Lecture 3: Strategy and Structure Outcomes

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Lecture 3 Strategy and Structure - Outcomes

• To understand the importance that a change in
  strategy can have on structure.
• To be able to explain the contemporary
  strategy-structure theories as they relate to
  modern organisations.

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Done already Do it today
Do it tomorrow Do it day after

• Determinants of
• Organisational Structure
• Strategy
• Organisation size
• Technology
• Environment
• Power-control

• Applications
• Managing the environment
• Managing organisational change
• Managing organisational culture
• Managing organisational evolution

Organisational Structure
Organisational Effectiveness

• Organisational Designs
• Design options
• Bureaucracy
• Adhocarcy

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Strategy
1

• What is Strategy
• Dimensions of Strategy
• Chandler,
• Contemporary Strategy-Structure Theories
• Miles Snow,
• Porter,
• Miller
• Industry-Structure Relationship

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What is strategy?

• Strategy can be defined as the determination of
  the basic long-term goals and objectives of an
  enterprise, and the adoption of courses of action
  and the allocation of resources necessary for
  carrying out these goals.
• Strategy is concerned with both means and ends.

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The Strategy Imperative

• Strategy influences structure.
• Basic assumptions
• The organisation strives to satisfy goals
• It moves towards its goals rationally
• Organisations transform economic inputs into
  outputs
• The environment within which the organisation
  operates is a given.

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How Does Strategy Form?

• Is it premeditated?
• Planning mode
• Does it just happen over time?
• Evolutionary mode
• See Henry Mintzberg (MIT) and the idea of
  creative strategy

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Levels of Strategy

• Corporate-level strategy
• In what set of businesses should we be?
• E.g. diversification (not at a product level)
• Business-level strategy
• How should we compete in each business?
• For organisations in many lines of business, each
  division will seek its own strategy for its
  products
• IACT916 focus is on business-level strategy

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Dimensions of Strategy I

• Innovation strategy
• Does the organisation pride itself on developing
  new products or services?
• Sony vs Readers Digest
• Marketing differentiation strategy
• Does the organisation seek to create a favourable
  image for its product through advertising, market
  segmentation and prestige pricing?
• Omega vs Swatch

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Dimensions of Strategy II

• Breadth strategy
• Refers to the scope of the market to which the
  business caters the variety of customers, their
  geographical range and the number of products
• Unilever (Lipton Bertolli, Findus, Dove Omo,
  Ponds Rexona ) vs Roses Only or Corochan
  Corokke
• Cost-control strategy
• Extent to which the organisation tightly controls
  costs, refrains from incurring unnecessary
  innovation or marketing expenses, and cuts prices
  in selling a basic product
• Seiyu vs Aldi Supermarkets

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Chandlers Strategy-Structure Thesis

• Alfred Chandler (1960s)
• Extensive case studies found that changes in
  corporate strategy preceded and led to changes in
  an organisations structure.
• Unless structure follows strategy, inefficiency
  results.

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The Chandler Argument

• An organisation begins with a single line of
  business, or a single product.
• As the demand for that product grows, the
  organisation begins to grow in size and
  complexity.
• It introduces more products into its range in
  order to continue to grow and the organisations
  strategy becomes more ambitious and elaborate.
• Ultimately the structure of the organisation
  changes as a results of the strategy change.

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Chandlers Model

• Was Chandlers thesis correct?
• What assumptions did Chandler make?

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Modern Strategy-Structure Theory

• Miles and Snows Four Strategic Types
• Porters Competitive Strategies
• Millers Integrative Framework
• Miller borrows strategy dimensions from Miles and
  Snow Porter to define an integrative framework

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Miles and Snow, 4 Strategic Types

• Defenders
• Seek stability and efficiency Tight control
• extensive division of labour centralised
  formalised
• Analysers
• Seek stability but can cope with change
• Moderately centralised controls tight controls
  for current activities, loose for new
  undertakings
• Prospectors
• Seek flexibility and dynamism Low degree of
  formalisation
• Loose structure low division of labour
  decentralised
• Reactors
• Organisations that buckle under pressure and
  poorly implement one of the above no strategy
  defined, or wrong strategy is defined or top
  management fail to make strategy clear

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Porters Competitive Strategies

• Cost-leadership strategy
• When an organisation sets out to be the low-cost
  producer
• Must offer comparable products as that of rival
  or at least comparable to buyers
• Differentiation strategy
• Firm that seeks to be unique in its industry
• Focus strategy
• Exploit narrow segment of market, niche.
• Stuck in the middle
• Those companies without a clear strategy as
  defined above
• Difficult to achieve long-term success in this
  instance

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Questioning the Strategy Imperative

• When can strategy influence organisation
  structure most?
• What if a change in strategy by management is NOT
  followed by a change in structure?
• Does structural change depend on the competitive
  pressures an organisation is facing?
• What if structure determines strategy?
• What is your opinion about these questions?

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Industry-Structure Relationship

• Simply knowing the industry in which an
  organisation operates allows one to know
  something about product life-cycles, required
  capital investments, long-term prospects, types
  of production technologies, regulatory
  requirements, and so forth.

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2 variable analysis of industries
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Industrial Networks

• When organisations form alliances to pool
  resources together to aid one another to achieve
  goals, inter-firm structures are influenced.
• Strategies of individual companies are both
  shaped and constrained by other companies with
  which they have commercial relationships.
• Consider networks, clusters and alliances.

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Size organisational structure

• Outcomes
• To understand the size imperative as it relates
  to organisational structure.
• The ability to discuss why downsizing may take
  place in an organisation, and the benefits of
  that change.
• To explain why downsizing is happening in the
  technology sector today.

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Outline

• Aspects of Organisational Size
• The Size Imperative
• The Problems of Large Organisations
• The Downsizing Phenomenon
• Inefficiencies in Downsizing

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Defining Organisational Size

• Most define size to be the total number of
  employees in a company.
• What are your thoughts on this definition?
• Any others you can think of?

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Aspects of Size

• Size is relative
• How do you measure size
• Full-time employees vs
• Part-time employees vs
• Seasonal employees?

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• What about the notion of small, medium and
  large-size firms?
• A large-size hairdressing salon of 50 employees
  vs a large-size computer manufacturer of 100,000
  employees?
• E.g. a large firm in Australia or Singapore may
  be considered medium-size in the US

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Opposing Beliefs on Size

• Advocate of Size Imperative
• Peter Blau concluded size is the most important
  condition affecting the structure of
  organisations
• Critics of Size Imperative
• Chris Argyris analysed Blaus data and argued
  that civil-service organisations are unique.
  Argyris agreed that size can be linked to
  structure but did not cause it.

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Size and Dimensions of Structure

• Size and Complexity
• Size is a predictor of the level of vertical
  differentiation
• Larger the organisation, the more pronounced was
  the division of labour within it
• Size and Formalisation
• Formalisation increases with size
• Size and Centralisation
• Research is mixed on this point
• As size increases a firm does not necessarily
  decentralise, it all depends

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The Problem of Large Organisation Size

• The growth of bureaucracy
• The need to gather and process information and to
  turn it into knowledge
• Extended timeframes for action
• Knowing where the profits are being made and
  where the costs are being incurred
• Difficulty in managing over a wide geographic
  spread

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Coping with large organisations

• Divide the organisation into manageable parts.
• Outsource.
• Finding a balance between what decisions should
  be centralised as opposed to decentralised.
• Structuring to facilitate change.
• Ensure that important tasks have someone
  responsible for them.

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IT and Small Business

• Though only 1 of businesses in Australia are
  considered large, they employ about 25 of the
  workforce.
• Over 85 of businesses in Australia are
  considered small, but they employ only 25 of
  the workforce.
• Situation in Singapore ?
• In small business, the issues are different
• The influence of the owner
• Size as a factor of structure is less important
  as the organisation structure is generally flat
• The small business faces control, accountability,
  efficiency and environmental issues instead.

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The downsizing phenomenon

• Why do companies downsize?
• What do they hope to gain by downsizing?
• Is downsizing a natural pattern within the
  lifecycle of a company?
• What are the effects of downsizing?
• Are they always positive?

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Reasons Leading to Downsizing Benefits

• Increased competition
• Computerisation and automation
• Technological obsolescence
• Changes in strategy
• Limitation of size advantage
• Rise of outsourcing

• Lowered overheads
• Less bureaucracy
• Faster decision making
• Smoother communications
• Greater entrepreneurship
• Increased productivity

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Ineffective Downsizing Practices

• The use of voluntary retirement practices
• Making across the board layoffs
• Eliminating training and development programs
• Cutting too deeply into the numbers of personnel
• Placing remaining employees into jobs for which
  they have insufficient skills
• Emphasising employee accountability over employee
  involvement
• Expect survivors to row harder
• Implement layoffs slowly in phases over time
• Promise high monetary rewards rather than careers

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Investing in the Future

• In times of downsizing it is tempting to cut
• RD (research development) staff
• New graduate positions
• New product lines
• Maintenance engineers
• Expensive equipment needed to do work
• But it is important to remember the long-term
  future of the company.
• Band-aid solutions are short-term and only have
  short-term effects (on the problem but not
  orgn.)

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Admin things the exam, pt 1

• There will be no exam questions which ask YOU to
  integrate material from strands 1 2 e.g. use
  Miles and Snow to explain the leadership gap in
  IT management
• There may be a few questions which ask you to
  reflect critically on some strand 1 content e.g.
  how could IT be used to flatten the vertical
  hierarchy in an existing organisation
• Chapters 9 15 in text not in exam, which is
  taken from lecture notes
• Ill email a reference for some textbooks on ISM
• Exam, part 2 on Tuesday

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2
Managing new technologies

• Business Intelligence (BI)
• Knowledge Management (KM)
• E-Commerce and C-Commerce
• Supply Chain Managment
• Customer relations management (CRM)
• Enterprise Resource Planning (ERP)

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Business Intelligence (BI)
2

• The three main components of BI are
• Data warehousing
• Data Mining and
• Online Analytical Processing
• This material draws heavily on the article In
  pursuit of business intelligence by Chris Boon
  in Document World, (ISSN10259228) Volume 3,
  Issue  6, Pages 18-24. Despite the title, the
  article deals primarily with data warehousing. I
  have edited these notes to reflect the wider
  field of Business Intelligence (BI)

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Link to BUSINESS

• BI represents a response to the frustration of
  decision makers and knowledge workers who know
  that the data they are seeking to analyse is
  captured and stored somewhere in the organisation
  but find they are unable to access that data. For
  many non-technical managers this is an
  incomprehensible situation

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Potential and Reality

• BI has become established as a very high-profile
  sector of the IT industry.
• It is not, however, essentially an IT fashion
  (like CASE, 4GLs, client/ server and so on) but
  more a business phenomenon.
• BI is a combined business and IT initiative aimed
  at satisfying information requirements of the
  business community.

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BI seeks to

• provide access to data that has been integrated
  and cleansed so that it can be analysed,
  manipulated, transformed and combined to discover
  correlations, trends and patterns that add value
  to the data and provide new business insight.
  Because BI is business driven, it will survive
  far longer than IT fashions have tended to.

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Applications of BI

• More and more industries are perceiving the
  possibilities that BI presents. This includes not
  only the mainstream commercial sectors of finance
  retail and telecommunications, but also
  government agencies, the healthcare industry,
  policing and scientific institutions.

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Business Drivers

• There are a variety of business drivers for BI,
  all of which are concerned with responding more
  quickly and flexibly to an increasingly turbulent
  and competitive business environment.

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Business Drivers include a need to

• manage complex multinational organisations whose
  data is fragmented and dispersed.
• consolidate data from different organisations
  that have been amalgamated through mergers or
  take-overs
• integrate strategic and financial management data
  because traditional financial control systems
  have proved wholly inadequate for meeting the
  needs of the enterprise, especially in supporting
  the short-term responsiveness of the business.
• The growing availability of valuable external
  data sources is motivating businesses to use
  data integration solutions.

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Main Business Driver

• corporations are demanding access to integrated
  and enriched data because of the business
  tendency towards a range of new marketing and
  sales concepts and techniques known collectively
  as customer relationship management (CRM).
• CRM requires the use of a massive database
  engine for conducting complex analyses of
  customer behaviour and for defining and
  monitoring micro-segments of the market.

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Project Failures

• The query-intensive processing environment
  required for BI is very different from
  traditional transaction-based IT systems. As a
  result, the formula for success during the early
  years of the development of BI proved elusive
• Many projects have failed, or at least stalled,
  while the enterprise attempted to overcome the
  major obstacles they encountered.

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Project Failures II

• Today, the failure rate for BI projects remains
  higher than 50 (and is estimated by many
  industry observers at around 70). But
  technological obstacles are very rarely
  responsible for these failures. Instead, the high
  rate of failure is almost always attributable to
  factors that may be classified as
  organisational.

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The Leading Players

• The BI market has traditionally comprised
  numerous players and, like all immature markets,
  has been in a state of continuous change.
• The early BI user organisations had to acquire
  solution elements from a range of vendors
  (typically four or five different suppliers),
  design and write code for some parts of the
  solution themselves (typically the data
  extraction and transformation piece), and perform
  a systems integration task that is far more
  demanding than any they had encountered in online
  transaction processing (OLTP) systems

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Implementation obstacles

• BI involves a multitude of tasks and activities
  that need to be undertaken from the specialist
  perspective of a query-intensive environment.
  These range from a definition of business
  strategy and objectives through generating the
  Request for Proposal (RFP) to future-proofing the
  BI data warehouse (s) and applications.
• This requires a new breed of system integration
  and project management expertise. It is also very
  valuable to have available the support of a
  methodology devised specifically for BI projects

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Soft Issues

• While the technical and systems integration tasks
  involved in BI implementation are challenging,
  they rarely constitute insurmountable
  difficulties. By far the most common causes of
  failure in BI projects are what may be termed
  'soft' issues. These include
• Lack of project sponsorship.
• Lack of business orientation.
• Lack of user orientation.

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Soft Issues II

• Inadequate data quality.
• Data ownership disputes.
• Poor security management
• Rapid deployment without considering long term
• Lack of suitable experienced human resources.
• Over-reliance on technology vendors.
• Political and cultural resistance to change.
  
• The difficulty of managing project risk.

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Increased Focus on Applications

• BI has had a dramatic impact on business
  thinking, particularly in the areas of marketing
  and strategy. This is evidenced by a number of
  separate trends in business planning which are
  directly related to the BI phenomenon.
• A major impact of BI has been on the marketing
  and sales functions which have for a long period
  evaded effective automation. In many ways the
  computerisation of the marketing processes may
  be represented as the last great challenge to
  corporate information systems development.

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Automating the marketing function

• It was not easy to rigorously define requirements
  for applications in marketing, traditionally an
  obscure function comprising many discrete
  activities.
• BI has changed all that. It is common now for
  large and small organisations to have
  applications for promotion impact analysis,
  market segmentation, cross selling, customer
  care, targeted mailing, prospect analysis and
  customer retention. These applications have
  become more rigorously specified and are seen as
  general applications, as essential and
  mission-critical as the corporate billing system
  or payroll system. All of these applications are
  variants on data exploitation and require a BI
  infrastructure to exist as a pre-requisite.

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Need for concrete applications

• The increased focus on applications is a sign of
  the impact of BI.
• In the early BI literature it was assumed that,
  at least initially, the business would not know
  precisely how the data was going to be exploited.
  The underlying assumption was that the hidden
  nuggets of value would be uncovered by users
  using ad-hoc query tools. That thinking has given
  way to a more realistic assessment of the value
  of BI with reference to concrete applications
  which have a clear business value.

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Market Divergence

• BI has enabled the growing divergence of markets
  as it has helped make businesses more aware of
  the different and distinct market segments that
  exist and which require different responses from
  the enterprise.
• This divergence is quite marked in the retail
  sector where the introduction of loyalty cards
  (to capture increasingly detailed data) has led
  to huge growth in the volumes of data being
  captured and manipulated.

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Market Divergence II

• All of this is leading to the emergence of mass
  customised markets and a definite shift away from
  the old mass production industrial system.
• It was always known that all customers are
  different. Now the enterprise can see how and in
  what way each customer is different. What this
  means for world commerce is not an incremental
  technology-enabled change but a fundamental
  change in the way that business is conducted and
  transacted

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Other examples of BI applications

• The development of complex supply-chain
  integration applications in logistics services.
• Finance, where the application focus is centred
  on activity-based costing, cost-discovery and
  risk management applications.
• Policing and military planning.
• Support of economic and social planning
  activities in government agencies.

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Link to business vision

• BI has been a phenomenal business success where
• the business vision existed to understand the
  value of data
• the technical competency existed to design the
  data exploitation infrastructure that was needed
  to deliver that vision.
• A close partnership between business and IT has
  been, and remains, the principal key to success.