Structural Implementation

Overview
Strategy implementation
How a company should create, use, and combine organizational structure, control systems, and culture to pursue strategies that lead to a competitive advantage and superior performance

Implementing Strategy Through Organizational Structure, Control, and Culture Organizational structure
Assigns employees to specific value creation tasks and roles and specifies how those are linked to increase efficiency, quality, innovation, and responsiveness to customers To coordinate and integrate the efforts of all employees

Implementing Strategy Through Organizational Structure, Control, and Culture (contd)

Control system
A set of incentives to motivate employees to increase efficiency, quality, innovation, and responsiveness to customers Provides feedback on performance so corrective action can be taken

Organizational culture
The collection of values, norms, beliefs, and attitudes shared within an organizations and that control interactions within and outside the organization
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Implementing Strategy

Building Blocks of Organizational Structure

Grouping tasks, functions, and divisions
Organizational structure follows the range and variety of tasks that an organization pursues Companies group people and tasks into functions and then functions into divisions Bureaucratic costs

Building Blocks of Organizational Structure (contd)

Allocating authority and responsibility
Hierarchy of authority (chain of command) Span of control (number of subordinates) Tall and flat organizations Drawbacks of taller organizations
Less flexibility and slower response time Communication problems Distortion of commands Expense
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Tall and Flat Structures

Allocating Authority and Responsibility (contd)

The minimum chain of command To combat an organization that is too tall Hand responsibility up and empower those below Centralization or decentralization? Delegating responsibility reduces information overload and enables managers to focus on strategy Empowering lower-level managers increases motivation and accountability Empowering employees requires fewer managers Centralized decisions allow easier coordination of activities Centralization means that decisions fit broad organizational objectives
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Building Blocks of Organizational Structure (contd)

Integration and integrating mechanisms
Direct contact among managers across functions or divisions Liaison roles
Gives one manager in each function or division the responsibility for coordinating with the other

Teams

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Structural considerations
From a strategy implementation standpoint, an organisation structure is the arrangement of tasks and sub-tasks required to implement a strategy. Organisation structure specifies three key components as below.
It identifies formal reporting relationships, including the number of levels in the hierarchy and the span of control of managers. It specifies the grouping of individuals into departments and of departments into the total organisation. It consists of design of systems to ensure effective communication, coordination, and integration of efforts across departments.
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Dimensions of organisation structure

Centralization Specialization Organizational rigidity

Vertical and horizontal structures

Vertical structure dominant:
Specialised tasks Hierarchy of authority Rules and regulations Vertical communication and formal reporting systems Centralised decision making Emphasis on efficiency

Horizontal structure dominant:

Shared tasks Flexible authority Few rules and regulations Horizontal communication and sharing of information Decentralised decision-making Emphasis on learning

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Interrelationship between structure and strategy

STRATEGY

determines

STRUCTURE

affects

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Why is structural implementation needed?

Strategic plan is implemented

New strategies put in place

Implementation of new strategies

Mismatches occur

Performance improves

Structure is changed

Effectiveness is reduced

Performance declines

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Environment, strategy, structure, and effectiveness

Environment

Strategy

Structure

Effectiveness

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Stages of development of organisations

Stage I organisations Stage II organisations Stage III organisations Stage IV organisations

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Structure Follows Strategy- changes in corporate

1. 2. 3. 4. 5. New strategy is created New administrative problems emerge Economic performance declines New appropriate structure is invented Profit returns to its previous level

strategy lead to changes in organizational structure

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Stages of Corporate Development

I.

Simple Structure
Flexible and dynamic

II.

Functional Structure
Entrepreneur is replaced by a team of managers

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Stages of Corporate Development

III. Divisional Structure
Management of diverse product lines in numerous industries Decentralized decision making

IV.

Beyond SBUs
Matrix Network

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Organizational Culture
Culture and strategic leadership Traits of strong and adaptive corporate cultures
Bias for action Nature of the organizations mission (sticking with what the organization does best) How to operate the organization (motivating employees to do their best)

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Types of organisational structures

Entrepreneurial Functional Divisional SBU Matrix Network Other types of structures:

Product-based, customer-based, process-based, geographic, and intrapreneurial structures

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Entrepreneurial structure

Functional Structure
The functional design is also known as U-form organization ( U stands for Unity) This groups positions into departments according to their main functional areas Some of the main functions of most organizations are those of production, marketing, finance, human resources, legal, research and development and so on. The chain of command in each function leads to a functional head who in turns reports to the top manager

Functional Structure

ADVANTAGES Specialisation Reduction of workload Better control Easier staffing Higher efficiency Scope for expansion
DISADVANTAGES

Double command Complexity Delay in decision-making Problem of succession Lack of co-ordination Expensive

Divisional Structure Alternative to function structure is the divisional structure which allows an organization to coordinate intergroup relationships more effectively It involves grouping of people or activities with similar characteristics into a single department or unit Also known as self-contained structures, organizations operates as if they were small organizations under a large organizational umbrella This facilitates communications, coordination, and control, thus contributing to the organizational success

Organizational Structure
Departmentalization by Type
Function
Grouping jobs by functions performed

Process
Grouping jobs on the basis of product or customer flow

Product
Grouping jobs by product line

Customer
Grouping jobs by type of customer and needs

Geographical
Grouping jobs on the basis of territory or geography

Functional Departmentalization

Advantages

Efficiencies from putting together similar specialties and people with common skills, knowledge, and orientations
Coordination within functional area In-depth specialization Disadvantages

Poor communication across functional areas

Limited view of organizational goals

Product Departmentalization
LG

Home Appliances

Computers

Telecom devices

Television

Refrigerat or

Washing Machine

Laptop

Desktop

Mobile

Fixed line phone

Keyboard

Speaker

Accessori es

+ + +

Allows specialization in particular products and services Managers can become experts in their industry Closer to customers Duplication of functions Limited view of organizational goals

Geographical Departmentalization

Advantages More effective and efficient handling of specific regional issues that arise Serve needs of unique geographic markets better Disadvantages Duplication of functions Can feel isolated from other organizational areas

Process Departmentalization
RTO Office

Accounts

Registrati on

Vehicle Check

Driving test

Processin g

Approval

Dispatch

New Registrati on

Penalty

+ More efficient flow of work activities Can only be used with certain types of products

Customer Departmentalization

+ Customers needs and problems can be met by specialists - Duplication of functions

- Limited view of organizational goals

Departmentation by Time
If an Organization operates in three shifts different depts may exist One dept for each shift All may be alike in their objectives and activities Departmentation by Alpha-numerical: Suitable for org with large no. of operatives Certain no. of persons are kept under supervision irrespective of the fact what they do, where they do, and how they do

DIVISIONAL ORGANIZATION STRUCTURE: Advantages:

Focused on product line & customer needs Growth & diversity of products Improves coordination & response to changes in demand pattern Responsibility of profits at divisional level Training ground for general managers Disadvantages: Requires more persons with general management capabilities Maintenance of central economical services difficult Lesser control by top management May develop a product focus at expense of wider company interests

Bases of Departmentation

Matrix organization structure

Suitable for taking large no. of smaller projects and the activities can be accomplished thro temporary departments Two complementary structure: Pure project and functional structure People are drawn from the respective departments and they may return to their original departments after completion of the project for further assignment Eg: Banking, construction, Insurance, retailing

Matrix organization

Merits
More than one critical orientation to the company operations Oriented toward end results Pinpoints responsibility Specialized knowledge is widely shared but developed within the functional group Conflict in organizational authority Problem of defining the extent of Project Managers authority. Functional groups may tend to neglect their normal duties. Results in a complex structure and difficult to manage

Demerits

SBU Structure

Network organizational structure

Network organizational structure

Advantages: Increased flexibility and adaptability Ability to concentrate on distinctive competencies Disadvantages: Transitional structure Availability of numerous partners Overspecialization

Emerging forms of structures

Horizontal organisations are based on structure that corresponds to the process of providing product or service to the customer rather than the functions that the organisations perform. Delaminated matrices are combinations of horizontal organisations with functional structure. Mechanistic structures are rigid, hierarchical, suited to stable conditions while organic structures are flexible arrangements, adapting to conditions of rapid change and innovation. The structure of an organisation may consist of the characteristics of mechanistic and organic structures in different parts making it an ambidextrous organisation structure
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Organisational design and change

Organisation design has two dimensions:
Structural dimensions Contextual dimensions

Organisational change has two dimensions:

Structural changes Accompanying behavioural changes

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Organizational Design
Organizational design is concerned with making decision about the forms of coordination control and motivation that best fit the enterprise. Organization design is a process that involves decisions about six key elements, work specialization, departmentalization, chain of command, span of control, centralization, decentralization and formalization.

Goals and Strategy Environment Size

Culture
1. 2. 3. 4. 5. 6.

Structure Formalization Specialization Hierarchy of Authority Centralization Professionalism Personnel Ratios

Technology

Dimensions of an Organization

Dimensions of Organizational Design

- The dimensions describe organizations much the same way that personality and physical trait describe the people. Structural : Provide labels to describe internal characteristics of an organ and create basis for measuring and comparing organizations. Contextual : It characterize the whole organ including it size, technology, environment and goals, and describe organizational setting that influences and shapes the structural dimensions. The structural and contextual dimensions interact with each other and can be adjusted to accomplish the very purpose of the creation of organisation .

Structural Dimensions
Formalization: pertains to the amount of written documentation in the organization Specialization: the degree to which organisational tasks are sub-divided into separate jobs. Hierarchy of authority: describes who reports to whom and span of control for teach manager. Centralization: refers to hierarchical level that has authority to make a decisions. Professionalism: level of formal education and training of employee is professionalism. Personnel Ratio: Personnel ratio is measured by dividing the number of employees in a classification by the total number of organizational employees.

Contextual Dimensions
Size: the organization's magnitude as reflected in the number of people in the organization. Organizational Technology: refers to the techniques, and action used to transform inputs into outputs. The environment: includes all elements outside the boundary of the organizations. Organizational goals and strategy: define the purpose and competitive techniques, that set it apart from other organization. The organizations culture: the underlying set of key values, beliefs, understandings and norms shared by employees.

Steps in organisation design

Identification of key activities necessary to be performed for the achievement of objectives and realisation of mission through the formulated strategy. Grouping of activities that are similar in nature and need a common set of skills to be performed. Choice of structure that could accommodate the different groups of activities. Creation of departments, divisions, etc. to which the group of activities could be assigned. Establishing interrelationship between different departments for the purpose of coordination and communication.
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Structures for Strategies

Organisation design for business strategies

CEO CEO

Centralised staff

R&D

Mktg

Fin

HRM

Mktg

Oper

Fin

HRM

Oper

Structure for attaining cost leadership

Structure for attaining differentiation

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Suggested structure for implementing related diversification

CEO

Legal

PR

Corporate Finance

Corporate HRM

Corporate Marketing

Corporate Operation

Strategic Business Unit A

Strategic Business Unit B

Strategic Business Unit C

Strategic Business Unit D

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Suggested structure for implementing unrelated diversification

CEO

Corporate Finance

Corporate HRM

Corporate Legal

Corporate PR

Division A

Division B

Division C

Division D

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Structures for internationalisation strategy

Global Strategy Transnational Strategy

Pressures for cost reduction

Global Product Structure

International Strategy

Global Matrix Structure

Multidomestic Strategy

International division structure

Global Geographic Structure

Pressures for local responsiveness

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Evolution of systems and processes within organisations

Defining the major tasks required to implement a strategy Grouping tasks on the basis of common skill requirements or activities in value chain Sub-division of responsibility and delegation of authority to perform tasks Coordination of divided responsibility Design and administration of the information system Design and administration of the control system Design and administration of the appraisal system Design and administration of the motivation system Design and administration of the reward system Design and administration of the development system Design and administration of the planning system.
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Generic strategies and key dimensions of computerised information system

Generic strategies Stability Retrenchment Growth

Rigid policy stance Key dimensions

Flexible policy stance

Mainframe computers
Transaction processing systems

Microcomputers Decision support systems

Adapted from J.C. Camillus and A.L. Lederer "Corporate strategy and the design of computerised information systems" in Sloan Management Review, Spring 1985, pp.35-42.

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The control cycle

Establish standards Measure performance

Correct performance if needed

Evaluate performance against standards

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Predominant system characteristics vis--vis strategic continuum and structural alternatives

Nature of economy
===============

Controlled, protected, and regulated

===============

Environmental characteristics Strategic continuum

Certain, stable, and predictable Stability / controlled growth Entrepreneurial / Functional --------------------------Efficiency-orientation Formal-direct / mechanistic Efficiency-based; monetary, informal, internal focused
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Globalised, liberalised, and privatised ================= Unstable, volatile, and bewildering Focused expansion / selective divestment Divisional / SBU / alternate and new forms ----------------------------Decisional-orientation Informal-indirect/ organic Non-monetary, formal, external-focused

Structural alternatives --------------------------Information system

Control system

Reward system

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Nature of strategic evaluation and control

Strategic evaluation and control is the process of determining the effectiveness of a given strategy in achieving the organisational objectives and taking corrective action wherever required Two sets of questions are relevant in strategy evaluation and control: Are the premises made during strategy formulation proving to be correct? Is the strategy guiding the organisation towards its intended objectives? Are the organisation and its managers doing things which ought to be done? Is there a need to change and reformulate the strategy? How is the organisation performing? Are the time schedules being adhered to? Are the resources being utilised properly? What needs to be done to ensure that resources are utilised properly and objectives are met?
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General Principles of Strategic Evaluation

Its impossible to demonstrate conclusively that a particular strategy is optimal or even to guarantee that will work A business strategy mostly will fit within one of these broad category: - Consistency - Consonance - Advantage - Feasibility

Importance of strategic evaluation

Ability to coordinate the tasks performed by individual managers Need for feedback, appraisal and reward Check on the validity of strategic choice Congruence between decisions and intended strategy Successful culmination of the strategic management process Creating inputs for new strategic planning

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Participants in strategic evaluation

Shareholders Board of directors Chief executives SBU or profit centre heads Financial controllers, company secretaries, and external and internal auditors Audit and executive committees Corporate planning staff or department Middle-level managers
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Barriers in evaluation
Limits of control Difficulties in measurement Resistance to evaluation Short-termism Relying on efficiency versus effectiveness

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Requirements for effective evaluation

Control should involve only the minimum amount of information Control should monitor only managerial activities and results Controls should be timely Long-term and short-term controls should be used Controls should aim at pinpointing exceptions Reward of meeting or exceeding standards should be emphasised

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Strategic Control System

Precisely defined as the practice of assessing the direction of the organization, as evidenced by its goals, objectives, strategies, and capacity to perform in the context of changing environmental and competitive actions Termed as steering control Involves monitoring and evaluation of appropriate interventions and strategic reorientations Used to evaluate the degree to which the firm focuses on the requirements to implement its strategy Support to managers in assessing the relevance of org. strategies to its progress to achieve its goals.

Characteristics of an effective strategic control system

Tend to have certain qualities in common: - Suitable - Simple - Selective - Sound and economical - Flexible - Forward looking - Reasonable - Objective - Responsibility for failures - Acceptable

Four types of strategic controls

1. 2. 3. 4. Premise control Implementation control Strategic surveillance Special alert control

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Basis of difference Basic question

Strategic Control Are we moving in the right direction Proactive, continuous questioning of the basic direction of strategy Steering the organizations future directions External environment Exclusively by top management thro lower level support Environmental scanning, info gathering and questioning

Operational Control How are we performing

Aim

Allocation and use of organizational resources

Action control

Main control

Focus Exercise of control

Main techniques

Internal environment Mainly by executives or middle level management on the direction of top management Budgets, schedules and MBO

The evaluation process for operational control

Strategy / plan / objectives Setting standards of performance
Check standards

Actual performance
Check performance

Management of performance

Reformulation

Analysing variance

Feedback

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Lack of quantifiable objectives or performance standards Inability to use information systems to provide timely and valid information current tactical or operational issues and ignore longterm strategic issues Lack of time Do not recognize importance of long-term issues Are not evaluated on a long-term basis

Short term orientation- managers only consider

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Goal Displacement- confusion of the means with ends Behavior substitution- when people substitute activities that do not lead to goal accomplishment for activities that do lead to goal accomplishment because the wrong activities are rewarded Suboptimization- when a unit optimizing its goal accomplishment is to the detriment of the organization as a whole

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Evaluation techniques for strategic control

Strategic momentum control
Responsibility control centres The underlying success factors Generic strategies

Strategic leap control

Strategic issue management Strategic field analysis Systems modelling

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Evaluation techniques for operational control

Internal analysis
VRIO framework Value chain analysis Quantitative analysis Qualitative analysis Historical analysis Industry norms Benchmarking Key factor rating Business intelligence systems Balanced scorecard

Special purpose techniques

Network techniques Management by objectives Parta system Memorandum of association Corporate social audit Environmental audit

Comparative analysis

Auditing techniques

Comprehensive analysis

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Role of organisational systems in evaluation

Role of information system Role of control system Role of reward system

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1. 2. 3. 4. 5. 6.

Controls should involve only the minimum amount of information needed to give a reliable picture of events (80/20 Rule) Controls should monitor only meaningful activities and results, regardless of measurement difficulty Controls should be timely so that corrective action can be taken before it is too late Long-term and short-term goals should be used Controls should aim at pinpointing exceptions Emphasize the reward of meeting or exceeding standards rather than punishment for failing to meet standards

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