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 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

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Functional Structure

Advantages Disadvantages

– Task grouping facilitates – Functional orientation

specialization and creates communication
productivity. problems.
– Better monitoring of work – Performance and
processes, reduced costs. profitability measurement
problems.
– Greater control over
organizational activities. – Location versus function
problems (coordination).
– Strategic problems due to
structural (vertical and
horizontal) mismatches.
Functional Structure
Mutlitdivisional Structure

Advantages Disadvantages
– Enhanced corporate – Establishing the divisional-
control by division corporate authority
– Enhanced strategic relationship
control of each SBU in – Distortion of information by
portfolio divisions
– Growth is easier. New – Competition for resources
units don’t have to be
integrated across by divisions
organization – Transfer pricing problems
– Stronger pursuit of between divisions
internal efficiencies. – Short-term research and
Performance of individual development focus
units is readily
measurable.
– 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 employee’s 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

Growth—Concentration Retrenchment—
Save Company
Dynamic Industry Expert
Turnaround
High

Specialist
Industry Attractiveness

Stability
Medium

Cautious Profit Planner

Low

Growth—Diversification Retrenchment—
Close Company
Analytical Portfolio
Manager Professional
Liquidator

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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

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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