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Strategy Implementation
HCAD 5390
Organizational Structure
Organizational
–
Selecting the structure and control
systems that are most strategically
effective for pursuing sustainable
competitive advantage.
The
–
–
design
role of structure and control
To coordinate strategy implementation.
To motivate and provide incentives for superior
performance.
The Role of Organizational
Structure
Building
–
Differentiation in the allocation of people and
resources to create value.


–
blocks of organizational structure
Vertical differentiation in the
distribution of decision-making
authority.
Horizontal differentiation in
dividing up people and tasks
into functions and divisions.
Integration

The means used in coordinating people and functions
to accomplish organizational tasks.
Differentiation, Integration,
Bureaucratic Costs
Bureaucratic
costs and strategy
implementation:
–
–
–
–
Bureaucratic costs increase with
organizational complexity.
More differentiation = more managers.
More integration = more coordination.
Better strategy implementation = better bottom-line
performance and profitability.
Vertical Differentiation
Span
–
of control (division of authority)
The number of subordinates that a single manager
directly manages.
Organizational
–
Flat structures


–
hierarchy choices
Few organizational levels
Wide spans of control
Tall structures


Many organizational levels
Narrow spans of control
Tall and Flat Structures
Problems with Tall Structures
Principle
–
of minimum chain of command
Maintaining a hierarchy with the least number of
levels of authority needed to achieve a strategy.
Sources
of bureaucratic costs:
Centralization or Decentralization
Authority
–
patterns in organizations:
Centralized

–
Decision making retained in the
hands of upper-level managers.
Decentralized

Decisions delegated to lower
levels in the organization.
Centralization (Structural) Choice?
Advantages
of
decentralization
–
–
–
Reduced information
overload on upper
managers.
Increased motivation and
accountability throughout
organization.
Fewer managers; lower
bureaucratic costs.
Advantages
of
centralization
–
–
–
–
Easier coordination of
organizational activities.
Decisions fitted to broad
organizational objectives.
Exercise of strong
leadership in crisis.
Faster decision making and
response.
Horizontal Differentiation
Focus
is on division and grouping of tasks to
meet business objectives.
Simple structure:
–
–
–
–
Characteristic of small entrepreneurial companies.
Entrepreneur takes on most managerial roles.
No formal organization arrangements.
Horizontal differentiation is low.

Structure Follows Strategy:
–
11
Changes in corporate strategy lead to
changes in organizational structure

Structure Follows Strategy:
•
•
•
•
•
12
New strategy is created
New administrative problems emerge
Economic performance declines
New appropriate structure is invented
Profit returns to its previous levels

Stages of corporate development

Simple Structure
Functional Structure
Divisional Structure
Beyond SBU’s



13

Simple Structure:
–
Stage I:

Entrepreneur
–
Decision making tightly controlled
– Little formal structure
– Planning short range/reactive
– Flexible and dynamic
14

Functional Structure:
–
Stage II:



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15
Management team
Functional specialization
Delegation decision making
Concentration/specialization in industry

Divisional Structure:
–
Stage III:



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16
Diverse product lines
Decentralized decision making
SBU’s
Almost unlimited resources

Beyond SBU’s:
–
Stage IV:





17
Increasing environmental uncertainty
Technological advances
Size & scope of worldwide businesses
Multi-industry competitive strategy
Better educated personnel
Functional Structure
Advantages
–
–
–
Task grouping facilitates
specialization and
productivity.
Better monitoring of work
processes, reduced costs.
Greater control over
organizational activities.
Disadvantages
–
–
–
–
Functional orientation
creates communication
problems.
Performance and
profitability measurement
problems.
Location versus function
problems (coordination).
Strategic problems due to
structural (vertical and
horizontal) mismatches.
Functional Structure
Mutlitdivisional Structure
Advantages
–
–
–
–
Enhanced corporate
control by division
Enhanced strategic
control of each SBU in
portfolio
Growth is easier. New
units don’t have to be
integrated across
organization
Stronger pursuit of
internal efficiencies.
Performance of individual
units is readily
measurable.
Disadvantages
–
–
–
–
–
–
Establishing the divisionalcorporate authority
relationship
Distortion of information by
divisions
Competition for resources
by divisions
Transfer pricing problems
between divisions
Short-term research and
development focus
Bureaucratic costs
Multidivisional Structure
Matrix Structure
Advantages
–
–
–
–
Flexibility of the structure and membership
Minimum of direct hierarchical control
Maximizes use of employees’ skills
Motivates employees;
frees up top management
Disadvantages
–
–
–
High bureaucratic costs
High costs (time and money) for building
relationships
Two-boss employee’s role conflict
Matrix
Structure
 Two-boss employee

Network Structure:
–
–
“non structure” – elimination of in-house
business functions
Termed “virtual organization”

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24
Useful in unstable environments
Need for innovation and quick response
Network Structure
Packagers
Designers
Suppliers
Corporate
Headquarters
(Broker)
Manufacturers
Distributors
Promotion/
Advertising
Agencies
25

Effective implementation requires:
–
Leadership

26
Leading people to use their abilities and skills
most effectively and efficiently to achieve
organizational objectives

Staffing follows strategy:
–
Matching the manager to the strategy

Executive type
–
27
Executives with a particular mix of skills and
experiences

Executive Types:
–
–
–
–
–
28
Dynamic industry expert
Analytical portfolio manager
Cautious profit planner
Turnaround specialist
Professional liquidator
Matching Chief Executive “Types” with
Strategy
Business Strength/Competitive Position
Strong
Average
Growth—Concentration
Industry Attractiveness
Dynamic Industry Expert
Retrenchment—
Save Company
Turnaround
Specialist
Stability
Cautious Profit Planner
Growth—Diversification
Analytical Portfolio
Manager
29
Weak
Retrenchment—
Close Company
Professional
Liquidator

Managing corporate culture:
–
Corporate culture



30
Affects firm’s ability to shift its strategic direction
Strong tendency to resist change
Corporate culture should support the strategy

Strategy-Culture Compatibility:
–
Consider the following:




31
Is the planned strategy compatible with the firm’s
current culture?
Can the culture be easily modified to make it more
compatible with new strategy?
Is management willing to make major
organizational changes?
Is management committed to implementing the
strategy?

Managing corporate culture:
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Communication


32
Key to effective management of change
Rationale for strategic change should be
communicated to all
What Is Organizational Culture?
Culture
–
–
The collection of values and norms shared by people and
groups in an organization.
Shared values and a common culture increase integration
and improve coordination.
Values
–
Beliefs and ideas about common goals and proper
behaviors.
Norms
–
Act as guidelines or expectations that prescribe acceptable
behavior by organizational members.
Organizational Culture
Ways
of transmitting organizational culture:
Culture and Strategic Leadership
The
–
influence of the founder
Initial cultural values and management
style is imprinted on the organization
by its founder.
Organizational
–
structure
Structure follows strategy.
Strategic leadership affects
the cultural norms and values
that develop in the organization.
Strategic Reward Systems
Individual
–
–
–
–
reward systems
Piecework plans
Commission systems
Bonus plans
Promotion
Group
and organizational
reward systems
–
–
–
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Group-based bonus systems
Profit sharing systems
Employee stock option systems
Organization bonus systems