STRATEGIC MANAGEMENT Organisational Preamble STRATEGIC MANAGEMENT Organisational Preamble Professor Stefan Markowski WYŻSZA SZKOŁA INFORMATYKI I ZARZĄDZANIA z siedzibą w Rzeszowie

Organisational Preamble Content Organisational Evolution Organisational Design Alternative Structural Forms and Other Internal Coordinating Mechanisms

Organisational Evolution “Strategy is structure” (Tom Peters) Organisational Structure is a key element of the firm’s capability – –Mintzberg defines the organisational structure as “the ways in which labour is divided into distinct tasks and coordination is achieved among these tasks” (Structure in Fives: Designing Effective Organisations) Commercial organisational structures have evolved from sole proprietorships (the archetypal small business) to extra-national corporations (see below)

Organisational Evolution FormOwner liability FormNo. of ownersOwner liabilityControl system Sole ProprietorshipUnlimited (total debts of the firm) Sole Proprietorship One Unlimited Owner- controlled (total debts of the firm) PartnershipJoint/shared but unlimited PartnershipTwo or moreJoint/shared but unlimitedOwner-controlled CompanyLimitedto the level of investment CompanyOne or many Limited to the level Management/directors shareholders of investment as agents of equity (possibly very many) owners as above Uni-national as above as aboveas above but segmented Corporation Corporation into semi-autonomous subsidiaries divisions with a holding company at the top Multi-nationalAs above but liability can Multi-national Aas above but in As above but liability can As above but global Corporation be blurred as it can be Corporation several countries/ be blurred as it can beexternal markets. shifted between jurisdictions shifted betweenResults could be posted jurisdictions jurisdictionsin selected jurisdictions so problems with control

Organisational Design Two key aspects of organisational design:  specialisation (the division of labour into distinct tasks); and  coordination (of these tasks) Specialisation is the basis for achieving efficiencies in operations The coordination task increases with specialisation - hence trade-offs between specialisation and coordination

Organisational Design Specialisation involves make-or-buy considerations (organisational boundaries) and the intra-organisational division of labour, which tends to be influenced by commonality of products (scale & scope economies) commonality of processes/delivery mechanisms (scale, scope economies and capacity utilisation) location (economies of co-location) knowledge sharing (information economies) management efficiencies

Organisational Design Coordination may be achieved by means of command (hierarchically arranged management system with directives sent top-down); or internal price mechanism (with in-house or transfer prices serving as signals guiding profit seeking cost centres) Hierarchies are efficient when it is desirable to limit direct interaction between decision makers at the organisational ‘coal face’.

Organisational Design Hierarchies may be more responsive to major or potentially catastrophic changes but they are very dependent on the nature of leadership provided and tend to be poor at motivating people operating at lower organisational levels Hierarchies require some delegation of authority and thus face ‘agency problems’ They are also poor and at providing top management with good information

Organisational Design Administrative hierarchies tend to operate as highly structured, formalised and mechanistic bureaucracies Bureaucracies dominated large organisations but there is a tendency to flatten them (delayering) and to adopt more devolved, team-based organic structures Most organisations combine both elements, eg, centralised treasury but organic R&D departments

Organisational Design Hierarchical vs. Organic Systems Hierarchy Organic System Task definitionrigid, specialisedflexible, innovative Coordination &rules & directivescollaboration control shared culture Communicationverticalmatrix Knowledgecentralised, stable distributed, (eg, low technologicalunstable (eg, high uncertainty)tech. uncertainty) Commitment tothe next level uporganisation

Organisational Design Hierarchies may be organised along: – –functional lines - with the whole company operating as a cost/profit centre (not a very efficient structure for large and complex organisations) – –divisional lines - with semi-autonomous divisions operating as cost/profit centres (divisions may have product, process or locational focus) or as – –matrices - combining functional structures with product- and location-based divisions

Organisational Design Functional Structure Corporate/ Head Office  HRM  Administration and IT Support Systems  R&D  Design  Operations  Logistics  Procurement  Marketing  Distributions/After-sale support

Organisational Design Divisional Structure Cars Div. Trucks Div. R&D Procurement Corporate H/Q Production Marketing HRM

Organisational Design Matrix Structure SectorOilGasCoal International H/QMarketingMarketingMarketing R&DR&DR&D FinanceFinance Finance RegionalEast Asia North Sea Middle East Sub-regionalRegional H/Q Functions Production HRM Procurement

Organisational Design Non-hierarchical, devolved organisations may take the form of: –project networks –project networks - self-contained multi-functional structures and cost centres (eg, building sites in property development) –honeycombs –honeycombs - self-organised, semi-independent, multi-functional structures coordinating their activities as required (some cooperatives) –adhocracies –adhocracies - multi-functional structures using non-routine modes of coordination (visiting opera impresarios from Palermo)

Alternative Structural Forms and Other Internal Coordinating Mechanisms The Strategic Planning process is itself a means of intra-firm activity coordination This is also true of Financial Planning and Control and HRM System Another important coordinating mechanism is the corporate culture (ie, a set of beliefs, values and behavioural norms, which influence organisational practices, rites, appearance)

A man in a hot air balloon realised he was lost. He reduced altitude and spotted a woman below. He descended a bit more and shouted, "Excuse me, can you help me? I promised a friend I would meet him an hour ago, but I don't know where I am.” The woman below replied, "You are in a hot air balloon hovering approximately 30 feet above the ground. You are between 40 and 41 degrees north latitude and between 59 and 60 degrees west longitude.” "You must be an engineer," said the balloonist. "I am," replied the woman, "How did you know?” "Well," answered the balloonist, "everything you told me is, technically correct, but I have no idea what to make of your information, and the fact is I am still lost. Frankly, you've not been much help so far.” The woman below responded, "You must be in Management.” "I am," replied the balloonist, "but how did you know.” "Well," said the woman, "you don't know where you are or where you are going, You have risen to where you are due to a large quantity of hot air. You made a promise, which you have no idea how to keep, and you expect people beneath you to solve your problems. The fact is you are in exactly the same position you were in before we met, but now, somehow, it's my fault.”(Anonymous)