Chapter 10 Notes (Week 11 - Strategy in Action)

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Learning Outcomes

Analyse the main structural types of organisations in terms of their strengths and weaknesses

Identify key issues in designing organisational control systems (such as planning, performance targeting, and cultural systems)

Recognise how three strands of strategy, structure, and systems should reinforce each other as organisational configurations

Identify and assess different change leadership roles and styles

Identify different types of strategic change programmes

Undertake a forcefield analysis to identify levers for strategic change

Key Terms

Balanced scorecards

Configuration

Cultural systems

Forcefield analysis

Functional structure

Leadership

Maxtrix structure

McKinsey 7-S Framework [NOT TESTED]

Multidivisional structure

Organisational ambidexterity

Performance targets

Planning systems

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10.2 Structural Types

Identifies 'level's and roles in an organisation and who is responsible for what.

Functional structure

Multidivisional; and

Matrix

10.2.1 Functional Structure

Divides responsibilities according to the organisation's primary specialist roles such as production, research, and sales.

Usually relevant for small/start-up firms; and

Larger businesses that have retained narrow (instead of diverse) product ranges

Advantages:

-Senior managers have direct hands-on involvement

-Greater operational control from the top

-Clear definition of roles and tasks (increases accountability)

-Concentrations of expertise = fosters knowledge development

Disadvantages:

-Senior managers focus too much on narrow functional activities rather than firm as a whole

-May result = inflexibility to change

-"Functional Silos" --> Inward-looking makes integrating knowledge difficult

-Not good at product/geographical diversity (centered around functions)

10.2.2 The Divisional Structure

Built up of separate divisions on the basis of products, services, or geographical areas.

Often an attempt at dealing with diversity

e.g. Service departments: recreation, social services, education

Advantages:

-Managers have greater accountability

-Possible to control from corporate center

-Flexibility = add, close, merge divisions

-Allows geographical --> develop specialised knowledge about a certain market/technology

Disadvantages:

-De Facto: self-sufficient, duplicating functions and costs of corporate center (split these, de-merge)

-Difficulty in cooperation and knowledge-sharing

-Fragmented expertise

-Divisional performance targets = poor incentives to collaborate

-Autonomy: pursue own strategies, regardless of needs of parent, e.g. joint ventures and partnerships

10.2.3. The Matrix Structure

Combines different structural dimensions at the same time, e.g. product divisions and geographical territories, or product divisions and functional specialisms.

Staff typically report to two managers (instead of one)

Attractive to firms operating globally (mix between local and global dimensions)

Advantages:

-Promote knowledge-sharing

-Allows integration across boundaries

-Helpful in applying certain knowledge to different markets/geographical segments

-Flexible: allow different dimensions of firm to be mixed together

Disadvantages:

-Longer to reach decisions (multiple cross-over of authority)

-Hard to control

-Unclear job and task responsibilities

-Unclear cost and profit responsibilities

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10.3 Systems

10.3.1 Planning Systems

Plan and control the allocation of resources and monitor their utilisation.

Focus on direct control of inputs, e.g. financial, human, long-term investments

1. Strategic Planning Style

Combines strong planning influence on strategic direction from corporate center + relaxed accountability for business units

If center starts direction, unit managers should not be held strictly accountable

Center focuses on inputs in terms of allocating resources in order to achieve the strategic plan with a high degree of control of execution

Too rigid to adapt to changing circumstances, too top-down

2. Financial Control Style

Very little central planning

Units develop their own strategies (after negotiation) and are held strictly accountable for results

Control is against financial outputs (like performance targeting)

Autonomy for unit managers

For a mature, non-capital-intensive business (small, frequent, understood)

3. Strategic Control Style

In the middle of the two above;

Consensual development of strategic plans + moderate levels of accountability for each

Center typically acts as a coach

Often relies on strong cultural systems to foster trust and mutual understanding

Associated with synergy manager + parental developer

For large, risky, long-range investments

10.3.2 Cultural Systems

Firms typically have cultures which reflect basic assumptions and beliefs held by members and define taken-for-granted ways of doing things.

May be a means of managerial control (indirect)

But not fully under formal management control!

1. Recruitment

Attempt cultural conformity by selecting staff who will 'fit' with the strategy.

2. Socialisation

Employee behaviours shaped by social processes.

- Usually starts with integration of new staff via training

3. Reward

Encourage appropriate behaviour through pay, promotion, or symbolic processes.

10.3.3 Performance Targeting Systems

Focus on the OUTPUTS of an organisation (or part of it), such as product quality, revenues, or profits.

Often known as KPIs (a way to judge the performance of the firms

Large Businesses - centers can choose targets to control their units without getting involved in how they achieve them, i.e. financial control style

Regulated Markets - govt-appointed regulators increasingly exercise control through agreed KPIs to insure competitive performance, e.g. service or quality levels

Public Services - govts attempting to move control processes to outputs (quality of service) and outcomes (patient mortality rates)

Historically, control of resource inputs was dominant approach

But what are the problems with targets?

Inappropriate measures of performance; managers often prefer indicators that are easily measured.

-Results in = focus on required factors, but not those needed for long-term success

Inappropriate target levels; managers may give superiors pessimistic forecasts so undemanding levels of targets can easily be met (bonuses).

-Superiors may over-compensate = excessively demanding targets

-May encourage opportunism

Excessive internal competition; result of targets focused on individual or sub-unit performance.

-means no incentive to collaborate with other units/individuals

-means reduction in exchange of information

How to deal with these problems?

Balanced Scorecards: set performance targets according to a range of perspectives, not only financial, and typically include FOUR perspectives.

Financial (profit margins, cash flow)

Customer (delivery times, service quality)

Internal (relates to operational excellence)

Innovation and Learning (activities important in the long run)

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10.4 McKinsey 7-S Framework

[NOT TESTED ON THIS]

Configuration: the set of organisational design elements that interlink in order to support the intended strategy.

Highlights the importance of FIT between strategy, structure, systems, staff, style, skills, and superordinate goals.

Style - leadership style of top managers (must fit the rest of the firm strategy)

Staff - kinds of people in the firm and how they're developed, e.g. recruitment, socialisation, and reward.

Does the organisation have the right people to match?

Skills - capabilities in general.

Raises issues with how these skills are embedded in and captured by organisation as a whole

Superordinate - overarching goals or purpose of the firm as a whole, i.e. mission, vision, objectives

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10.5 Leading Strategic Change

10.5.1 Strategic Leadership Roles

Leading strategic change involves managers at different levels in a firm.

Top Managers

Envisioning future strategy - must be clear and compelling, and communicated clearly

Aligning the firm to deliver strategy - making sure people are committed and motivated

Embodying change - top managers are seen by others

Middle Managers

Seen as implementors of top management strategic plans

Ensure resources are controlled and allocated appropriately

Monitor performance

Advisers to top management - they're the closest to indications of market or technological changes

Making sense of strategy - explanations of strategies in context will be left to middle managers

Reinterpretation and adjustment of strategic responses - day to day contact with such aspects of the firm as they unfold

Local leadership of change - local role of embodying change

10.5.2 Leadership Styles

Categorised in TWO ways:

1. Transformational (characteristic) leaders

Emphasis on building a vision for firm and energising people to achieve it

Beneficial on employee motivation and performance

2. Transactional leaders

Focus on 'hard' levers of change, e.g. systems and controlling activities

More emphasis on changing structures, setting targets, financial incentives, project management, and monitoring of performance

Further categorised into FOUR different styles of leadership:

1. Persuasion of the need for and means of strategic change

Convince employees that change is imperative

Frame changes in a way relevant to each department

Ensure ongoing communication

Reinforce behavioural guidelines in line with change, and reward achievements of change goals

***Time consuming + Facts may not convince others of need for change + support without change :(

2. Collaboration as involvement of those affected in setting the change ahead

e.g. Identification of strategic issues, decision making process, setting of priorities, planning of change, drawing of action plans

Widespread involvement of employees

Can foster a more positive attitude to change

Employees may see the constraints faced by the firm as less significant

May feel more ownership of a change/decision

***Time consuming + little control over decisions made :(

3. Participation as delegating elements of the change process while retaining overall responsibility for that change

e.g. ideas generation, data collection, detailed planning

Teams may not have full responsibility, but become involved in it

Involves people in partial implementation, builds commitment

Easier to shape decisions

***Can be seen as manipulation :(

4. Direction as use of authority to direct change

Change leaders make the most decisions about what to change and how

Top-down: solutions and means of change are 'told or sold'

Useful when a need for FAST CHANGE or when facing a CRISIS

***Less support, change may be resisted :(

10.5.3 Types of Strategic Change

FOUR generic types of strategy change.

Concerned with extent, and nature and urgency of change

Extent - can change occur in line with the current business model, and within the current culture as a realignment of strategy?

Or is it transformational

Best to be incremental --> allows time to build on skills, routines, and beliefs to change direction fast

1. Adaptation

Firms often build on prior strategy (rather than fundamentally change it).

Gradual change, building on and amending

e.g. product design changes, methods of production changes, launches in new products, related diversification

2. Reconstruction: Turnaround

May be rapid and involve a lot of upheaval, but doesn't change fundamental business model.

Could be need for major structural changes or cost-cutting programmes

Turnaround - emphasis on speed of change and rapid cost reduction or revenue generation

Usually used where a directive approach to change is required

The Main Elements?

Crisis Stabilisation - focus on cost reduction or revenue increase (and reducing direct operational costs and on productivity gains)

Management Changes

Gaining Stakeholder Support

Clarifying Target Market + Core Products

3. Revolution

The need for FAST change, but also CULTURAL change.

Need for change not as evident as in reconstruction

Often when people are attached to P&S/processes that customers no longer value; years of decline

The Main Elements?

Clear Strategic Direction - articulation of a clear strategy

Top Management Changes - replacement of top management is common as they are embedded in past culture (new ones may bring new perspectives)

Multiple Styles of Change Management - different styles may be used together in order to implement change, i.e. directive, persuading, participation

Culture Change - may be possible to work with elements of existing culture that can be developed

Monitoring Change - set and monitor unambiguous targets that people have to achieve

4. Evolution

Change that results in incremental transformation.

Organisational Ambidexterity - both exploitation of existing capabilities and search for new ones (to help with transformational change)

Structural ambidexterity: maintain core business but create separate units for exploration

Diversity (instead of conformity): contradictory behaviours may be beneficial

Role of leadership: leaders need to encourage/value different behaviours

Tight and loose systems: balance between 'tight' (existing capabilities) and 'loose' (exploring)

Stages of Strategic Change - may be over many years

Stages of transition: identify interim conditions before proceeding with major moves

Irreversible changes: identify those which will have a long term impact, difficult to reverse

Sustained top management commitment: people must observe consistency from top management or else momentum falters

Winning hearts and minds: use persuasion and participation to allow people to see the need for change

10.5.4 Identifying Levers for Change: Forcefield Analysis

Provides a view of forces at work in a firm that act to prevent or facilitate change.

Map activity systems - what has underpinned past success?

Stakeholder mapping - provide insight into power of stakeholders to promote or resist change

The cultural web - understand symbolic, routinised, structural, systematic factors taken for granted