Implementing Strategy in Companies That Compete in a Single Industry

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12

• Implementing Strategy in Companies That Compete
  in a Single Industry

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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

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Implementing Strategy
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Organizational Culture

• Culture and strategic leadership
• Traits of strong and adaptive corporate cultures
• Bias for action
• Nature of the organizations 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 . .

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Building Blocks for Culture focus attention

• Strategy
• Overarching goals
• Leadership/Management Style
• Structure
• Management systems
• Staff
• Skills

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Building Blocks of Culturecontinued

• 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 blend or these seven
  will evolve and adjust to each other.
• Culture is an outcome of the interaction of these
  building blocks

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Organizational Life-Cycle

• An organizations 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.

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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

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Next Slides

• Materials from Chapter 12 should be
  self-explanatory
• Lets discuss the Opening Case in small groups by
  describing how Dells structure evolved.

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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

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Implementing Strategy Through Organizational
Structure, Control, and Culture (contd)

• 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

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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

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Building Blocks of Organizational Structure
(contd)

• Allocating authority and responsibility
• Hierarchy of authority
• chain of command
• Span of control
• number of subordinates/units to supervise
• Tall and flat organizations

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Tall and Flat Structures
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Building Blocks of Organizational Structure
(contd)

• Drawbacks of taller organizations
• Less flexibility and slower response time
• Communication problems
• Distortion of commands
• Expense

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Allocating Authority and Responsibility (contd)

• 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

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Allocating Authority and Responsibility (contd)

• 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

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Building Blocks of Organizational Structure
(contd)

• 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

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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

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Steps in Designing an Effective Control System
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Levels of Organizational Control
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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

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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

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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.

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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

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Functional Structure
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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
• RD innovation to bring products quickly to
  market
• Sales output and behavior controls

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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

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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

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Implementing Strategy in a Single Industry
(contd)

• 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

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Implementing Strategy in a Single Industry
(contd)

• Implementing a broad product lineproduct
  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

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Kodaks Product Structure
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Implementing Strategy in a Single Industry
(contd)

• Increasing responsiveness to customer
  groupsmarket structure
• Group people and functions by customer or market
  segments
• Different managers are responsible for developing
  products for each group of customers

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Market Structure
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Implementing Strategy in a Single Industry
(contd)

• Expanding nationallygeographic structure
• To be responsive to needs of regional customers
• To reduce transportation costs

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Geographic Structure
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Implementing Strategy in a Single Industry
(contd)

• Competing in fast-changing, high-tech
  environmentsproduct-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

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Matrix Structure
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Implementing Strategy in a Single Industry
(contd)

• Competing in fast-changing, high-tech
  environmentsproduct-team and matrix structures
  (contd)
• Product-team structure
• Tasks divided along product or project lines
• Functional specialists are part of permanent
  cross-functional teams

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Product-Team Structure
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Implementing Strategy in a Single Industry
(contd)

• 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

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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

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Restructuring and Reengineering (contd)

• Reengineering
• Fundamental rethinking and radical redesign of
  business processes to achieve dramatic
  improvements
• Focuses not on functions, but on processes (which
  cut across functions)