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 Advantages of
decentralization centralization
Reduced information Easier coordination of
overload on upper organizational activities.
managers. Decisions fitted to broad
Increased motivation and organizational objectives.
accountability throughout Exercise of strong
organization. leadership in crisis.
Fewer managers; lower Faster decision making and
bureaucratic costs. 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.
 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 SBUs

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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
SBUs
Almost unlimited resources

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 Beyond SBUs:
Stage IV:
Increasing environmental uncertainty
Technological advances
Size & scope of worldwide businesses
Multi-industry competitive strategy
Better educated personnel

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Functional Structure
Advantages Disadvantages
Task grouping facilitates
specialization and
productivity.
Better monitoring of work
processes, reduced costs.
Greater control over
organizational activities.
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
dont 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 management
Disadvantages
High bureaucratic costs
High costs (time and money) for building
relationships
Two-boss employees role conflict
Matrix
Structure
Two-boss employee
 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 Structure

Packagers

Designers Suppliers

Corporate
Headquarters
(Broker)

Manufacturers Distributors

Promotion/
Advertising
Agencies

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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
Business Strength/Competitive Position

Strong Average Weak

GrowthConcentration Retrenchment
Save Company
Dynamic Industry Expert
Turnaround
High

Specialist
Industry Attractiveness

Stability
Medium

Cautious Profit Planner

Low

GrowthDiversification Retrenchment
Close Company
Analytical Portfolio
Manager Professional
Liquidator

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 Managing corporate culture:
Corporate culture
Affects firms 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 firms
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

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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