strategic management ii

Institutionalizing Strategy

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Organizational structure refers to the formalized arrangement of interaction between and responsibility for the tasks, people, and resources in an organization.

It is a chart often a pyramidal with positions or titles and roles in cascading fashion.

Institutionalizing of strategy refers to the getting work of the business done efficiently and effectively so as to the strategy work.


It is concerned with the best way to organize people and tasks to execute the strategy effectively.

It also denotes the activities that are done inside the organization and activities that are done outside the organization (outsourcing).

It is also concerned with the structure of the organization we want to aspire.

Moreover it refers to the degree of control, coordination, openness, and innovation in implementing a strategy as per the company situation


Types of Organization Structures1. Simple organizational structure2. Functional organizational structure3. Divisional structure4. Strategic business units5. Holding company6. Matrix organizational structure7. Product team structure


Simple organizational structure Structure in which there is an owner and a

few employees and where the arrangement of tasks, responsibilities, and communication is highly informal and accomplished through direct supervision is called simple organizational structure.

The very smallest business enterprise follow this organization structure.

All strategic and operating decisions are made by the owner, or a small owner partner team.


In this structure there will be limited scope, little formalized roles, communication and procedures.

One bad strategic decision could provide threatened to the continuance of the business.

This structure provides high degree of owner’s control.

It also allows rapid response to product/ market shifts and ability to accommodate unique customer demands without major coordination difficulties.

This structure encourage employees to multitasking as well.

This structure usually require multitalented, resourceful owner, good at producing and selling a product or service and at controlling scarce funds.


Functional organizational structure Structure in which the tasks,people,and

technologies necessary to do the work of the business are divided into separate functional group (e.g. marketing,operations,and finance) with increasingly formal procedures for coordinating and integrating their activities to provide the business’s products and services.

Functional structures predominate in firms with a single or narrow products focus.


CEO

Engineering Production Personnel

Finance and

AccountingMarketing


Functional Organizational Structure

Strategic Advantages1. Achieves efficiency through

specialization2. Develop functional expertise3. Differentiates and delegates

day to day operating decisions

4. Retains centralized control of strategic decisions

5. Tightly links structure to strategy by designating key activities as separate units

Strategic Disadvantages1. Promotes narrow specialization and

functional rivalry or conflict2. Creates difficulties in functional

coordination and interfunctional decision making

3. Limits development of general managers

4. Has a strong potential for interfunctional conflict –priority placed on functional areas, not the entire business

5. May cost more to do a function than it does outside the company, unless outsourced.


Divisional Structure When a firm diversifies its product/service

lines, covers broad geographic areas, utilizes unrelated market channels, or begins to serve heterogeneous customer groups, a functional structure rapidly becomes inadequate.

A divisional organizational structure is one in which a set of relatively autonomous units, or divisions, are governed by central corporate office but where each operation division has its own functional specialists who provide products or services different from those of other divisions.


A divisional structure allows corporate management to delegate authority for the strategic management of distinct business entities-the division.

This enables decision making in response to varied competitive environments and corporate management to concentrate on corporate level strategic level decisions.

The division usually is given profit responsibility which facilitates accurate assessment of profit and loss.


Chief Executive Officer

VP Administrative Services VP Operating Support

General Manager Division A/SBU A

General Manager Division B/SBU B

General Manager Division C/SBU C

Manager HR

Manager Account and Finance

Manager R&D

Manager Marketing and Sales

Manager POM

Personnel

Accounting and ControlDivision Planning

Marketing

POM

Personnel

Accounting and Control

Division Planning

Marketing

POM

Divisional Organizational Structure


Advantages and disadvantagesStrategic advantages1. Forces coordination and necessary

down to the appropriate level for rapid response

2. Places strategy development and implementation in closer proximity to the unique environments of the division

3. Frees chief executive officer for broader strategic decision making

4. Sharply focuses accountability for performance

5. Retains functional specialization within each division

6. Provides good training good for strategic managers

7. Increases focus on products, markets, and quick response to change

Strategic disadvantages1. Fosters potentially dysfunctional

competition for corporate level resources

2. Presents the problem of determining how much authority should be given to divisional managers

3. Creates a potential for policy inconsistencies among divisions

4. Presents the problem of distributing corporate overhead costs in a way that is acceptable to division managers with profit responsibility

5. Increases costs incurred through duplication functions

6. Creates difficulty maintaining overall corporate image.


Strategic Business Unit The SBU is an adaptation of the divisional

structure where by various divisions or parts of divisions are grouped together based on some common strategic elements usually linked to distinct product market differences.

For example General Foods has its own SBUs such as Breakfast foods, beverages, main meals, and pet foods etc.

Some firms encounter difficulty in controlling their divisional operations as the diversity,size,and number of these units continues to increase and add the SBU layers in their hierarchy.


Holding Company Structure in which the corporate entity is a

broad collection of often unrelated businesses and divisions such that it (the corporate entity) acts as financial overseer “holding” the ownership interest in the various parts of the company, but has a little direct managerial involvement.

It reduces the cost and one of the drawback of this structure is lack of control over decisions to make timely corrections and adjustments.


Matrix Organization Structure The matrix organizational structure is one in

which functional and staff personnel are assigned to both a basic functional area and to a project or product manager.

It provides dual channels of authority, performance responsibility, evaluation, and control.

The matrix form is intended to make the best use of talented people within a firm by combining the advantages of functional specialization and product project specialization.


The matrix organization structure increases the number of middle managers who exercise general management responsibilities through the project manager role.

It broadens the middle managers exposure to organization wide strategic concerns.

It overcomes a key deficiency of functional organizations while retains the advantages of functional specialization.

It is difficult to implement. Dual chains of command challenge fundamental

organizational problems. Negotiating shared responsibilities the use of

resources and priorities can create misunderstanding or confusion among subordinates.



VPEngineering

VPProduction

VPPurchasing

VP Administration

Administration Coordinator

Purchasing Agent

Production Staff

Engineering Staff

Project Manager A

Project Manager B

Engineering Staff

Production Staff

Purchasing Agent


Production Staff

Project Manager C

Engineering Staff

Purchasing Agent



Advantages and DisadvantagesStrategic advantages

1. Accommodates a wide variety of project oriented business activities

2. Provides good training ground for strategic managers

3. Maximizes efficient use of functional managers

4. Fosters creativity and multiple sources of diversity

5. Give middle management broader exposure to strategic issues

Strategic disadvantages

1. May result is confusion and contradictory policies

2. Necessitates tremendous horizontal and vertical coordination

3. Can reproduce information and excess reporting

4. Can cause neighborhood battles and loss of accountability


Product Team Structure The product team structure seeks to simplify

and increase the focus of resources on a narrow but strategically important product, project, market, customer, or innovation.

The product team structure assigns functional managers and specialists to a new product, project, or process team that is empowered to make major decision about their product.

The team is created at the inception of the new product idea and they stay with it indefinitely if it becomes a viable business.


Instead of being assigned on a temporary basis as in the matrix structure team members are assigned permanently to that team in most cases.

This result in much lower coordination costs and because every function is represented usually reduces the number of management levels above the team level needed to approve team decisions.



Research and Development Engineering Operations Finance Sales and

Marketing

Product or Process Team


Structuring an Effective Organization

Major efforts to improve traditional organizational structures seek to reduce unnecessary control and focus on enhancing core competencies, reducing costs, and opening organizations more fully to outside involvement and influence.


Today and tomorrow, organizational structure reflects an external focus, flexible interaction,interdepedency, and a bottom up approach, just to mention a few characteristics associated with strategy execution and success.

The fundamental trends are driving decisions about effective organizational structures in the twenty first century are

1. Globalization2. Internet3. Speed of decision making4. Match structure with strategy


Globalization The need for global coordination and

innovation is forcing constant experimentation and adjustment to get the right mix of local initiative, information flow, leadership, and corporate culture.

Global firms have to locate operations in numerous countries.

Today it will call on talents and resources wherever they can be found around the globe, just as it now sells worldwide.


For example some MNCs based in the USA,do its software programming in New Delhi, its engineering in Germany, and its manufacturing in Indonesia.

Organizations structures are revolutionary day by day.

Internet The internet gives everyone in the

organization, or working with it, from lowest clerk to the CEO to any supplier or customer, the ability to access a vast array of information-instantaneously, from anywhere.


We can access ideas,requests,instructions from the global in the blink of an eye.

It allows the global enterprise with different functions, offices, and activities spread around the world to be flawlessly connected so that far customers, employees and suppliers can work together in real time.

Speed Technology or digitization means removing human

minds and hands from an organization’s most routine tasks and replacing them with computers and networks.

Digitizing everything from employee benefits to accounts receivable to product design cuts cost, time, and payroll resulting in cost savings and vast improvements in speed.


Match structure with strategy1. A single product firm or single dominant business

firm should employ a functional structure2. A firm in several lines of business that are somehow

related should employ a functional structure3. A firm in several unrelated lines of business should

be organized into strategic business units4. Early achievement of a strategy structure fit can be

a competitive advantage

Here are some efforts which helps to make structuring an effective organization.


1. Redefine the role of corporate headquarters from control to support and coordination

Every multibusiness companies are in trouble regarding resource exploitation, market responsiveness and creativity.

Rigorous financial controls and reporting enable cost efficiency, resource deployment and autonomy across different units.

Flexible controls are conducive to responsiveness, and innovation

The creation of new resources and capabilities will generate future competitive advantage.


Aggressive portfolio management provides maximum shareholder value through independent businesses.

It needs cross coordination and recognition between these business interdependencies

2. Balance the demands for control/differentiation with the need for coordination/integration

Specialization of work and effort allows a unit to develop greater expertise, focus and efficiency.


Organizations strategy depends on dividing different activities within the firm into logical, common groupings- sales,operations,administration, or geography-so that each set of activities can be done most effectively.

Control of sets of actitivities is at a premium. Dividing each set of activities is an important

structural decision. The seperate functional activities has to be

coordinated and integrated.


3. Restructuring to emphasize and support strategically critical activities

Restructuring is redesigning an organizational structure with the intent of emphasizing and enabling activities most critical to the firm’s strategy to function at maximum effectiveness.

At the heart of the restructuring trend is the notion that some activities within a business’s value chain are more critical to the success of the business’s strategy than others.

For example Wal-Mart organizational structure is designed to ensure that its impressive logistics and purchasing competitive advantages operate flawlessly.


4. Reengineer strategic business processes A popular method by which organizations worldwide

undergo restructuring efforts to remain competitive. It involves fundamental rethinking and radical

redesigning of a business process so that a company can best create value for customer by eliminating barriers that create distance between employees and customers.

It reduces fragmentation by crossing traditional departmental lines and reducing overhead to compress formerly separate steps and tasks that are strategically intertwined in the process of meeting customer needs.


Critical areas under BPR Scratch the flowchart of business with value

chain activities Streamline the performance (eliminate

unnecessary tasks and steps) Business process automation/introduction of

new technologies Focus on strategically critical activities/

benchmak with top leaders Consider outsourcing for non critical activities design a new organization structure and

arrange tasks, people and resources


5. Downsize and self manage :force decision to operating level

Eliminate the number of employees, particularly middle management in a company.

Allow work groups or work teams to supervise and administer their work as a group or team without a direct supervisor exercising the supervisory role.

The team set parameters of their work, make decisions about work related matters, and perform most of the managerial functions previously done by their direct supervisor.


6. Allow multiple structures to operate simultaneously within the organization to accommodate products, geography, innovation and customers

Follow matrix and product team structure7. Take advantage of being a virtual organization This organization structure is primarily formed in a

temporary manner. It is defined as a network of independent companies-

suppliers, customers, subcontractors or even competitors.

This network links via information technology to share skills, access to markets, and costs

Outsourcing and strategic alliances are two major areas of virtual organization.


GM

Fuji

Saab

Daewoo

Toyota

Isuzu

New United Motor

Manufacturing

SuzukiFiat

Supplies small carsSupplies small cars,

trucks and parts

Joint

Prod

uction

Makes a car

Supplies small cars

Makes van

Collaboration

on technology

and

components

Makes

components

Strategic Alliances


DigitalAbundant

ResourcesPhysical Scarce

Supplier DrivenMass Production

Valu

e Cr

eatio

nCustomer DrivenService Enhanced Customization

Industrial Age CorporationVerticalIntegrated

Virtual Corporation extended

Internetworked enterprise

B-Web8. Web based organization


9. Remove structural barriers and boundryless organization

10.Knowledge centric11.Boundless12.Learning organization


Organizational Culture Organizational culture is the set of important

assumptions often unstated that members of an organization share in common.

It is intangible in nature. It provides the basic theme as well as

meaning,direction,and the basis for function. The organizations shared norms and values or

beliefs can influence organizations members opinions and actions within that firm.


These values aware the organizational members and guide to appropriate behavior in the organization.

If the actions of the members are according to the organizational values the employees get satisfied.

The organizations assumptions become shared assumptions through internalization among an organization's individual members.


Techniques to manage culture Leaders typically attempt to manage and create

distinct cultures through a variety of ways Some of the common ways are as follows.1. Emphasize key themes or dominant values2. Encourage dissemination of stories and legends

about core values3. Institutionalize practices that systematically

reinforce desired beliefs and values4. Adapt some very common themes in their own

unique ways5. Managing organizational culture in a global

organization6. Managing the strategy culture relationship


Emphasize key themes or dominant values Quality,differentiation,cost advantage, and

speed are four key success of competitive advantage

Key theme or dominant values may centre around wording in an advertisement.

They are often found in internal company communications.

This try to address “who we are”. For example Xerox-respect for employees or

customer,P&G-quality etc.


Encourage dissemination of stories and legends about core values

Companies with strong cultures are enthusiastic collectors and tellers of stories and legends/traditions in support of basic beliefs.

Institutionalize practices that systematically reinforce desired beliefs and values

Companies with strong cultures are clear on what their beliefs and values need to be and take the process of shaping those beliefs and values very seriously.


Adapt some very common themes in their own unique ways

The most typical beliefs that shape organizational culture include

1. A belief in being the best2. A belief in superior quality and services3. A belief in the importance of people as

individuals and a faith in their ability to make a strong contribution.

4. A belief in the importance of the details of execution, the nuts and bolts of doing the job well.


5. A belief that customers should (supremacy) supreme

6. A belief in inspiring people to do their best, whatever their ability.

7. A belief in the importance of informal communication

8. A belief that growth and profits are essential to a company’s well being.


Managing organizational culture in a global organization

The global organizational culture must recognize cultural diversity in the areas of

a. Social normsb. Values and attitudec. Religiond. Education etc.


HighLow

Many

Few

1 4

2 3

Link changes to basic mission and fundamental organizational norms

Synergistic focus on reinforcing culture

Reformulate strategy or prepare carefully for long term, difficult cultural change

Manage around the culture

Potential compatibility of changes with existing culture

Changes in key organizational factors that are necessary to implement the new strategy

Managing the strategy culture relationship


Link to mission A firm in cell 1 requires several changes in

structure,systems,managerial assignments, operating procedures or other fundamental aspects of the firm.

The following considerations are appropriatea. Key changes should be visible linked to the basic

company missionb. Emphasis should be placed on the use of existing

personnelc. Care should be taken if adjustments in the reward

system are neededd. Key attention should be paid to the changes that are

least compatible with the current culture


Maximize synergy A firm in cell 2 needs only a few

organizational changes to implement its new strategy, and those changes are potentially quite compatible with its current culture

The firm can apply two broad themesa. Take advantage of the situation to reinforce

and solidify the current cultureb. Use this time of relative stability to remove

organizational road blocks to the desired culture


Manage around the culture A firm in cell 3 must make a few major organizational

changes to implement its new strategy But these changes are potentially inconsistent with the

firm’s current organizational culture. A firm can manage around the culture in various ways For examplea. A separate firm or divisionb. Use task forcesc. Teamsd. Program coordinatorse. Subcontractf. Bring in an outsiderg. Sell out


Reformulate the strategy or culture A firm in cell 4 faces the most difficult

challenge in managing the strategy culture relationship

A firm in this situation faces the complex, expensive and often long term challenge of changing its culture.


Organizational Leadership


Organizational leadership is concerned with providing the direction to the followers.

It is cope with change It guides the organization to deal with

constant change It clarifies the strategic intent and shape the

culture to fit organizational opportunities and challenges change affords.

It identifies and supplies the organization with operating managers prepared to provide operational leadership and vision.


Strategic Leadership :Acceptance Change Change has become an integral part of what

leaders and managers deal with daily. The leadership challenge is to galvanize

commitment among people within organization as well as outside stakeholders.

Leaders galvanize/stimulate commitment to embrace change through three interrelated activities.

1. Clarifying strategic intent2. Building an organization3. Shaping organizational culture


Clarifying strategic intent Leaders help stakeholders accept change by setting

clear vision where the organization needs to head.Building an organization Leaders spend considerable time shaping and

refining their organizational structure and making it function effectively to accomplish strategic intent.

All managers adapt structures, create teams, implement systems, and otherwise generate ways to coordinate,integrate,and share information about what their organization is doing and might do.


Shaping organization culture Leaders know well that the values and beliefs

shared throughout their organization will shape how the work of the organization is done.

Leaders use reward systems,symbols,and structure among other means to shape the organization culture.


Recruiting and developing talented operational leadership

Accelerated pace and complexity of business will increase pressure on corporations to push authority down to their organization.

Every line manager will have to exercise leadership’s prerogatives to an extent unthinkable a generation earlier.

Every line managers are global managers, change agents,strategists,motivators,strategic decision makers,innovators,and collaborators if the business is to survive and prosper.


The required competencies the managers should have possess

The leadership needs of organizationsThe ability to:Build confidenceBuild enthusiasmCooperativeDeliver resultsForm networksInfluence othersUse information

The required competencies of business leadersBuild literacyCreativityCross cultural effectivenessEmpathy/understandingFlexibilityProactivelyProblem solvingRelation buildingTeamworkvision


Building Resource Strengths and Organizational Capabilities


Implementing and executing strategy is an operation driven activity revolving around the management of people and business processes.

The managerial emphasis is on converting strategic plans into actions and good results.

When the company achieves the targeted strategic and financial performance and shows good progress in making its strategic vision a reality.

Shortfalls in performance signal weak strategy, weak execution, or both.


A good assessment of strategy execution depends upon the task we do differently and better to carryout the strategy successfully.

Executing strategy is a job for a company’s whole management team.

Top level managers have to rely on the active support and cooperation of middle and lower managers to push strategy changes into functional and operating units.

The organization actually operates in accordance with the strategy on a daily basis.


The following are the managerial tasks used by the organization to good strategy execution

1. Building an organization with the competencies,capabilities,and resource strengths to execute strategy successfully.

2. Organizing sufficient money and people behind the driver for strategy execution.

3. Instituting policies and procedures that facilitate rather than hamper strategy execution

4. Adopting best practices and pushing for continuous improvement in how value chain activities are performed.

5. Installing information and operating systems that enable company personnel to carry out their strategic roles proficiently.


6. Tying rewards directly to the achievement of strategic and financial targets and to good strategy execution

7. Shaping the work environment and corporate culture to fit the strategy

8. Exercising strong leadership to drive execution forward, keep improving on the details of execution, and achieve operating excellence as rapidly as feasible.


Building an organization capable of good strategy execution entails three types of organization building actions:

1. Staffing the organization Assembling a talented, can do management

team, and recruiting and retaining employees with the needed experience, technical skills, and intellectual capital.

2. Building core competencies and competitive capabilities

That will enable good strategy execution and update the external environment change


3. Structuring the organization and work effort Organization value chain activities and business

processes and deciding how much decision making authority to push down to lower level managers and front line employees.

Building core competencies and competitive capabilities involves these stages

1. Developing the ability to do something 2. Coordinating group efforts to learn how to

perform the activity consistently well at an acceptable cost

3. continue to polish and refine the organization’s know how.


Structuring the organization and organizing the work effort in a strategy supportive fashion

1. Deciding which value chain activities to perform internally and externally

2. Making internally performed strategy critical activities

3. How much authority to centralize and how much to decentralize

4. Providing for internal cross unit collaboration5. Coordination and collaborating with strategic

allies and stakeholders


Managing the internal organization to promote better

strategy execution


Managers have to identify the resource requirements and budget to suitable to the strategy implementation and execution

Managers have to review the existing policies and operating procedures proactively to the new strategy execution.

Newly or freshly revised policies and operating procedures aids the task execution.

These procedures provide top down guidance to operating managers.

Enforcing consistency in how particular strategy critical activities are performed inside the organization.

Promote the creation of new work climate and corporate culture that promotes good strategy execution


Benchmarking,TQM and BPR will help to improve efficiency, lower costs, better product quality, and greater customer satisfaction.

These initiatives are important tools for learning how to execute a strategy more proficiently.


Installing support system and supportive reward system


The information system will support to the execution process

Strategy supportive motivational practices and reward systems are powerful management tools for gaining employee commitment

The monetary and non monetary reward system also helps to execute the strategy

For incentive compensation system to work well

1. The monetary payoff should be a major percentage of the compensation package


2. The use of incentives should expand to all managers and workers

3. The system should be administered with care and fairness

4. The incentive should be linked to performance targets spelled out in the strategic plan

5. Each individual performance targets should involve outcomes the person can personally affect

6. Rewards should promptly follow the determination of good performance

7. Monetary rewards should be supplemented with liberal use of nonmonetary rewards


The End


Crimson College of TechnologyLevel: Bachelor Year: 2013Programme: BBA Full Marks: 50Course: Strategic Management II Pass Marks: 23

Time: 2 hrsCandidates are required to give their answers in their own words as far as practicable.The figures in the margin indicate full marks.Attempt all the questionsa) The success of any firms depends on the use of formal strategic planning process. Justify 7b) Suppose you are in charge of Bhatbhateni Supermarket. Since its establishment, you are involved in developing the strategy for the products of the company. Now the BOD has passed the decision to open branch outlets in foreign countries including SAARC region. You are asked to develop strategy relating with home appliances such as washing machines to launch in these areas. Which strategy you would like to suggest multicountry or global? 7a) How does environmental analysis at the domestic level differ from global analysis? 7b) Briefly describe the behavioral factors that would affect strategic analysis and choice decisions in organization. 7a) Why are short term objectives needed when long term objectives are already available? 7b) Weak leadership can destroy the soundest strategy; forceful execution of even a poor plan can often bring success. Elucidate 5Write short notes (any two) 5*2=10Networking strategiesPoliciesThe patching approach

strategic management ii

Documents

compuon structure

institutionalizing of

strategy work

organization outsourcing

arrangement of tasks

functional riv

functional structures

degree of control