1

CHAPTER 10

Implementing Strategy:
Structure, Leadership, and
Culture

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

 2

Chapter Topics

• Structuring an Effective Organization

• Organizational Leadership
• Organizational Culture
• Appendix – Primary Organizational
Structures and their Strategy-Related
Pros and Cons

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

 3

Ex. 10-2: What a Difference a Century

Can Make
(Contrasting Views of the Corporation))

Characteristic 20th Century 21st Century

Organization The Pyramid The Web or Network
Focus Internal External
Style Structured Flexible
Source of Strength Stability Change
Structure Self-sufficiency Interdependencies
Resources Atoms – physical assets Bits – information
Operations Vertical integration Virtual integration
Products Mass production Mass customization
Reach Domestic Global
Financials Quarterly Real-time
McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
 4

Ex. 10-2 (contd.)

Characteristic 20th Century 21st Century

Inventories Months Hours
Strategy Top-down Bottom-up
Leadership Dogmatic Inspirational
Workers Employees Employees/ free agents
Job Expectations Security Personal growth
Motivation To compete To build
Improvements Incremental Revolutionary
Quality Affordable best No compromise

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

 5

Trends Driving Organizational

Structure

Speed of Decision Making

Globalization Internet

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

 6

Conclusions of Research on
Organizational Structure
 A single-product firm or single dominant
business firm should employ a functional
structure
 A firm in several lines of business that are
somehow related should employ a
multidivisional structure
 A firm in several unrelated lines of business
should be organized into strategic business
units
 Early achievement of a strategy-structure fit
can be a competitive advantage

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

 7

Restructuring to Support Strategically

Critical Activities
• Concept – Some activities within a
business’s value chain are more critical to
the success of the strategy than others
• Considerations in restructuring
• Strategically critical activities must be the central
building blocks for designing the organization
structure
• Organizational structure must be designed to help
coordinate and integrate support activities to
• Maximize their support of strategy-critical
primary activities
• Minimize their costs and time spent on
internal coordination

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

 8

Reengineering Strategic Business

Processes (BPR)
• Concept – Involves placing the decision
making authority that is most relevant to the
customer closer to the customer, in order to
make the firm more responsive to the needs
of the customer.
• Potential outcomes of BPR
• Reduces fragmentation by crossing
traditional department lines
• Reduces overhead by compressing
formerly separate tasks that are
strategically intertwined in the process of
focusing on the customer

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

 9

Steps Involved in BPR

• Develop a flow chart of the total business process

• Try to simplify the process first, eliminating unnecessary
tasks and streamlining remaining tasks
• Determine which parts of the process can be automated
• Benchmark strategy-critical activities
• Consider outsourcing non-critical activities
• Design a structure for performing remaining activities and
reorganize personnel accordingly

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

 10

Downsizing, Self-Management, and

Outsourcing
• Downsizing – Eliminating employees,
particularly middle managers, in a
company
• Self-management – Delegating work
to lower, operating levels of an
organization
• Outsourcing – Obtaining work
previously done by employees inside
a company from sources outside the
company

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

 11

Product-Teams

The product-team structure assigns functional

managers and specialists (e.g., engineering,
marketing, financial, R&D, operations) to a
new product, project, or process team that is
empowered to make major decisions about
their product

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

 12

Ex. 10-5: Product-Team Structure

Chief Executive Officer

Research and Engineering Operations Finance Sales and

Development Marketing

Product or
process teams

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

 13

Virtual Organization

A temporary network of independent

companies – suppliers, customers,
subcontractors, even competitors –
linked primarily by information
technology to share skills, access to
markets, and costs

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

 14

Key Considerations of Organizational

Leadership

Organizational leadership involves

action on two fronts
Providing the
Guiding the
management skill to
organization to
cope with the
deal with constant
ramifications of
change
constant change

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

 15

Strategic Leadership: Embracing

Change

Clarifying strategic intent

Activities
involved in
galvanizing Building an organization
commitment
to change

Shaping organizational
culture

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

 16

Strategic Intent

An articulation of a simple
criterion or characterization of
what the company must become
to establish and sustain global
leadership

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

 17

Ex. 10-12: What Competencies Should

Managers Possess?

The Leadership Needs of The Required

Organization Competencies of
Business Leaders
The ability to: •business literacy
•build confidence •creativity
•build enthusiasm •cross-cultural effectiveness
•cooperate •empathy
•deliver results •flexibility
•form networks •proactivity
•influence others •problem solving
•use information •relation building
•teamwork
•vision

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

 18

Ex. 10-13: Management Processes and

Levels of Management

RENEWAL PROCESS
Attracting resources and Developing operating managers and Providing institutional
capabilities and supporting their activities. Maintaining leadership through shaping
developing the business organizational trust and embedding corporate
purpose and challenging
embedded assumptions
INTEGRAT
ION P ROCESS
Managing operational Linking skills, knowledge, and
interdependencies and Creating corporate direction.
resources across units. Reconciling Developing and nurturing
personal networks short-term performance and long-term organizational values
ambition

ENTREPRE
Creating and pursuing NEURIAL P
ROC ESS
opportunities. Managing Establishing
Renewing, developing, and
continuous performance performance standards
supporting initiatives
improvement

Front-Line Management Middle Management Top Management

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

 19

What is Organizational Culture?

The set of important

assumptions (often unstated)
that members of an
organization share in common.

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

 20

Ex. 10-14: Managing the Strategy-

Culture Relationship

Link changes to Reformulate strategy

Many basic mission and or prepare carefully
fundamental for long-term,
Changes in key
organizational difficult cultural
organizational
norms change
factors that are
necessary to 1 4
implement the
new strategy 2 3
Few Synergistic – focus Manage around the
on reinforcing culture
culture
High Low
Potential compatibility of changes with
existing culture

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

 21

Ex. 10-A: Functional Organizational

Structure

C EO

E n g in e e rin g P ro d u c tio n P e rso n n e l F in a n c e M a rk e tin g

and
A c c o u n tin g

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.


Ex. 10-A (contd.)
Strategic Advantages
• Achieves efficiency through
specialization
• Develops functional expertise
• Differentiates and delegates day-to-
day operating decisions
• Retains centralized control of
strategic decisions
• Tightly links structure to strategy
by designing key activities as
separate units
McGraw-Hill/Irwin
22
Strategic Disadvantages
• Promotes narrow specialization and
functional rivalry or conflict
• Creates difficulties in functional
coordination and interfunctional
decision making
• Limits development of general
managers
• Has a strong potential for
interfunctional conflict –priority
placed on functional areas, not the
entire business
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
 23

Ex. 10-A (contd.)

Process-Oriented Functional Structure

C EO

P u rc h a s in g R e c e iv in g O rd e r e n try W h o le s a le R e ta il A c c o u n tin g C u s to m e r
and s a le s s a le s and s e rv ic e
In v e n to ry b illin g

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

 24

Ex. 10-B: Geographic Organizational

Structure

C h ie f E x e c u tiv e

C o r p o r a te S ta ff
F in a n c e & A c c o u n tin g
P e rso n n e l
M a r k e tin g , e tc .

G e n e ra l M a n a g e r, G e n e ra l M a n a g e r, G e n e ra l M a n a g e r, G e n e ra l M a n a g e r, G e n e ra l M a n a g e r,
W e s te rn D is tric t S o u th e rn D is tric t C e n tra l D is tric t N o rth e rn D is tric t E a s te rn D is tric t

D is tr ic t S ta ff
P e rso n n el
A c c o u n tin g a n d
C o n tro l

E n g in e e rin g P ro d u c tio n M a rk e tin g

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.


Ex. 10-B (contd.)
Strategic Advantages
• Allows tailoring of strategy to
needs of each geographic market
• Delegates profit/loss responsibility
to lowest strategic-level
• Improves functional coordination
within the target market
• Takes advantage of economies of
local operations
• Provides excellent training grounds
for higher level general managers
McGraw-Hill/Irwin
25
Strategic Disadvantages
• Poses problem of deciding whether
headquarters should impose
geographic uniformity or
geographic diversity should be
allowed
• Makes it more difficult to maintain
consistent company
image/reputation from area to area
• Adds layer of management to run
the geographic units
• Can result in duplication of staff
services at headquarters and district
levels
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
 26

Ex. 10-C: Divisional or Strategic

Business Unit Structure
Chief Executive Officer
VP-Admn Services VP-Operating Support

GM GM GM
Division/SBU A Division/SBU B Division/SBU C
Manager, HR Personnel Personnel
Manager, Acctg/Finance
Acctg/Control Acctg/Control
Manager, R&D
Division Planning Division Planning

Manager Marketing Marketing

Marketing/Sales

Manager
Prod/Operation Prod/Operation
Prod/Operation

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.


Ex. 10-C (contd.)
Strategic Advantages
• Forces coordination and necessary authority
down to the appropriate level for rapid
response
• Places strategy development and
implementation in closer proximity to the
unique environments of the division/SBUs
• Frees CEO for broader strategic decision
making
• Sharply focuses accountability for
performance
• Retains functional specialization within each
division/SBU
• Provides good training ground for strategic
managers
• Increases focus on products, markets, and
quick response to change
McGraw-Hill/Irwin
27
Strategic Disadvantages
• Fosters potentially dysfunctional competition
for corporate-level resources
• Presents the problem of determining how
much authority should be given to
division/SBU managers
• Creates a potential for policy inconsistencies
among divisions/SBUs
• Presents the problem of distributing
corporate overhead costs in a way that’s
acceptable to division managers with profit
responsibility
• Increases costs incurred through duplication
of functions
• Creates difficulty maintaining overall
corporate image
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
 28

Ex. 10-D: Matrix Organizational

Structure
Chief Executive
Officer

Vice President, Vice President, Vice President, Vice President,

Engineering Production Purchasing Administration

Project
Engineering Production Purchasing Administration
Manager
Staff Staff Agent Coordinator
A
Project
Engineering Production Purchasing Administration
Manager
Staff Staff Agent Coordinator
B

Project
Manager Engineering Production Purchasing Administration
C Staff Staff Agent Coordinator

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.


Ex. 10-D (contd.)
Strategic Advantages
• Accomodates a wide variety of
project-oriented business activity
• Provides good training grounds for
strategic managers
• Maximizes efficient use of
functional managers
• Fosters creativity and multiple
sources of diversity
• Gives middle management broader
exposure to strategic issues
McGraw-Hill/Irwin
29
Strategic Disadvantages
• May result in confusion and
contradictory policies
• Necessitates tremendous
horizontal and vertical
coordination
• Can proliferate information
logjams and excess reporting
• Can trigger turf battles and loss
of accountability
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.