1. Organization Theory: Strategy Implementation Process Steven E. Phelan June, 2006 STRATEGY EXECUTION: Structure, Systems, Rewards

2. Overview Syriana Discussion Structure and Execution  Hrebiniak Chapter 4  USA Today Integration  Hrebiniak Chapter 5  Brache – Strategy implementation  Bossidy- Letter to a new leader  AHA Incentives and controls  Hrebiniak Chapter 6  Bebchuk – Pay without performance

3. Syriana Analyze the movie from the perspective of:  Chaos and complexity theory  Critical theory  Corporate social responsibility

4. The Star Model People RewardsProcesses (Integration) Structure Strategy from Galbraith, Designing Organizations

5. Structure Key principles  Functional organization -> efficiency Economies of scale, avoids duplication, critical mass of know-how, clear career path  Divisional structure -> effectiveness Traditional focus on products, markets or geography New areas – customers, processes, solutions, segments Profit contribution can be easily measured in product divisions –Does this provide more monitoring/motivation as well?

6. Centralization v Decentralization General principle  Centralized = functional/efficient  Decentralized = divisional/effective Text recommends a sequential process starting from the corporate level to group, division, and strategic business unit (SBU) Choice depends on what is important to management

7. Tall v Flat  Large, more centralized companies often have taller structures (I.e. more layers)  Increasing the span of control to create flatter structures can create benefits Faster decision making, less bureaucracy, closeness to customers, cost savings, and flexibility  but can also suffer from problems such as: inertia, inadequate expertise, lack of responsibility, and lateral communication problems Not a universal cure all  Corporate HQs are starting to include: Strategic management functions, executive education, and “centers of excellence” in addition to traditional HR, legal, IT etc.

8. Strategic Drivers Type of strategy  Global strategy often calls for matrix structure  Low cost leadership = functional structure  Focus/differentiation = divisional structure Market and technological relatedness  Same customers, processes, distribution etc.  Leads to increased centralization (or need for coordination) Growth/size  Increased decentralization

9. Emerging Trend Customer centric mindset  To find as many new and existing products to sell to a customer as possible  To create and customize solutions for a customer  To appear as one company to each customer  To develop an on-going customer relationship  Contrasted with a product-centric company whose mission is to find as many uses and customers for each product as possible

10. Customer-focused structure The front/back structure  Front End = customers and market  Back End = products and technologies  Example of a hybrid structure

11. Telstra Customer Divisions  Sales, direct marketing, sales engineers  Corporate, Government, Business, Residential Product Management  Product marketing and product engineers  Basic access, DSL, prepaid cellphones Network Engineering  Technologies, platforms, infrastructure  Switching, transmission, access  Broadband, wireless, microwave

12. Thoughts Art or science?  Is organizational design more art than science?  Diversity (in customers, technology, distribution etc. ) is grounds for differentiation  Need to choose primary form of departmentalization  Integration processes can compensate for inherent weaknesses  Need to be aware of pros and cons

13. Case 1: American Heart Association Case Study  Was the first restructure a sound move?  What problems did it create?  As an org design consultant, what changes would you recommend to the existing structure… At the regional level? At the national level?

14. Integration Interdependence  Pooled Low coordination requirements Rules/SOPs/Hierarchy  Sequential High coordination Scheduling, JIT, transfer pricing issues  Reciprocal Very high coordination Meetings, trust, group incentives

15. More integration ideas Voluntary (or informal)  Rotation, interdepartmental events, co-location, mirror image departments, consistent rewards, common language E-coordination  Web pages, databases, CRM, email, discussion groups, instant messaging/chat Formal group  Regular meetings – need for leadership/conflict mgt skills

16. More integration ideas ctd. Full-time integrators  Project managers, brand managers, process managers etc.  Put teams together across departments Matrix organization  Level of coordination grows but so does cost and difficulty of implementation  What about tie-breakers and two-boss bosses? GE’s Workout program?

17. Responsibility Plotting Responsibility Matrix  Major tasks by key people  R = responsibility  A = accountability (final say)  I = must be informed  C=must be consulted  ? = don’t know Useful tool

18. Brache v Bossidy Systems of strategy implementation  Brache is more structural (hard) Establish an initiative identification & priority setting system (to favor fewer initiatives), Put in place the right structure, people (sponsors, leaders, teams), and culture to support implementation initiatives Create a reporting system to monitor progress on initiatives  Bossidy is people oriented (soft) Know yourself, know your people (potential & performance of top 1/3), know your customers Be open, honest, realistic – always learn Attract, reward, retain the doers (the A-players) that get things done  What works?

19. Rewards & Controls Hrebiniak’s prescriptions  Develop and use good objectives Clear, relevant, measurable  Reward the doers  Reward cooperation  Face the brutal facts honestly  Clarify responsibility and accountability  Obtain timely and valid information  Use the information for learning and adaptation Take action when actual results deviate from plan Be sure to change as a result of lessons learned

20. Case 2: USA Today Identify the problem(s) Recommend:  A strategy  A structure  A set of key lateral processes, and  A reward system That will solve (or at least address) the problem(s) at USA Today

21. Bebchuk and Fried CEO compensation  Critical analysis (compare to Chomsky) Aggregate compensation of top-five executives 10%+ of earnings of public firms  Limits on board independence to set rewards Incentive to be nominated/re-elected CEO’s power to benefit directors Friendship, loyalty, collegiality, authority, solidarity Small personal cost of favoring CEO Ratcheting

22. Dubious practices A list  Camouflage and stealth compensation To reduce ‘outrage’ costs  Gratuitous goodbye payments  Windfall compensation Options tend to reward broad market movements and short- term spikes  Pension and deferred compensation Is the system broken? Are we rewarding executives too much? Will there be a backlash?