Chapter 9 Realizing Strategy F.S Team 1: Krista Andreassen, Benji Padilla, John Thrash, Andrew Harrison

“Most of these strategies remain just wishful thinking: if strategy is to yield results, it must be backed by commitment and translated into action.”

Introduction Realizing strategy presents organizations with even more challenges than those faced by individuals, it requires an effort from everyone within the organization Implementation still lacks because it requires commitment, persistence, and hard work The way a company organizes itself is fundamental to the effectiveness of its strategic management Organizational structure, systems and culture are essential to be well developed in order to be effective of how the strategy is executed.

Objectives Understand how strategic planning links to operational planning, performance management, and resource allocation in implementing strategy Appreciate the basic principles that determine the structural characteristics of complex human organizations Select the organizational structure best suited to a particular business context Recognize how companies have been changing their organizational structures in recent years and the forces that have been driving these changes Appreciate the role an organization’s culture plays in realizing strategy

Opening Case BP was once one of the most admired companies in the world Deepwater Horizon, April 2010 incident led to an interest in people looking at their corporate strategy, structure, systems and culture. Corporate goals: Focuses on high returns for shareholders. battle with short term targets for profits and long term targets might be conflicted as they’re on the back end of the thought. Performance Metrics: established monitoring performance targets, BP’s safety performance metric was “days since last injury” Systems and Culture: Decentralization of power, where local decisions and implementation at each branch leads to success

Adidas’ strategy Creating the New

From strategy to execution First formulation then implementation During implementation strategy it is usually is reformed from intended strategy to emergent strategy. During the implementation stage circumstances change, unforeseen issues arise. Strategy formulation also must take into account implementation. Strategy formulation and and implementation are interdependent.

The strategic planning system Linking strategy to action The strategic planning process becomes more explicit and structured the bigger of an operation it is with slight variations. Small companies it is usually not very explicit or structured Big corporations are explicit and systematic with their strategic process. Most plans tend to be a mix from both top-down and bottom-up strategy proposals from different divisions.

Changes in strategic planning Strategic plans need to have flexibility built into them because it is impossible to predict the future and companies realize this. They focus less on economic and market forecasts and more on general issues of strategic direction and alternative views of the future by doing scenario analysis.

Organizational Design: The fundamentals of Organizing Implementing strategy is not about just strategic planning processes and linking to goal setting Organizational design is about selecting structures, systems, and management styles that best implement strategies To design a firm we must recognize what it’s supposed to do Every organized human activity has two fundamental requirements: 1. Division of labor into various tasks Coordination of these tasks to accomplish the activity

Specialization and Division of Labor Firms exist because because of their efficiency advantages in producing goods and services The more the production process is divided between specialists, the harder to integrate the efforts of individual specialists Two organizational problems: Cooperation problem - aligning the interests of others who have different goals Coordination problem- how do individuals harmonize their different activities?

The Cooperation Problem The problem is aligning interests of 2 different parties: For ex: an agency relationship, managers and shareholders How to align interests? Use of incentives, monitoring, and appraisal designed to encourage the pursuit of organizational objectives Different mechanisms to for managers to align the goals of individuals”: Control- supervise behavior and performance, through positive and negative incentives Pay-for-performance when measuring output Shared values- organizational values are one component of culture

The Coordination Problem Everyone in the organization may have the same goal, but desire to cooperate is not enough to integrate efforts. Coordination drives efficient production by: Rules and instructions- general employment contracts, standardized outcomes required Routines- These regular sequences of coordinated actions are the foundation of organizational ability Mutual Adjustment- Engaged in related tasks, without any authority relationship

Hierarchy in organizational Design Hierarchy is the fundamental feature in Organizational Design Bureaucracy Each individual reports to a superior Top-down control Modularity When designed independently but works together as a whole Multi-divisional firm is a modular structure

The modular structure of the team mirrors the modular structure of the product

Contingency approaches Different organizational organizational characteristics suited to different circumstances Ex: Although Google and Mcdonalds are both highly profitable, their structures and systems are very different Mcdonalds highly emphasizes on rules, and specialization , more bureaucratic, more standard operating procedures Google emphasizes low specialization, and principles over rules Trend has shifted towards more organic approaches to organization Shift from supervision to accountability Difference between Rules and Principles? Contingency: future event thats possible but not certain Principles: like a ground rule that you personally follow Rules: imposed on you

Choosing the Right Structure In order to undertake organizational tasks, people grouped into organizational units In creating a hierarchical structure, on what basis are individuals assigned to units? Employees can be grouped by: Common tasks: Teachers assigned to faculty unit Products: Customer service assistants assign to different department Location: Starbucks stores Process: Airlines Those individuals that need to be interacted closely should be located in same organizational unit.

James Thompson analysis of interdependence Operate independently but depend on one another EX: RELAY TEAM Output of individual is input of another EX: ASSEMBLY LINE Mutually dependent

Three basic organizational forms: After grouping tasks and activities The functional structure: Grouping together similar tasks (organizational unit) across functional lines EX: In 1984 John Scully became the CEO of Apple, and company organized by product, but the products were not integrated: Apple II, Apple III, Macintosh were not compatible Scully’s response was to reorganize along functional lines Problems arise when more products are made available.

Multidivisional Structure Strategies and operating decisions made at the divisional level DEcentralized decision making Modular organization Fosters leadership within division Product or geographically based Important to have a common set of organizational tools to a range of different businesses

Matrix Structure Multiple products, multiple functions, multiple locations Can represent slower decision making Top heavy corporate Headquarters more involved

Trends in organizational design Delayering: companies have made their organizational hierarchies flatter, motive is to reduce costs and and increases responsiveness Adhocracy and Team based approach: having shared values, participation, flexible communication Project based: work assignments are finite, having knowledge of previous project to complete the next Network structures: social relationships, informal mechanisms where coordination occurs Permeable organizational structures: Outsourcing because complexity of products increasing

Workplace Culture and Closing Case Corporate Culture vs Organizational Culture Weak vs Strong Classifications and Descriptions Two Fundamental Questions Closing Case - Cisco: Designing and Redesigning 1984 - Product Line Focus 1997 - Customer Focus 2007 - Technology Organization 2011 - Redesigned Tech Organization