CHAPTER 5
THE ORGANIZATIONAL CONTEXT
Learning Objectives
After reading this chapter, you should be able to:
Identify different elements of an H&T organization's internal environment.
Discuss the complexity of H&T organizations' internal environment.
Analyze an H&T organization's internal environment.
Evaluate the influence of organizational variables/factors on strategy formulation and implementation,
and provide recommendations to overcome potential challenges in this process.
1
Opening Case
How would you describe the management structure of the case study organization? You should provide
evidence to illustrate your answer.
Identify different control tactics used by the case study organization to ensure that the strategy is properly
implemented.
What is the importance of country managers in developing and implementing strategy in different country
markets?
What are the implications of a tight, centralized management structure?
Different Stakeholders
A stakeholder is any group/individual who can affect or is affected by the achievement of a firm’s
objectives (Freeman, 1984)
To meet the needs of these groups, you need to answer three general questions about stakeholders:
Who are they?
What do they want?
How are they going to try to get it?
2
Organizational Functions
The operations function
The marketing function
The human resources function
The finance function
Information technology/Research and development
Resources, Core Competencies, and Distinctive Competencies
Tangible assets
Intangible assets
Core capabilities refer to those areas that an H&T company does exceedingly well
Distinctive competencies refer to those areas and activities that an H&T company
excels at and is better than its competitors
3
Organizational Structure
A functional structure
A multidivisional structure
A matrix structure
Centralized versus Decentralized Organizational Structure
Centralized structure: Decision making is concentrated at the top, formal checks, controls, discipline,
standardization, and single mindedness
Decentralized structure: Minimal hierarchical levels, free-flow communication
4
Class Discussion
What are the advantages of centralized and decentralized structure?
Levers of Control
Diagnostic Systems
Give an opportunity to the managers to measure outcomes and compare results with preset profit
plans and performance goals
Interactive Systems
Managers use one system interactively, such as the profit planning systems and the intelligence
systems that report information about social, political, and technical business issues
5
Levers of Control
Belief Systems
The explicit set of organizational definitions formally communicated by senior managers through
mission statements and credos that give basic values, purpose, and direction
Boundary Systems
These systems ensure that organizational members’ activities fall within the acceptable domain of
activity. These systems ensure that business activities occur in defined product markets at acceptable
level of risk
Influence of Leadership
Leaders act as the initiators of change
Leaders can facilitate organizational learning
Leaders have the ability to sense dynamic changes
Leaders should possess entrepreneurial skills and attributes
Leaders are creative and good reflectors
Leaders employ a “hands-on” management style
Leaders utilize their creative and flexible thinking
Leaders can take calculated risk
Leaders should undertake the role of creating a “supportive culture”
Leaders should employ persuasive communication, negotiation, and listening skills
6
Organizational Culture
Components of organizational culture (symbols, heroes, rituals, and values)
Organizational culture fulfills four important functions
Conveys a sense of identity for the organizational members
Facilitates the generation of commitment
Enhances social system stability
Serves as a sense-making device that can guide and shape behavior
Determinants of organizational culture
Characteristics of the industry
Founders and key leaders’ values
Company heritage
Elements of Organizational Culture
7
International Risks
Political risks
Refugee crisis
Terrorism and extremism
Political confrontations and wars
Economic barriers
Brexit
Economic recession in Europe
Currency fluctuations
International Risks
Socio-cultural risks
Food-borne illnesses
Cyber Security
Aging population
Environmental risks
Natural disasters
Climate change
Loss of biodiversity
8
Summary
An organization's environment is comprised of different important factors that have influence on and
bearing of its functioning.
It is essential to identify an H&T company's stakeholders, tangible and intangible assets, core
competencies, and distinctive competencies.
When analyzing the internal environment of an H&T organization, it is essential to look at four functional
areas - operations, marketing, finance, and human resources - and to identify strengths and weaknesses.
Organisational structure, culture, and leadership are three important factors that influence both strategy
formation and implementation.
Summary
Organizations need to manage the centralization - decentralization organizational structure continuum.
When understood and successfully managed, organizational culture can lead to innovative business practices
and sustainable sources of competitive advantage.
It is important that we understand the likely impacts of the international environment on an organization's
internal functioning.
When analyzing an H&T organization's internal environment, it is recommended to look at all of the key areas.