangements.– Horizontal differentiation is low.

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Structure Follows Strategy:

– Changes in corporate strategy lead to changes in organizational structure

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Structure Follows Strategy:• New strategy is created• New administrative problems emerge• Economic performance declines• New appropriate structure is invented• Profit returns to its previous levels

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Stages of corporate development

Simple Structure Functional Structure Divisional Structure Beyond SBU’s

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Simple Structure:– Stage I:

Entrepreneur – Decision making tightly controlled– Little formal structure– Planning short range/reactive– Flexible and dynamic

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Functional Structure:– Stage II:

Management team Functional specialization Delegation decision making Concentration/specialization in industry

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Divisional Structure:– Stage III:

Diverse product lines Decentralized decision making SBU’s Almost unlimited resources

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Beyond SBU’s:– Stage IV:

Increasing environmental uncertainty Technological advances Size & scope of worldwide businesses Multi-industry competitive strategy Better educated personnel

Functional Structure

Advantages– Task grouping facilitates

specialization and productivity.

– Better monitoring of work processes, reduced costs.

– Greater control over organizational activities.

Disadvantages– Functional orientation

creates communication problems.

– Performance and profitability measurement problems.

– Location versus function problems (coordination).

– Strategic problems due to structural (vertical and horizontal) mismatches.

Functional Structure

Mutlitdivisional Structure

Advantages– Enhanced corporate

control by division– Enhanced strategic control

of each SBU in portfolio– Growth is easier. New units

don’t have to be integrated across organization

– Stronger pursuit of internal efficiencies. Performance of individual units is readily measurable.

Disadvantages– Establishing the divisional-

corporate authority relationship

– Distortion of information by divisions

– Competition for resources by divisions

– Transfer pricing problems between divisions

– Short-term research and development focus

– Bureaucratic costs

Multidivisional Structure

Matrix Structure

Advantages– Flexibility of the structure and membership– Minimum of direct hierarchical control– Maximizes use of employees’ skills– Motivates employees;

frees up top managementDisadvantages

– High bureaucratic costs– High costs (time and money) for building

relationships– Two-boss employee’s role conflict

Matrix Structure

Two-boss employee

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Network Structure:– “non structure” – elimination of in-house

business functions– Termed “virtual organization”

Useful in unstable environments Need for innovation and quick response

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Network StructureNetwork Structure

Packagers

Designers Suppliers

Distributors

Corporate Headquarters

(Broker)

Promotion/ Advertising Agencies

Manufacturers

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Effective implementation requires:– Leadership

Leading people to use their abilities and skills most effectively and efficiently to achieve organizational objectives

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Staffing follows strategy:– Matching the manager to the strategy

Executive type– Executives with a particular mix of skills and

experiences

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Executive Types:– Dynamic industry expert– Analytical portfolio manager– Cautious profit planner– Turnaround specialist– Professional liquidator

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Matching Chief Executive “Types” with Strategy

Average

Hig

hL

ow

Business Strength/Competitive Position

Strong

Growth—Concentration

Dynamic Industry Expert

Stability

Cautious Profit Planner

Retrenchment—Close Company

Professional Liquidator

Retrenchment—Save Company

Turnaround Specialist

Ind

us

try

Att

rac

tiv

en

es

s

Me

diu

m

Weak

Growth—Diversification

Analytical Portfolio Manager

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Managing corporate culture:– Corporate culture

Affects firm’s ability to shift its strategic direction Strong tendency to resist change Corporate culture should support the strategy

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Strategy-Culture Compatibility:– Consider the following:

Is the planned strategy compatible with the firm’s current culture?

Can the culture be easily modified to make it more compatible with new strategy?

Is management willing to make major organizational changes?

Is management committed to implementing the strategy?

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Managing corporate culture:– Communication

Key to effective management of change Rationale for strategic change should be

communicated to all

What Is Organizational Culture?

Culture– The collection of values and norms shared by people and

groups in an organization.– Shared values and a common culture increase integration

and improve coordination.

Values– Beliefs and ideas about common goals and proper

behaviors.

Norms– Act as guidelines or expectations that prescribe acceptable

behavior by organizational members.

Organizational Culture

Ways of transmitting organizational culture:

Culture and Strategic Leadership

The influence of the founder– Initial cultural values and management

style is imprinted on the organization by its founder.

Organizational structure– Structure follows strategy.

Strategic leadership affects the cultural norms and values that develop in the organization.

Strategic Reward Systems

Individual reward systems– Piecework plans– Commission systems– Bonus plans– Promotion

Group and organizational reward systems

– Group-based bonus systems– Profit sharing systems– Employee stock option systems– Organization bonus systems