Strategy Implementation Governance (BOD) Is your strategy “implementation-ready”? How will you use organization structure, controls, and leadership to implement your strategy?

Adapted from Hambrick & Fredrickson, 2001, AME 15(4)

5 major questions Adapted from Hambrick & Fredrickson, 2001, AME 15(4)

Staging sequence of actions

IKEA example

Test the Quality of Your Strategy 1. Does your strategy fit with what’s going on in the environment? Is there healthy profit potential where you’re headed? Does your strategy align with the key success factors of your chosen environment? 2. Does your strategy exploit your key resources? With your particular mix of resources, does this strategy give you a good head start on competitors? Can you pursue this strategy more economically than competitors? 3. Will your envisioned differentiators be sustainable? Will competitors have difficulty matching you? If not, does your strategy explicitly include a ceaseless regimen of innovation and opportunity creation? 4. Are the elements of your strategy internally consistent? Have you made choices of arenas, vehicles, differentiators, and staging, and economic logic? Do they all fit and mutually reinforce each other? 5. Do you have enough resources to pursue this strategy? Do you have the money, managerial time and talent, and other capabilities to do all you envision? Are you sure you’re not spreading your resources too thinly, only to be left with a collection of feeble positions? 6. Is your strategy implementable? Will your key constituencies allow you to pursue this strategy? Can your organization make it through the transition? Are you and your management team able and willing to lead the required changes?

Organizational Structure Organizational structure specifies procedures, controls, and decision-making authority It is critical to match organizational structure to the firm’s strategy

Stable and Flexible Structures Stable structures help the firm exploit its current resources required to consistently and predictably manage the firm’s daily work routines Flexible structures help the firm explore new resources explore competitive possibilities allocate resources to activities that shape competitive advantages needed by the firm

Organizational Controls guide strategy implementation identify differences between actual & expected results suggest which corrective actions to take when actual:expected differences are unacceptable

Organizational Controls: Objective criteria Accounting-based measures include return on investment return on assets Market-based measures include economic value added Operational controls provide supporting/related information

Matching Control to Strategy Relative use of controls varies by type of strategy, e.g., large diversified firms using cost leadership strategy emphasize financial controls Single business companies and business units using a differentiation strategy emphasize strategic controls

Evolutionary Patterns of Strategy and Organizational Structure Firms grow in predictable patterns by volume by geography integration (vertical, horizontal) through product/business diversification A firm’s growth patterns determine its structural form

Evolutionary Patterns of Strategy and Organizational Structure Organization structure is simply a tool to implement and manage strategies Firms frequently alter their structure as they grow in size and complexity Three basic structure types: simple structure functional structure multi-divisional structure (M-form)

Strategy and Structure Growth Pattern: Simple Structure Simple Structure

Strategy and Structure Growth Pattern: Simple Structure Organizational form in which the owner-manager makes all major decisions directly monitors all activities Staff serves as an extension of the manager’s supervisory authority Matched with focus strategies and business-level strategies commonly compete by offering a single product line in a single geographic market

Strategy and Structure Growth Pattern: Simple Structure Growth creates complexity managerial and structural challenges Owner-managers commonly lack organizational skills and experience become ineffective in managing the specialized and complex tasks involved with multiple organizational functions

Strategy and Structure Growth Pattern: Functional Structure Simple Structure Efficient implementation of formulated strategy Sales Growth- Coordination and Control Problems Functional Structure

Strategy and Structure Growth Pattern: Functional Structure Chief Executive Officer (CEO) limited corporate staff Functional line managers in dominant organizational areas production – accounting marketing – R&D engineering – human resources Supports use of business-level strategies and some corporate-level strategies single or dominant business with low levels of diversification

Strategy and Structure Growth Pattern: Functional Structure Differences in orientation among organizational functions can impede communication and coordination increase the need for CEO to integrate decisions and actions of business functions facilitate career paths and professional development in specialized functional areas cause functional-area managers to focus on local versus overall company strategic issues

Strategy and Structure Growth Pattern: Multidivisional Structure Strategic control operating divisions each division is separate business or profit center Top corporate officer delegates responsibilities to division managers for day-to-day operations for business-unit strategy Appropriate when the firm grows through diversification

Strategy and Structure Growth Pattern: Multidivisional Structure Three major benefits corporate officers able to more accurately monitor the performance of each business, which simplifies the problem of control facilitates comparisons between divisions, which improves the resource allocation process stimulates managers of poorly performing divisions to look for ways of improving performance

Strategy and Structure Growth Pattern: Multidivisional Structure Simple Structure Efficient implementation of formulated strategy Multidivisional Structure Sales Growth- Coordination and Control Problems Efficient implementation of formulated strategy Sales Growth- Coordination and Control Problems Functional Structure

Matching Structure and Strategy Different forms of the functional organizational structure are matched to cost leadership strategy differentiation strategy integrated cost leadership/differentiation strategy differences in these forms seen in three important structural characteristics specialization centralization formalization

Structure for Cost Leadership Strategy Operations is main function Process engineering is emphasized over R&D Large centralized staff Formalized procedures Structure is mechanical, job roles highly structured Office of the President Centralized Staff Engineering Operations Accounting Marketing Personnel

Structure for Differentiation Strategy President and Limited Staff R&D Marketing New Product R&D Marketing Finance Operations Human Resources Marketing is the main function for tracking new product ideas New product R&D is emphasized Most functions are decentralized Formalization is limited to foster change and promote new ideas Overall structure is organic; job roles are less structured

Multidivisional Structure Each division is operated as a separate business Appropriate for related-diversified businesses Key task of corporate managers is exploiting synergies among divisions Managers use a combination of strategic controls and financial controls

Multidivisional Structure Managers try to strike a balance between: competing among divisions for scarce capital resources creating opportunities for cooperation to develop synergies The goal is to maximize overall firm performance The decision-making of managers in a multi-divisional structure may be: centralized or decentralized bureaucratic or non-bureaucratic

Multidivisional Structure Balance on these dimensions may change over time Structure will evolve over time with: changes in strategy degree of diversification geographic scope nature of competition

Three Variations of the Multidivisional Structure (M-form) Cooperative Form Competitive Form Strategic Business-Unit (SBU) Form

Cooperative Form of Multidivisional Structure: Related-Constrained Strategy Headquarters Office President Government Affairs Legal Affairs Corporate R&D Lab Strategic Planning Corporate Human Resources Corporate Marketing Corporate Finance Product Division Product Division Product Division Product Division Product Division

Cooperative Form of Multidivisional Structure: Related-Constrained Strategy Structural integration devices create tight links among all divisions Corporate office emphasizes centralized strategic planning, human resources, and marketing to foster cooperation between divisions R&D is likely to be centralized Rewards are subjective and tend to emphasize overall corporate performance, in addition to divisional performance Culture emphasizes cooperative sharing

SBU Form of Multidivisional Structure: Related-Linked Strategy Headquarters Office President Corporate R&D Lab Strategic Planning Corporate HRM Corporate Marketing Corporate Finance SBU SBU SBU Division Division Division

SBU Form of Multidivisional Structure: Related-Linked Strategy Structural integration devices create tight links among all divisions Corporate office emphasizes centralized strategic planning, human resources, and marketing to foster cooperation between divisions R&D is likely to be centralized Rewards are subjective and tend to emphasize overall corporate performance, in addition to divisional performance Culture emphasizes cooperative sharing

Competitive Form of Multidivisional Structure: Unrelated Diversification Strategy Headquarters Office President Legal Affairs Finance Auditing Division Division Division Division Division Division

Competitive Form of Multidivisional Structure: Unrelated Diversification Strategy Corporate headquarters has a small staff Finance and auditing are the most prominent functions in the headquarters to manage cash flow and ensure the accuracy of performance data coming from divisions The legal affairs function becomes important when the firm acquires or divests assets Divisions are independent and separate for financial evaluation purposes Divisions retain strategic control, but cash is managed by the corporate office Divisions compete for corporate resources

Multidivisional Structure: Other Points Complex multi-divisional structure firms may be simultaneously centralized and decentralized depending upon the various business-level strategies employed throughout the firm’s individual businesses Multi-divisional structure firms use a combination of: strategic controls financial controls

Characteristics of Various Structural Forms Structural Characteristics Cooperative M-Form SBU M-Form Competitive M-Form Type of Strategy Related- Constrained Related- Linked Unrelated Diversification Degree of Centralization Centralized at Corporate Office Partially Centralized in SBUs Decentralized to Divisions Use of Integrating Mechanisms Extensive Moderate Nonexistent

Characteristics of Various Structural Forms Structural Characteristics Cooperative M-Form SBU M-Form Competitive M-Form Divisional Performance Appraisal Subjective Strategic Criteria Strategic & Financial Criteria Objective Financial Criteria Divisional Incentive Compensation Linked to Corporate Performance Linked to Corporate SBU & Division Performance Linked to Divisional Performance

Worldwide Geographic Area Structure: Multidomestic Strategy Asia United States product characteristics tailored to local preferences isolation from global competitiion establish protected market positions compete in industry segments most affected by differences among local countries Multinational Headquarters Latin America Europe Australia Middle East/ Africa

Worldwide Product Divisional Structure: Global Strategy Worldwide Products Division Worldwide Products Division standardized products across countries economies of scope and scale outsource some primary or support activities to the world’s best providers decision-making authority centralized in worldwide division headquarters Global Corporate Headquarters Worldwide Products Division Worldwide Products Division Worldwide Products Division Worldwide Products Division

Using the Combination Structure: Transnational Strategy The combination structure has characteristics and mechanisms that result in an emphasis on both geographic and product structures local responsiveness (multidomestic strategy) global efficiency (global strategy)

Strategic Network A strategic network is a grouping of organizations that has been formed to create value through participation in an array of cooperative arrangements, such as alliances and joint ventures The strategic network seeks to develop a competitive advantage in primary or support activities A strategic center firm often manages the network

Strategic Network strategic center firm engages in four primary tasks strategic outsourcing (outsources and partners with more firms than do other network members) competencies (supports each member’s efforts to develop core competencies that can benefit the network)

Strategic Network strategic center firm engages in four primary tasks technology (manages the development and sharing of technology-based ideas among network members) race to learn (guides participants in efforts to form network-specific competitive advantages)

Strategic Network Strategic Center Firm

Distributed Strategic Network International cooperative strategies often require more complex networks Many large multinational firms form distributed strategic networks with multiple regional strategic centers to manage their array of cooperative arrangements with partner firms Breaking large networks into multiple manageably-sized networks helps to manage the complexity of maintaining many relationships

Distributed Strategic Network Center Firm Main Strategic Center Firm = Distributed Strategic Center Firms