Strategy Implementation
HCAD 5390
Organizational Structure
Organizational design
Selecting the structure and control
systems that are most strategically
effective for pursuing sustainable
competitive advantage.
The role of structure and control
To coordinate strategy implementation.
To motivate and provide incentives for superior
performance.
The Role of Organizational
Structure
Building blocks of organizational structure
Differentiation in the allocation of people and resources
to create value.
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 hierarchy choices
Flat structures
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 Advantages of
decentralization centralization
Reduced information Easier coordination of
overload on upper organizational activities.
managers. Decisions fitted to broad
Increased motivation and organizational objectives.
accountability throughout Exercise of strong
organization. leadership in crisis.
Fewer managers; lower Faster decision making and
bureaucratic costs. 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:
Changes in corporate strategy lead to
changes in organizational structure
11
Structure Follows Strategy:
New strategy is created
New administrative problems emerge
Economic performance declines
New appropriate structure is invented
Profit returns to its previous levels
12
Stages of corporate development
Simple Structure
Functional Structure
Divisional Structure
Beyond SBUs
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:
Management team
Functional specialization
Delegation decision making
Concentration/specialization in industry
15
Divisional Structure:
Stage III:
Diverse product lines
Decentralized decision making
SBUs
Almost unlimited resources
16
Beyond SBUs:
Stage IV:
Increasing environmental uncertainty
Technological advances
Size & scope of worldwide businesses
Multi-industry competitive strategy
Better educated personnel
17
Functional Structure
Advantages Disadvantages
Task grouping facilitates Functional orientation
specialization and creates communication
productivity. problems.
Better monitoring of work Performance and
processes, reduced costs. profitability measurement
problems.
Greater control over
organizational activities. Location versus function
problems (coordination).
Strategic problems due to
structural (vertical and
horizontal) mismatches.
Functional Structure
Mutlitdivisional Structure
Advantages Disadvantages
Enhanced corporate Establishing the divisional-
control by division corporate authority
Enhanced strategic control relationship
of each SBU in portfolio Distortion of information by
Growth is easier. New units divisions
dont have to be integrated
across organization Competition for resources
Stronger pursuit of internal by divisions
efficiencies. Performance Transfer pricing problems
of individual units is readily between divisions
measurable.
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 employees role conflict
Matrix
Structure
Two-boss employee
Network Structure:
non structure elimination of in-house
business functions
Termed virtual organization
Useful in unstable environments
Need for innovation and quick response
24
Network Structure
Packagers
Designers Suppliers
Corporate
Headquarters
(Broker)
Manufacturers Distributors
Promotion/
Advertising
Agencies
25
Effective implementation requires:
Leadership
Leading people to use their abilities and skills
most effectively and efficiently to achieve
organizational objectives
26
Staffing follows strategy:
Matching the manager to the strategy
Executive type
Executives with a particular mix of skills and
experiences
27
Executive Types:
Dynamic industry expert
Analytical portfolio manager
Cautious profit planner
Turnaround specialist
Professional liquidator
28
Matching Chief Executive Types with
Strategy
Business Strength/Competitive Position
Strong Average Weak
GrowthConcentration Retrenchment
Save Company
Dynamic Industry Expert
Turnaround
High
Specialist
Industry Attractiveness
Stability
Medium
Cautious Profit Planner
Low
GrowthDiversification Retrenchment
Close Company
Analytical Portfolio
Manager Professional
Liquidator
29
Managing corporate culture:
Corporate culture
Affects firms ability to shift its strategic direction
Strong tendency to resist change
Corporate culture should support the strategy
30
Strategy-Culture Compatibility:
Consider the following:
Is the planned strategy compatible with the firms
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?
31
Managing corporate culture:
Communication
Key to effective management of change
Rationale for strategic change should be
communicated to all
32
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
Group-based bonus systems
Profit sharing systems
Employee stock option systems
Organization bonus systems