1. 1 12 Implementing Strategy in Companies That Compete in a Single Industry

2. 2 Overview Strategy implementation –How a company should create, use, and combine organizational structure, control systems, and culture to pursue strategies that lead to a competitive advantage and superior performance Critical trade-offs: differentiation and integration; specialization and coordination

3. 3 Organizational Culture Culture and strategic leadership Traits of strong and adaptive corporate cultures –Bias for action –Nature of the organization’s mission (sticking with what the organization does best) –How to operate the organization (motivating employees to do their best) Culture is nurtured by building blocks..

4. 4 Building Blocks for Culture– focus attention Strategy Overarching goals Leadership/Management Style Structure Management systems Staff Skills

5. 5 Building Blocks of Culture continued This chapter covers structure and systems in detail. But considers culture as a separate input.

6. 6 Implementing Strategy

7. 7 Building Blocks of Culture continued Influence/role of leadership, staff, and skills should not be overlooked. –Leadership – senior management, e.g. Chair –Staff – types of managers and rank and file –Skills – what technology is dominant in an organization influences the kind of staff it has and eventually its culture. The building blocks must be in synch or these seven will evolve and adjust to each other. Culture is an outcome of the interaction of these building blocks

8. 8 Organizational Life-Cycle An organization’s structure goes through a “life- cycle” –The structure of the organization increases in complexity as the business expands in size, e.g. sales volume, and scope, e.g. number of products, geographic regions, etc. –The complexity is a response to control related issues that arise as a result of expansion Increasing complexity requires maturity on the part of organization and its members.

9. 9 “Organizational life cycle” Entrepreneurial - the owners share responsibilities and does everything Functional - they hire a manager for accounting, marketing, etc. Multi-product or geographic – a manager for a specific geographic region, product line, etc. Profit center – each region or product line becomes responsible for bottom line Matrix/Product-team

10. 10 What follows are materials from Chapter 12

11. 11 Implementing Strategy Through Organizational Structure, Control, and Culture Organizational structure –Specifies how tasks and roles are linked to achieve organizational objectives: increase efficiency, quality, innovation, and responsiveness to customers –To coordinate and integrate the efforts of all employees –Assigns employees to specific value creation tasks and roles within structure

12. 12 Implementing Strategy Through Organizational Structure, Control, and Culture (cont’d) Control system –Provides feedback on performance so corrective action can be taken –A set of incentives to motivate employees towards desired goals, e.g. increase efficiency, quality, innovation, and responsiveness to customers Organizational culture –The collection of values, norms, beliefs, and attitudes shared within an organizations and that control interactions within and outside the organization

13. 13 Building Blocks of Organizational Structure Grouping tasks, functions, and divisions –Organizational structure follows the range and variety of tasks that an organization pursues –Ideally companies should group tasks into functions and then functions into divisions Note: differentiation and specialization –Often companies consider people occupying jobs and performing tasks as they group –Bureaucratic costs

14. 14 Building Blocks of Organizational Structure (cont’d) Allocating authority and responsibility –Hierarchy of authority chain of command –Span of control number of subordinates/units to supervise –Tall and flat organizations

15. 15 Tall and Flat Structures

16. 16 Building Blocks of Organizational Structure (cont’d) –Drawbacks of taller organizations Less flexibility and slower response time Communication problems Distortion of commands Expense

17. 17 Allocating Authority and Responsibility (cont’d) –Decentralization? Delegating responsibility reduces information overload, enables managers to focus on strategy Empowering lower-level managers increases motivation and accountability Empowering employees requires fewer managers Reduces head office size

18. 18 Allocating Authority and Responsibility (cont’d) –Centralization... allow easier coordination of activities means that decisions fit broad organizational objectives Increases head office size in large organizations –If environment or industry is stable, tall organizations sometimes make sense

19. 19 Building Blocks of Organizational Structure (cont’d) Integration and integrating mechanisms –Direct contact among managers across functions or divisions –Liaison roles Gives one manager in each function or division the responsibility for coordinating with the other –Teams

20. 20 Strategic Control Systems Four basic building blocks, each with its own set of measures –Control and efficiency –Control and quality –Control and innovation –Control and responsiveness to customers Cascade measures to lowest possible unit

21. 21 Steps in Designing an Effective Control System

22. 22 Levels of Organizational Control

23. 23 Types of Strategic Control System Personal control –Face-to-face interaction Output control –Performance goals for each division, department, and employee Behavior control –Rules and procedures to direction actions or behaviors of divisions, functions, and individuals Operating budget Standardization

24. 24 Using Information Technology Behavior control –IT standardizes behavior through the use of a consistent, cross-functional software platform Output control –IT allows all employees or functions to use the same software platform to provide information on their activities Integrating mechanism –IT provides people at all levels and across all functions with more information

25. 25 Strategic Reward Systems Based on strategy, managers must decide which behaviors to reward. A control system measures indicators of those behaviors and links the reward structure to these indicators. The difficulty is finding the appropriate indicators.

26. 26 Building Distinctive Competencies at the Functional Level Grouping by function: functional structure –Grouping people on the basis of their expertise or because they use the same resources –Advantages People can learn from one another People can monitor each other Managers have greater control With different functional hierarchies, the company can avoid becoming too tall

27. 27 Functional Structure

28. 28 The Functional Level The role of strategic control –Managers and employees can monitor and improve a common set of operating procedures –Easier to apply output control Developing culture –Managers must implement functional strategy and develop incentive systems to allow each function to succeed –Manufacturing: TQM –R&D: innovation to bring products quickly to market –Sales: output and behavior controls

29. 29 Functional Structure and Bureaucratic Costs Communications problems – across functions usually Measurement problems – there are functions that lend themselves to quantification, others less so Customer problems Location problems Strategic problems – can be ignored The outsourcing option

30. 30 Implementing Strategy in a Single Industry Implementation begins at the functional level, however, managers must coordinate and integrate across functions and business units Effective strategy implementation at the business level –Increases differentiation, adds value for customers, allows for a premium price –Reduces bureaucratic costs

31. 31 Implementing Strategy in a Single Industry (cont’d) Implementing a cost-leadership approach –Reducing costs across all functions –Continuously monitoring for effective operation Implementing a differentiation approach –Design structure around the source of distinctive competency, differentiated product, and customer groups

32. 32 Implementing Strategy in a Single Industry (cont’d) Implementing a broad product line— product structure –Group the overall product line into product groups –Centralize support value chain functions to lower costs –Divide support functions into product-oriented teams of functional specialists who focus on the needs of one specific product group

33. 33 Kodak’s Product Structure

34. 34 Implementing Strategy in a Single Industry (cont’d) Increasing responsiveness to customer groups—market structure –Group people and functions by customer or market segments –Different managers are responsible for developing products for each group of customers

35. 35 Market Structure

36. 36 Implementing Strategy in a Single Industry (cont’d) Expanding nationally—geographic structure –To be responsive to needs of regional customers –To reduce transportation costs

37. 37 Geographic Structure

38. 38 Implementing Strategy in a Single Industry (cont’d) Competing in fast-changing, high-tech environments—product-team and matrix structures –Matrix structure Value chain activities are grouped by function and by product or project Flat and decentralized Promotes innovation and speed Norms and values based on innovation and product excellence

39. 39 Matrix Structure

40. 40 Implementing Strategy in a Single Industry (cont’d) Competing in fast-changing, high-tech environments—product-team and matrix structures (cont’d) –Product-team structure Tasks divided along product or project lines Functional specialists are part of permanent cross-functional teams

41. 41 Product-Team Structure

42. 42 Implementing Strategy in a Single Industry (cont’d) Focusing on a narrow product line –Tends to have higher production costs because output is lower, reducing opportunity for scale economies –Has to develop some form of distinctive competency –Functional structure is appropriate

43. 43 Restructuring and Reengineering Restructuring involves –Streamlining hierarchy of authority and reducing number of levels –Downsizing the workforce to reduce costs Reasons –Change in the business environment –Excess capacity –Organization grew too tall and inflexible; bureaucratic costs –To improve competitive advantage and stay on top

44. 44 Restructuring and Reengineering (cont’d) Reengineering –Fundamental rethinking and radical redesign of business processes to achieve dramatic improvements –Focuses not on functions, but on processes (which cut across functions)